<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 16, 1997
REGISTRATION NO. 333-33685
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ROCK OF AGES CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3281 030153200
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
772 GRANITEVILLE ROAD
GRANITEVILLE, VERMONT 05654
(802) 476-3121
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
KURT M. SWENSON
PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD OF DIRECTORS
ROCK OF AGES CORPORATION
772 GRANITEVILLE ROAD
GRANITEVILLE, VERMONT 05654
(802) 476-3121
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
Copies of Communications to:
<TABLE>
<S> <C>
KENT A. COIT, ESQ. JORGE L. FREELAND, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP GREENBERG TRAURIG HOFFMAN LIPOFF ROSEN & QUENTEL,
ONE BEACON STREET P.A.
BOSTON, MASSACHUSETTS 02108 1221 BRICKELL AVENUE
(617) 573-4800 MIAMI, FLORIDA 33131
(617) 573-4822 (FAX) (305) 579-0500
(305) 579-0717 (FAX)
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 16, 1997
PROSPECTUS
[ROCK OF AGES LOGO]
2,900,000 SHARES
ROCK OF AGES CORPORATION
CLASS A COMMON STOCK
------------------------
Of the 2,900,000 shares of Class A Common Stock, par value $.01 per share,
of Rock of Ages Corporation, a Delaware corporation ("Rock of Ages" or the
"Company"), offered hereby, 2,624,518 shares are being sold by the Company and
275,482 shares are being sold by certain stockholders of the Company (the
"Selling Stockholders"). The Company will not receive any of the proceeds from
the sale of Class A Common Stock by the Selling Stockholders. See "Principal and
Selling Stockholders."
The capital stock of the Company consists of Class A Common Stock and Class
B Common Stock (collectively, the "Common Stock"). The two classes are
substantially identical, except that the Class A Common Stock is entitled to one
vote per share and the Class B Common Stock is entitled to ten votes per share
on all matters, including the election of directors, and the Class B Common
Stock is convertible into Class A Common Stock and converts automatically upon a
transfer to any person other than a permitted transferee. Upon consummation of
this offering, holders of Class B Common Stock will hold approximately 92% of
the voting power of the outstanding shares of Common Stock. See "Description of
Capital Stock."
Prior to this offering, there has been no public market for the Class A
Common Stock. It is currently estimated that the initial public offering price
of the Class A Common Stock will be between $16.00 and $18.00 per share. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price of the Class A Common Stock. Application has
been made for listing of the Class A Common Stock on the Nasdaq National Market
under the symbol "ROAC."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
===========================================================================================================
PROCEEDS TO
PROCEEDS TO SELLING
PRICE TO PUBLIC UNDERWRITING COMPANY(2) STOCKHOLDERS
DISCOUNTS AND
COMMISSIONS(1)
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Per Share.............................. $ $ $ $
- -----------------------------------------------------------------------------------------------------------
Total(3)............................... $ $ $ $
===========================================================================================================
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses estimated at $1.5 million, which are payable by
the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
435,000 additional shares of Class A Common Stock on the same terms and
conditions as the Class A Common Stock offered hereby solely to cover
overallotments, if any. If the option is exercised in full, the total Price
to Public, total Underwriting Discounts and Commissions and total Proceeds
to Company will be $ , $ and $ , respectively. See
"Underwriting."
------------------------
The shares of Class A Common Stock are offered by the Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
other conditions, including the right of the Underwriters to withdraw, cancel,
modify or reject any order in whole or in part. It is expected that delivery of
the shares will be made on or about , 1997 at the offices of
Raymond James & Associates, Inc., 880 Carillon Parkway, St. Petersburg, Florida.
RAYMOND JAMES & ASSOCIATES, INC.
The date of this Prospectus is , 1997
<PAGE> 3
[THE CRAFTSMAN PAINTING BY NORMAN ROCKWELL]
[PICTURES OF MEMORIALS AND THE
MEMORIAL MANUFACTURING PROCESS]
"THE CRAFTSMAN" BY NORMAN ROCKWELL
COMMISSIONED BY THE COMPANY IN 1957 AND ON DISPLAY AT THE COMPANY'S HEADQUARTERS
IN GRANITEVILLE, VERMONT
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING BIDS AND PURCHASES,
SYNDICATE SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and historical and pro forma financial statements and notes thereto
appearing elsewhere in this Prospectus. Unless otherwise indicated, the
information in this Prospectus assumes that (i) the Underwriters' over-allotment
option has not been exercised and (ii) the Reorganization and the Acquisitions
(as such terms are defined herein) have occurred. As used in this Prospectus,
unless the context indicates otherwise, the term the "Company" or "Rock of Ages"
refers to Rock of Ages Corporation after giving effect to the Reorganization and
the Acquisitions, and its consolidated subsidiaries and their respective
predecessors.
THE COMPANY
Rock of Ages, founded in 1885, is an integrated granite quarrier,
manufacturer and distributor whose principal product is granite memorials used
primarily in cemeteries. The Company believes that it is the largest quarrier,
manufacturer and distributor of finished granite memorials and granite blocks
for memorial use in North America, based on revenues. The Company owns and
operates 13 active quarry properties and 13 manufacturing and sawing facilities
in North America, principally in Vermont, Georgia and the Province of Quebec.
The Company markets and distributes its memorials on a wholesale basis to
approximately 2,124 independent memorial retailers in the United States and
Canada, including approximately 495 independent authorized Rock of Ages
retailers that are the primary outlet for the Company's branded memorials. The
Company recently entered into a definitive agreement to acquire one of the
largest of its authorized independent retailers, which will provide the Company
with 17 owned retail outlets and mark the Company's first significant entry into
retailing. The Company's memorials are marketed under the names Rock of Ages
Sealmark and Colorcraft, as well as several private labels. The Company believes
the Rock of Ages trademark is one of the oldest and best known brand names in
the granite memorialization industry.
THE DEATH CARE INDUSTRY AND GRANITE MEMORIALIZATION
The death care industry has traditionally been comprised of three principal
segments: (i) ceremony and tribute, generally in the form of a funeral or
memorial service; (ii) disposition of remains, either through burial or
cremation; and (iii) memorialization, generally through monuments, markers or
inscriptions. A majority of death care industry operators consist of small,
family-owned businesses. The International Cemetery and Funeral Association
estimates that in the United States there are approximately 23,000 active
cemeteries, 9,500 of which are commercial (as opposed to religious, family,
fraternal, military or municipal) cemeteries. At the end of 1996, publicly held
death care companies ("consolidators") owned less than 5% of such active
cemeteries, approximately 890, or less than 10%, of such commercial cemeteries
and less than 12% of the estimated 22,800 funeral homes in the United States.
The death care industry has certain attractive fundamental characteristics,
including highly fragmented ownership, significant barriers to entry created by
local heritage, community presence and tradition, and stable, predictable
demand. Generally, the granite memorialization industry shares certain of these
characteristics. However, the granite memorialization industry and its principal
areas (i.e., quarrying, manufacturing and retailing) have certain distinguishing
characteristics that the Company believes create attractive opportunities. These
characteristics include: (i) different times and points of sale than most other
death care products or services, with sales of granite memorials traditionally
taking place some time after the funeral service and at an independent retailer
rather than at a funeral home or cemetery; (ii) fragmented groups of both
manufacturers of granite memorials (approximately 140 mostly family-owned firms)
and independent memorial retailers (according to Monument Builders of North
America, approximately 3,000 of such retailers are located outside funeral homes
and cemeteries) in North America; (iii) concentration of memorial grade granite
deposits and granite memorial manufacturers in limited geographic areas in North
America; (iv) significant barriers to entry to quarrying memorial grade granite,
including the limited number of known commercially exploitable memorial grade
granite deposits, high capital costs and stringent environmental and other
permitting requirements; (v) significant barriers to entry to the manufacturing
of granite memorials, including the high capital cost to establish and operate a
memorial grade granite manufacturing facility and
- --------------------------------------------------------------------------------
3
<PAGE> 5
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the difficulty of attracting the requisite highly skilled work force; and (vi)
the personalization, permanence and visibility of upright granite memorials,
which distinguish them from most other death care products and services.
The Company believes the U.S. granite memorialization industry, excluding
communal interments such as community mausoleums and columbariums, had in excess
of $1.0 billion in retail sales in 1996. In 1996, on a pro forma basis giving
effect to the Acquisitions as if they occurred on January 1, 1996, wholesale
sales of the Company's granite memorials were approximately $41.4 million, which
the Company believes accounted for approximately 12% of total wholesale sales of
granite memorials in North America.
BUSINESS STRATEGY
Rock of Ages believes it is well-positioned to capitalize on the industry
characteristics described above, and seeks to establish a dominant position in
the granite memorialization industry. The Company intends both to improve the
efficiency of its existing operations and to expand its business significantly.
The principal elements of the Company's operating and growth strategies are
summarized below.
Operating Strategy. The Company pursues an operating strategy that
includes the following key elements:
- Providing, primarily through its own quarrying and manufacturing
operations, a complete line of high quality granite memorials covering
all price points and major color varieties. The Company believes it is
the only industry participant with both quarrying and manufacturing
operations in three of the four principal granite memorial producing
regions of North America.
- Enhancing operational efficiencies through the continued integration of
acquired quarriers and manufacturers and the rationalization of its sales
and distribution efforts.
- Increasing advertising and promotion of the Rock of Ages brands,
including the flagship Rock of Ages Sealmark and Colorcraft brands, in
order to heighten consumer awareness and increase sales of the Company's
products.
Growth Strategy. The Company seeks to expand the scope and profitability
of its operations by implementing a growth strategy that includes forward
vertical integration into retailing, thereby enabling the Company to move closer
to the ultimate customer. The principal elements of this strategy include the
following:
- Acquiring independent granite memorial retailers in selected markets in
order to develop an integrated network of owned Rock of Ages retailers
and thereby capture the higher margins that have historically existed at
the retail level.
- Increasing sales to independent retailers that are current customers and
expanding its independent retailer customer base. During the last two
years, principally through acquisitions of quarriers and manufacturers,
the Company has increased the number of independent retailers to which it
sells its products from approximately 495 in 1995 to approximately 2,124
in 1997.
- Pursuing strategic alliances with funeral home and cemetery owners,
including consolidators, to supply granite memorials to or through them,
in order to increase both pre-need and at-need sales of granite
memorials.
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4
<PAGE> 6
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RECENT AND CONCURRENT ACQUISITIONS
The Company's primary means of implementing its growth strategy to date has
been through acquisitions, beginning with the acquisition on December 31, 1995
of Lawson Granite Company and Anderson-Friberg Company, each based in Barre,
Vermont. These acquisitions helped expand the Company's manufacturing capacity
and distribution base, while also broadening its granite memorial product line
to include more non-branded granite memorials at lower price points than the
Company's then-existing product line. The Company has recently taken further
steps to implement its growth strategy by acquiring one, and entering into a
definitive agreement to acquire another, significant granite quarrier and
memorial manufacturer in Elberton, Georgia, which is the largest of the four
principal granite producing regions in North America. The Company has also
entered into a definitive agreement to acquire a major memorial retailer that
the Company believes is one of the largest independent memorial retailers in the
United States. The Company believes that these acquisitions and the continued
implementation of the other elements of its operating and growth strategies will
enable it to: (i) expand overall industry sales of granite memorials, which
heretofore have been actively marketed to consumers primarily only on an at-need
basis and in a limited manner; (ii) increase its share of the granite memorial
market by offering a complete product line with strong brand names through
distribution channels that more directly reach the consumer; and (iii) increase
both its relative and total profitability both by enhancing operational
efficiencies and by capturing some of the higher margins that have historically
existed at the retail level. The Company's recent and pending acquisitions are
briefly described below.
Keystone. In June 1997, the Company acquired the successor to Keystone
Memorials, Inc. ("Keystone"), the largest granite memorial manufacturer in
Elberton, Georgia (the "Keystone Acquisition"), which included Keystone's 50%
ownership interest in (i) Southern Mausoleums, Inc., a manufacturer of granite
mausoleums in Elberton, Georgia ("SMI"); and (ii) three granite quarrying
companies operating six granite quarries located in Georgia, Pennsylvania, North
Carolina, South Carolina and Oklahoma (collectively, the "Quarry Companies"). In
connection with the Keystone Acquisition, the Company issued 263,441 shares of
Class B Common Stock and assumed or incurred $2.7 million of indebtedness of
Keystone.
C&C. In June 1997, the Company entered into a definitive agreement to
acquire Childs & Childs Granite Company, Inc. and a related company ("C&C," and,
together with the Quarry Companies, SMI and Keystone, the "Elberton Companies"),
which the Company believes is the second largest manufacturer of granite
memorials in Elberton, Georgia, and the remaining 50% of the Quarry Companies
and SMI owned by the stockholders of C&C (the "C&C Acquisition" and, together
with the Keystone Acquisition, the "Elberton Acquisitions"). It is currently
anticipated that the C&C Acquisition will close concurrently with the
consummation of this offering. The Elberton Acquisitions will establish the
Company as the largest granite memorial manufacturer in Elberton, Georgia, which
is the largest granite producing area in North America, and will give the
Company a substantially broader product line and enhanced distribution
capabilities in the southern United States. The purchase price payable for C&C
is $6.6 million in cash and $200,000 in shares of Class A Common Stock (valued
at the initial public offering price) and approximately $780,000 to repay
outstanding indebtedness of C&C. Upon the closing of the C&C Acquisition, the
Company will assume $5.5 million of indebtedness of the Quarry Companies and
SMI.
Keith. The Company's first significant entry into memorial retailing was
initiated in July 1997, when the Company entered into a definitive agreement to
acquire (the "Keith Acquisition", and, together with the Elberton Acquisitions,
the "Acquisitions") substantially all of the assets and liabilities of Keith
Monument Co. and its affiliated companies (collectively, "Keith Monument"). It
is currently anticipated that the Keith Acquisition will close concurrently with
the consummation of this offering. Keith Monument, founded in 1867, has been an
authorized Rock of Ages retailer for more than 50 years. The Company believes
that Keith Monument is one of the largest retailers of granite memorials in the
United States. Upon the closing of the Keith Acquisition, John E. Keith, a
principal owner and the president of Keith Monument with over thirty years of
experience in granite memorial retailing, will head the Company's retailing
operations. Mr. Keith will oversee the implementation of the Company's strategy
to significantly expand its retail operations both through other acquisitions of
retailers and by pursuing strategic alliances with funeral home and cemetery
owners, including consolidators. The purchase price payable for Keith Monument
is $16.4 million, consisting
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5
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of $13.1 million in cash, $1.5 million in shares of Class A Common Stock (valued
at the initial public offering price) and $1.8 million to repay outstanding
indebtedness of Keith Monument assumed by the Company. See "Business -- Recent
and Concurrent Acquisitions" and "Business -- Marketing and Distribution;
Retailing."
The Company's principal executive offices are located at 772 Graniteville
Road, Graniteville, Vermont 05654 and its telephone number is (802) 476-3121.
THE OFFERING
Class A Common Stock offered..... 2,900,000 shares, of which 2,624,518 shares
are being offered by the Company and
275,482 shares are being offered by the
Selling Stockholders.
Common Stock to be outstanding
after the offering(1)............ 3,000,000 shares of Class A Common Stock
3,487,957 shares of Class B Common Stock
Use of proceeds.................. The net proceeds to the Company of this
offering will be used to fund the C&C
Acquisition and the Keith Acquisition, and
to repay indebtedness under the Company's
existing credit facilities, including
indebtedness assumed in connection with the
Keystone Acquisition. See "Use of
Proceeds."
Proposed Nasdaq National Market
symbol........................... "ROAC"
- ---------------
(1) Excludes 862,500 shares of Class B Common Stock issuable upon the exercise
of outstanding stock options (with a weighted average exercise price of
$3.31 per share) granted under the Company's 1994 Amended and Restated Stock
Plan (the "1994 Plan") and 383,252 shares of Class A Common Stock issuable
upon the exercise of options to be granted in connection with the
Acquisitions and to two non-employee directors who will assume their
positions upon consummation of the offering (with an exercise price equal to
the initial public offering price). See "Certain Relationships and Related
Transactions." The rights of holders of the two classes of Common Stock are
substantially identical, except that (a) the Class A Common Stock is
entitled to one vote per share and the Class B Common Stock is entitled to
ten votes per share on all matters, including the election of directors; and
(b) the Class B Common Stock is convertible into Class A Common Stock at the
option of the holder and automatically upon a transfer to any person other
than a Permitted Transferee, as defined herein. See "Description of Capital
Stock."
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6
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SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table presents (i) summary historical consolidated financial
data of the Company as of the dates and for the periods indicated and (ii)
summary pro forma combined and condensed financial data of the Company as of the
dates and for the periods indicated giving effect to the events described in the
"Unaudited Pro Forma Combined and Condensed Financial Data" included elsewhere
herein as though they had occurred on the dates indicated therein. The summary
pro forma combined and condensed financial data are not necessarily indicative
of operating results or financial position that would have been achieved had
these events been consummated on the date indicated and should not be construed
as representative of future operating results or financial position. The summary
historical consolidated and pro forma combined and condensed financial data
should be read in conjunction with the historical consolidated financial
statements and related notes thereto of the Company and the historical financial
statements and related notes thereto of Keystone, C&C, the Quarry Companies, SMI
and Keith Monument, with the "Unaudited Pro Forma Combined and Condensed
Financial Statements" and with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
PRO FORMA(1)
HISTORICAL ----------------------------------
----------------------------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30,
----------------------------- ------------------ ------------ ------------------
1994 1995 1996 1996 1997(2) 1996 1996 1997
------- ------- ------- ------- ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues..................... $34,188 $33,088 $44,669 $19,943 $20,767 $ 73,774 $33,710 $35,253
Gross profit..................... 10,094 10,449 13,406 5,256 5,205 22,294 9,016 9,853
Selling, general and
administrative expenses........ 6,049 6,453 9,131 4,649 4,328 15,254 7,338 7,352
------- ------- ------- ------- ------- -------- ------- -------
Income from operations........... 4,045 3,996 4,275 607 877 7,040 1,678 2,501
Interest expense................. 1,653 1,678 1,723 934 866 1,065 573 565
Other expense.................... -- 564 -- -- -- -- -- --
Income (loss) before provision
(benefit) for income taxes..... 2,392 1,754 2,552 (327) 11 5,975 1,105 1,936
Provision (benefit) for income
taxes.......................... 577 358 643 (82) 3 1,625 301 527
------- ------- ------- ------- ------- -------- ------- -------
Net income (loss)................ 1,815 1,396 1,909 (245) 8 4,350 804 1,409
======= ======= ======= ======= ======= ======== ======= =======
Net income (loss) per share...... .47 .35 .46 (.06) .00 .64 .12 .20
Weighted average number of shares
outstanding(3)................. 3,900 4,017 4,106 4,106 4,326 6,768 6,768 7,051
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
--------------------------
PRO FORMA AS
ACTUAL ADJUSTED(4)
------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................................................ $ 192 $ 2,833
Working capital.......................................................................... 13,232 18,545
Total assets............................................................................. 57,768 86,942
Long-term debt, less current maturities.................................................. 13,897 5,106
Total stockholders' equity............................................................... 19,832 57,727
</TABLE>
- ---------------
(1) For information regarding the pro forma adjustments made to the Company's
historical financial data, see "Unaudited Pro Forma Combined and Condensed
Financial Data."
(2) Does not include the results of operations of Keystone which was acquired as
of June 28, 1997.
(3) Includes 362,500 shares of Common Stock issuable upon the exercise of
outstanding stock options granted December 31, 1996 and deemed to be
outstanding for all periods, an additional 275,000 shares subject to options
outstanding granted in 1994 and subsequent periods and 225,000 shares
subject to options granted in January, 1996 (and included in 1996 and
subsequent periods). See Note 9 to the Company's audited financial
statements included elsewhere in this Prospectus.
(4) Gives effect to the Reorganization and the consummation of the C&C
Acquisition and the Keith Acquisition as if they had occurred on June 30,
1997, as adjusted to reflect the sale of 2,624,518 shares of Class A Common
Stock offered hereby by the Company (at an initial public offering price of
$17.00 per share) and after deducting underwriting discounts and commissions
and estimated offering expenses payable by the Company, the receipt of the
net proceeds therefrom and the application of such net proceeds as described
in "Use of Proceeds." See "Business -- Recent and Concurrent Acquisitions,"
"Certain Relationships and Related Transactions" and "Use of Proceeds."
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7
<PAGE> 9
RISK FACTORS
Prospective investors should carefully consider all of the information set
forth in this Prospectus, including the risk factors set forth below.
RISKS RELATING TO ACQUISITIONS
The Company's growth will depend in large part on its ability to acquire
additional retailers, manage expansion, control costs in its operations and
consolidate acquisitions into existing operations. The Company will have to
review acquired operations, management infrastructure and systems and financial
controls, and make any appropriate adjustments or complete reorganizations.
Unforeseen capital and operating expenses, or other difficulties, complications
and delays frequently encountered in connection with the expansion and
integration of acquired operations could inhibit the Company's growth. The full
benefits of a significant acquisition will require the integration of
operational, administrative, finance, sales and marketing organizations, as well
as the coordination of common sales and marketing efforts and the implementation
of appropriate operational, financial and management systems and controls. This
will require substantial attention from the Company's senior management team.
The diversion of management attention required by the acquisition and
integration of multiple companies, as in the case of the Acquisitions, as well
as other difficulties that may be encountered in the transition and integration
process, could have an adverse effect on the revenue and operating results of
the Company. There can be no assurance that the Company will identify suitable
acquisition candidates, that acquisitions will be consummated on acceptable
terms or that the Company will be able to successfully integrate the operations
of any acquisition.
The Company's ability to continue to grow through the acquisition of
additional companies will also be dependent upon the availability of suitable
candidates, the Company's ability to attract and retain competent management,
and the availability of capital to complete the acquisitions. See
"Business -- Business Strategy." The Company intends to finance acquisitions
through a combination of its available cash resources, bank borrowings and, in
appropriate circumstances, the issuance of equity and/or debt securities.
Acquiring additional companies will have a significant effect on the Company's
financial position, and could cause substantial fluctuations in the Company's
quarterly and yearly operating results. Also, acquisitions are likely to result
in the recording of significant goodwill and intangible assets on the Company's
financial statements, the amortization of which would reduce reported earnings
in subsequent years. In connection with the Acquisitions, for example, the
Company expects to record an annual non-cash amortization charge to pre-tax
earnings of approximately $300,000 in each of the next forty years.
In addition, in connection with the Acquisitions, the Company has executed
acquisition agreements that have limitations on indemnification and no security
for indemnification obligations. Moreover, the former owners of the businesses
sold to the Company pursuant to the Acquisitions have or will become executive
officers of the Company upon the consummation of the Acquisitions. Consequently,
the Company may have little or no recourse against the prior owners of the
companies acquired in the Acquisitions in the event a breach of a representation
or warranty or covenant in such acquisition agreements. Any material
misrepresentations, omissions or breaches of covenants could have a material
adverse effect on the Company's business, financial condition or results of
operations.
RELATIONSHIPS WITH RETAILERS
The Company's granite memorials have historically been sold to consumers by
independent retailers. Accordingly, the Company is dependent on its independent
retailers for the successful distribution of its products to the ultimate
customer. The Company has no control over the independent retailers' operations,
including such matters as retail price, advertising and marketing. Two important
components of the Company's growth strategy are to acquire retailers and pursue
strategic alliances with funeral homes and cemetery owners, including
consolidators. The implementation of these elements of the Company's strategy
may be construed by the Company's existing independent retailers as an effort to
compete with them, which could adversely affect their relationship with the
Company and cause them to decrease or cease their purchases of the Company's
products. In addition, the granite memorial retail industry is characterized by
8
<PAGE> 10
significant barriers to entry created by local heritage, community presence and
tradition. Consequently, the Company could experience difficulty replacing a
retailer or entering the retail market itself in the event of a loss of a
retailer. There can be no assurance that the Company will be able to maintain
its existing relationships or establish new relationships with its independent
retailers as it enters the retail market. Disruption in the Company's
relationships with independent retailers would have a material adverse effect on
the Company's business, financial condition or results of operations.
NO RETAIL EXPERIENCE
A key component of the Company's growth strategy and the purpose of the
Keith Acquisition is for the Company to enter the retail market for granite
memorials. The Company has no prior significant retail experience, and,
accordingly, is subject to the numerous risks of entering a new business. Such
risks include, among others, unanticipated operating problems, lack of
experience and significant competition from existing and new retailers. There
can be no assurance that the Company will be able to conduct retail operations
profitably.
RELIANCE ON KEY PERSONNEL
The Company's operations and the implementation of its operating and growth
strategies, such as integration of the Acquisitions, are management intensive.
The Company is substantially dependent upon the abilities and continued efforts
of Kurt M. Swenson, the Company's Chairman, President and Chief Executive
Officer, and the Company's other senior management. The Company's implementation
of its retail operating and growth strategies will be substantially dependent on
the abilities and efforts of John E. Keith, who will head the Company's retail
operations. The Company's business is also dependent on its ability to continue
to attract and retain a highly skilled quarrying and manufacturing workforce,
including stone cutters, sand blasters, sculptors and other skilled artisans.
The loss of the services of Mr. Swenson or Mr. Keith, other members of the
Company's senior management or other highly skilled personnel could have a
material adverse effect on the Company's business, financial condition or
results of operations. The Company will enter into employment agreements with
its principal executive officers prior to consummation of the offering. The
Company does not maintain key person life insurance policies on its key
personnel, except for policies with respect to Mr. Swenson and Mr. Keith in the
amounts of $2.0 million and $300,000, respectively. The Company is or will be
the sole beneficiary of these policies. See "Management -- Employment
Agreements."
COMPETITION
The granite memorial industry is highly competitive. The Company competes
with other granite quarriers and manufacturers in the sale of granite blocks on
the basis of price, color, quality, geographic proximity, service, design
availability and availability of supply. All of the Company's colors of granite
are subject to competition from granite blocks of similar color supplied by
quarriers located throughout the world.
There are approximately 140 manufacturers of granite memorials in North
America. There are also manufacturers of granite memorials in India, South
Africa, China and Portugal who sell finished memorials in North America. The
Company competes based upon price, breadth of product line and design
availability as well as production capabilities and delivery options. The
Company's quarrying and manufacturing competitors include both domestic and
international companies, some of which may have greater financial, technical,
manufacturing, marketing and other resources than the Company. Additionally,
foreign competitors of the Company may have access to lower cost labor and
better commercial deposits of memorial grade granite, and may be subject to less
restrictive regulatory requirements than the Company. Companies in South Africa,
India, China and Portugal manufacture and export finished granite memorials into
North America.
The competition for retail sales of granite memorials is also intense and
is based on price, quality, service, design availability and breadth of product
line. Competitors include funeral home and cemetery owners, including
consolidators, which have greater financial resources than the Company as well
as approximately 3,000 independent retailers of granite memorials located
outside of cemeteries and funeral homes. There can be no assurance that domestic
or foreign competition will not have a material adverse effect on the Company's
business, financial condition or results of operations. See
"Business -- Competition."
9
<PAGE> 11
SEASONALITY; VARIABILITY OF QUARTERLY RESULTS
Historically, the Company's operations have experienced certain seasonal
patterns. Generally, the Company's net sales are highest in the third quarter
and lowest in the first quarter of each year due primarily to weather.
Cemeteries in northern regions generally do not accept granite memorials during
winter months when the ground is frozen because they cannot be properly set. The
Company typically closes certain of its Vermont and Canadian quarries during
these months because of increased operating costs attributable to adverse
weather conditions. The Company has historically incurred an aggregate net loss
during the first six months of each calendar year. The Company's operating
results may vary materially from quarter to quarter due to, among other things,
acquisitions, changes in product mix and limitations on the timing of price
increases, making quarterly year-to-year comparisons less meaningful. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Seasonality."
CREMATION TRENDS
There is an increasing trend toward cremation in the United States.
According to the Cremation Association of North America ("CANA"), cremation was
used in approximately 22% of the deaths in the United States in 1996, compared
to approximately 10% in 1980, and CANA expects this rate to rise to 29% by 2010.
To the extent increases in cremation rates result in decreases in
memorialization rates, this decrease could have a material adverse effect on the
Company's business, financial condition or results of operations.
MEMORIALIZATION TRENDS
The Company's business is subject to the risk that memorialization rates
may decline over time. Certain cemeteries have in the past and may in the future
limit the use of granite memorials as a memorialization option. To the extent
that general memorialization rates or the willingness of cemeteries to accept
granite memorials declines, this decline could have a material adverse effect on
the Company's business, financial condition or results of operations.
EFFECT OF CONSUMER SPENDING
The success of the Company's operations depends to a significant extent
upon a number of factors relating to discretionary consumer spending, including
economic conditions affecting disposable consumer income such as employment,
business conditions, taxation and interest rates. There can be no assurance that
consumer spending will not be affected by adverse economic conditions, thereby
adversely affecting the Company's business, financial condition or results of
operations.
OPERATING RISKS
The Company's quarry and manufacturing operations are subject to numerous
risks and hazards inherent in those industries, including among others,
unanticipated surface or underground conditions, varying memorial grade granite
recovery rates due to natural cracks and other imperfections in granite
quarries, equipment failures, accidents and worker injuries, labor issues,
weather conditions and events, unanticipated transportation costs and price
fluctuations. As a result, actual costs and expenditures, production quantities
and delivery dates, as well as revenues, may differ materially from those
anticipated, which could have a material adverse effect on the Company's
business, financial condition or results of operations.
RISK OF INTERNATIONAL OPERATIONS
The Company derived approximately 28.9% of its revenues in fiscal 1996 from
sales outside the United States, with approximately 16.9% of revenues in fiscal
1996 from sales in Canada by the Company's Canadian subsidiaries. In prior years
such percentage represented by international sales has been higher. Foreign
sales are subject to numerous risks, including currency conversion risks,
limitations (including taxes) on the repatriation of earnings, slower and more
difficult accounts receivable collection and greater complication and expense in
complying with foreign laws.
10
<PAGE> 12
CYCLICAL NATURE OF ANCILLARY PRODUCT SALES
The markets for the Company's industrial precision products, which include
machine base and surface plates that are utilized in the automotive, aeronautic,
computer, machine tool, optical, precision grinding and inspection industries,
and granite press rolls used in the manufacture of paper, are subject to
substantial cyclical variations. Accordingly, sales of these products may
decline significantly upon a downturn in, or as a result of uncertainties
regarding future economic conditions that generally affect, such industries. No
assurance can be given that changes in the industries to which the Company sells
its precision products will not adversely affect the Company's business,
financial condition or results of operations.
CONTROL BY CERTAIN STOCKHOLDERS
Upon consummation of this offering and the Acquisitions, Kurt M. Swenson
and his brother, Kevin C. Swenson, will collectively have 56.3% of the total
voting power of all outstanding shares of Common Stock, and will therefore be in
a position to control the outcome of most corporate actions requiring
stockholder approval, including the election of directors and the approval of
transactions involving a change in control of the Company. See "Principal and
Selling Stockholders" and "Description of Capital Stock."
REGULATORY MATTERS
The Company's quarry and manufacturing operations are subject to
substantial regulation by federal and state governmental statutes and agencies,
including the federal Occupational Safety and Health Act ("OSHA"), the Mine
Safety and Health Administration and similar state and Canadian authorities. The
Company's operations are also subject to extensive laws, and regulations
administered by the United States Environmental Protection Agency (the "EPA")
and similar state and Canadian authorities, for the protection of the
environment, including but not limited to those relating to air and water
quality, solid and hazardous waste handling and disposal. These laws and
regulations may require parties to fund remedial action or to pay damages
regardless of fault. Environmental laws and regulations may also impose
liability with respect to divested or terminated operations even if the
operations were divested or terminated many years ago. In addition, current and
future environmental or occupational health and safety laws, regulations or
regulatory interpretations may require significant expenditures for compliance,
which could require the Company to modify or curtail its operations. The Company
cannot predict the effect of such laws, regulations or regulatory
interpretations on its business, financial condition or results of operations.
While the Company expects to be able to continue to comply with existing
environmental and occupational health and safety laws and regulations, any
material non-compliance could have a material adverse affect on the Company's
business, financial condition or results of operations. See "Business --
Regulation."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial amount of Class A Common Stock in the public market
following this offering could adversely affect the market price of the Class A
Common Stock. Upon completion of this offering and the C&C Acquisition and the
Keith Acquisition, the Company will have 6,487,957 shares of Common Stock
(6,922,957 shares if the Underwriter's over-allotment option is exercised in
full) outstanding (assuming an initial public offering price of $17.00 per
share). In addition, an aggregate of 1,500,000 shares of Common Stock will be
reserved for issuance to employees and directors of the Company under the 1994
Plan, 1,245,752 of which shares are currently, or will upon consummation of this
offering be, subject to outstanding options. See "Shares Eligible for Future
Sale." Such options are currently or will upon consummation of this offering be
vested and immediately exercisable with respect to 327,500 shares of Common
Stock, all of which shares issued upon such exercise would be eligible for
resale subject to compliance with Rule 701 and to the "lock-up" agreements with
Raymond James & Associates, Inc. described below, if applicable. The 2,900,000
shares of Class A Common Stock (3,335,000 shares if the Underwriter's
over-allotment option is exercised in full) offered hereby will be freely
tradable in the United States without restriction or further registration under
the Securities Act of 1933, as amended (the "Securities Act"), unless purchased
or held by "affiliates" (as such term is defined under the Securities Act) of
the Company. All shares of Class B Common Stock outstanding upon completion of
the offering will be "restricted securities" within the meaning of Rule 144
under the
11
<PAGE> 13
Securities Act ("Rule 144") and will not be eligible for resale to the public
pursuant to Rule 144 until the first anniversary of the consummation of the
offering.
The Company, its executive officers and directors, and holders of more than
2% of the Common Stock prior to the consummation of the offering, have agreed
with Raymond, James & Associates, Inc. not to sell, offer to sell, contract to
sell, pledge or otherwise dispose of or transfer any shares of Common Stock, or
any securities convertible into or exchangeable or exercisable for, or any
rights to purchase or acquire, Common Stock for a period of 180 days following
the date of this Prospectus without the prior written consent of Raymond James &
Associates, Inc., other than, in the case of the Company, the issuance of
options to purchase Common Stock or shares of Common Stock issuable upon the
exercise thereof, issuances of Common Stock in connection with the C&C
Acquisition and the Keith Acquisition and other issuances of capital stock of
the Company in connection with other acquisitions, provided such shares of
Common Stock issued upon the exercise of options and such shares of capital
stock issued in connection with any such other acquisitions shall not be
transferable prior to the end of the aforesaid 180-day period. Raymond James &
Associates, Inc. may, in its sole discretion and at any time without notice,
release all or any portion of the shares subject to such lock-up agreements. See
"Shares Eligible for Future Sale" and "Underwriting."
NO PRIOR MARKET FOR CLASS A COMMON STOCK; OFFERING PRICE
Prior to this offering, there has been no public market for the Class A
Common Stock, and there can be no assurance that an active trading market will
develop or, if developed, that such market will be sustained. The initial public
offering price of the Class A Common Stock will be determined through
negotiations between the Company and the representative of the Underwriters. In
addition, the Company believes that factors such as quarterly fluctuations in
the financial results of the Company, as well as developments that affect the
Company's industry in general, the overall economy and the financial markets
could cause the price of the Class A Common Stock to fluctuate substantially.
ANTI-TAKEOVER PROVISIONS
The Company's Certificate of Incorporation and By-laws contain certain
provisions that may have the effect of discouraging, delaying or preventing a
change in control of the Company or unsolicited acquisition proposals that a
stockholder might consider favorable. Certain of these provisions: (i) grant ten
votes per share to each share of Class B Common Stock; (ii) divide the Board of
Directors into three classes, each of which will have a different three-year
term; (iii) provide that the stockholders may remove directors from office only
for cause and by a supermajority vote; (iv) provide that special meetings of the
stockholders may be called only by the Board of Directors or certain Company
officers and not by stockholders; (v) establish certain advance notice
procedures for nomination of candidates for election as directors and for
stockholder proposals to be considered at annual stockholders' meetings; and
(vi) authorize the issuance of preferred stock with such designation, rights and
preferences as may be determined, from time to time by the Board of Directors.
Accordingly, the Board of Directors is empowered, without stockholder approval,
to issue preferred stock with dividend, liquidation, conversion, voting or other
rights that could materially adversely affect the voting power or other rights
of, or be dilutive to, the holders of the Company's Common Stock. Certain of
these provisions, as well as certain provisions of Delaware corporation law, may
have the effect of discouraging, delaying or preventing a change in control of
the Company or unsolicited acquisition proposals. See "Description of Capital
Stock -- Antitakeover Effects of Provisions of the Charter and By-Laws and of
Delaware Law."
DILUTION
Investors purchasing shares of Class A Common Stock in this offering will
experience immediate and substantial dilution in net tangible book value per
share of $10.14 (assuming an initial public offering price of $17.00 per share).
See "Dilution."
DIVIDENDS
The Company intends to retain its cash for the continued development of its
business and currently does not intend to pay cash dividends on the Common Stock
in the foreseeable future. See "Dividend Policy."
12
<PAGE> 14
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements relating to,
among other things, future results of operations, growth plans, sales, capital
requirements and general industry and business conditions applicable to the
Company. These forward-looking statements are based largely on the Company's
current expectations and are subject to a number of risks and uncertainties.
Actual results could differ materially from those implied by these
forward-looking statements. Important factors to consider in evaluating such
forward-looking statements include changes in external competitive market
factors, changes in the Company's business strategy or an inability to execute
its strategy due to unanticipated changes in the Company's industry or the
economy in general and various competitive factors that may prevent the Company
from competing successfully in existing or new markets. In light of these risks
and uncertainties, many of which are described in further detail above, there
can be no assurance that the forward-looking statements contained in this
Prospectus will in fact be realized.
13
<PAGE> 15
USE OF PROCEEDS
The net proceeds to the Company from the sale of shares of Class A Common
Stock offered by the Company hereby are estimated to be approximately $40.0
million (approximately $46.9 million if the Underwriters' over-allotment option
is exercised in full), assuming an initial public offering price of $17.00 per
share, after deducting estimated underwriting discounts and commissions and
offering expenses.
Of the net proceeds to the Company from this offering, (i) approximately
$7.4 million will be used to fund the C&C Acquisition, consisting of $6.6
million in cash purchase price and approximately $780,000 to repay outstanding
indebtedness of C&C; (ii) approximately $5.4 million will be used to repay
outstanding indebtedness of the Quarry Companies and SMI; (iii) $14.9 million
will be used to fund the Keith Acquisition, consisting of $13.1 million in cash
purchase price and $1.8 million to repay outstanding indebtedness of Keith
Monument assumed by the Company; and (iv) approximately $11.8 million will be
used to repay indebtedness outstanding under certain of the Company's existing
credit facilities, consisting of $2.7 million assumed or incurred in connection
with the Keystone Acquisition and the balance of which was incurred for prior
acquisitions, plant improvement and working capital. Such indebtedness under
such existing credit facilities matures on various dates in 1998 and 1999, and
bears interest at various rates per annum ranging from prime plus .25% to prime
plus 1.25%. The maturity dates and interest rates of the indebtedness to be
repaid by the Company in connection with the C&C Acquisition and Keith
Acquisition are: (i) for the indebtedness of C&C, maturity dates of May and
November 1998 and interest rates ranging from prime plus 1.00% to 9.00%; (ii)
for the indebtedness of the Quarry Companies and SMI, maturity dates of May 1997
and June 2000 and interest rates ranging from prime plus .45% to 10.50%; and
(iii) for the indebtedness of Keith Monument, a maturity date of March 2004 and
an interest rate of 9.00%. See "Business -- Recent and Concurrent Acquisitions."
The Company has received a commitment letter for a new $50 million credit
facility, subject to the consummation of the offering. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." The Company intends to use its
increased borrowing capacity resulting from the intended debt repayment to
finance the Company's expansion, including possible acquisitions, and for
working capital and general corporate purposes. Although management regularly
reviews acquisition prospects that would augment or complement the Company's
existing operations, including the Company's retailing operations, the Company
does not presently have any agreement with respect to any acquisition, other
than the C&C Acquisition and the Keith Acquisition.
The Company will not receive any proceeds from the sale of Class A Common
Stock offered by the Selling Stockholders.
DIVIDEND POLICY
The Company does not anticipate paying cash dividends in the foreseeable
future, but intends to retain any future earnings for reinvestment in its
business. Any future determination to pay cash dividends will be at the
discretion of the Board of Directors and will be dependent upon the Company's
financial condition, results of operations, restrictions contained in credit
agreements, capital requirements and such other factors as the Board of
Directors deems relevant.
14
<PAGE> 16
CAPITALIZATION
The following table sets forth the borrowings under lines of credit,
current portion of long-term debt and capitalization of the Company at June 30,
1997, (i) on a historical basis and (ii) pro forma as adjusted to give effect to
the Reorganization, the C&C Acquisition and Keith Acquisition as if they had
occurred on June 30, 1997, and to reflect the sale by the Company of 2,624,518
shares of Class A Common Stock offered hereby (at an assumed public offering
price of $17.00 per share) and after deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company and the
application of the estimated net proceeds thereof as described in "Use of
Proceeds." This table should be read in conjunction with the historical
financial statements and pro forma combined and condensed financial data and the
notes thereto included elsewhere in this Prospectus. See also "Use of Proceeds"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
---------------------
PRO FORMA
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Borrowings under lines of credit......................................... $ 8,668 $ 8,668
Current portion of long-term debt........................................ 2,844 355
======= =======
Long-term debt, net of current portion................................... $13,897 $ 5,106
Stockholders' equity:
Preferred Stock, par value $.01 per share; 2,500,000 shares authorized,
none outstanding; none outstanding pro forma as adjusted............ -- --
Class A Common Stock, par value $.01 per share; 30,000,000 shares
authorized, none outstanding; 3,000,000 shares outstanding pro forma
as adjusted(1)(2)................................................... -- 30
Class B Common Stock, par value $.01 per share; 15,000,000 shares
authorized, 3,763,439 shares outstanding; 3,487,957 shares
outstanding pro forma as adjusted(3)................................ 38 35
Additional paid-in capital............................................. 9,174 50,870
Retained earnings...................................................... 10,675 6,847
Other.................................................................. (55) (55)
------- -------
Total stockholders' equity.......................................... 19,832 57,727
------- -------
Total capitalization........................................... $33,729 $62,833
======= =======
</TABLE>
- ---------------
(1) Does not include an aggregate of 862,500 shares of Class B Common Stock
(which are convertible on a share-for-share basis into Class A Common Stock)
issuable upon the exercise of outstanding options outstanding under the 1994
Plan and an aggregate of 383,252 shares of Class A Common Stock issuable
upon the exercise of options to be granted under the 1994 Plan in connection
with the Acquisitions and to two non-employee directors who will assume
their positions upon consummation of the offering.
(2) The pro forma as adjusted number includes the concurrent conversion of
275,482 shares of Class B Common Stock into Class A Common Stock and sale
thereof by the Selling Stockholders. See "Principal and Selling
Stockholders."
(3) Does not include an aggregate of 862,500 shares of Class B Common Stock
(which are convertible on a share-for-share basis into Class A Common Stock)
issuable upon the exercise of outstanding options outstanding under the 1994
Plan. See "Management -- Incentive Plans."
15
<PAGE> 17
DILUTION
The net tangible book value of the Company as of June 30, 1997 was $17.7
million, or $4.71 per share of Common Stock. Net tangible book value per share
is determined by dividing total tangible assets less total liabilities of the
Company by the total number of outstanding shares of Common Stock. After giving
effect to the sale of the 2,624,518 shares of Class A Common Stock offered by
the Company hereby (assuming an initial public offering price of $17.00 per
share), after deducting the estimated underwriting discount and estimated
expenses to be paid by the Company and the application of the estimated net
proceeds as set forth in "Use of Proceeds," the pro forma net tangible book
value of the Company at June 30, 1997 would have been $43.8 million or $6.86 per
share. This represents an immediate increase in net tangible book value of $2.15
per share to existing stockholders and an immediate dilution of $10.14 per share
to new investors. The following table illustrates this dilution per share:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share....................... $17.00
Net tangible book value per share as of June 30, 1997............... $4.71
Increase in net tangible book value per share attributable to new
investors........................................................ 2.15
Pro forma net tangible book value per share after the offering........ 6.86
------
Dilution per share to new investors................................... $10.14
======
</TABLE>
16
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected consolidated historical financial data presented below under
the captions "Statement of Operations Data" and "Balance Sheet Data" for and as
of the end of each of the years in the five-year period ended December 31, 1996
are derived from the consolidated financial statements of the Company, which
financial statements have been audited by KPMG Peat Marwick LLP, independent
certified public accountants. The selected consolidated historical financial
data for and as of the end of the six month periods ended June 30, 1996 and 1997
have been derived from unaudited consolidated financial statements which, in the
opinion of management, reflect all adjustments, consisting of normal recurring
adjustments, necessary to present fairly the financial information for such
periods and as of such dates. The consolidated historical results for the six
months ended June 30, 1996 and 1997 are not necessarily indicative of results
for a full fiscal year. The consolidated financial statements as of December 31,
1995 and 1996 and for each of the years in the three-year period ended December
31, 1996, and the auditors' report thereon and as of June 30, 1997 and for the
six months ended June 30, 1996 and 1997, are included elsewhere in this
Prospectus. The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements of the Company, including
the notes thereto, and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," appearing elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997(2)
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues:
Manufacturing....................................... $18,383 $17,485 $17,299 $17,793 $32,586 $14,827 $15,278
Quarrying........................................... 15,457 13,522 16,889 15,295 12,083 5,116 5,489
------- ------- ------- ------- ------- ------- -------
Total net revenues................................ 33,840 31,007 34,188 33,088 44,669 19,943 20,767
Gross profit:
Manufacturing....................................... 4,008 2,489 4,050 4,345 8,248 3,603 3,640
Quarrying........................................... 6,474 4,294 6,044 6,104 5,158 1,653 1,565
------- ------- ------- ------- ------- ------- -------
Total gross profit................................ 10,482 6,783 10,094 10,449 13,406 5,256 5,205
Selling, general and administrative expenses.......... 7,377 6,851 6,049 6,453 9,131 4,649 4,328
------- ------- ------- ------- ------- ------- -------
Income (loss) from operations......................... 3,105 (68) 4,045 3,996 4,275 607 877
Interest expense...................................... 1,622 1,505 1,653 1,678 1,723 934 866
Other expenses........................................ -- 2,376 -- 564 -- -- --
Income (loss) before provision (benefit) for income
taxes............................................... 1,483 (3,949) 2,392 1,754 2,552 (327) 11
Provision (benefit) for income taxes.................. 58 (31) 577 358 643 (82) 3
------- ------- ------- ------- ------- ------- -------
Net income (loss)..................................... $ 1,425 $(3,638) $ 1,815 $ 1,396 $ 1,909 $ (245) $ 8
======= ======= ======= ======= ======= ======= =======
Net income (loss) per share........................... .38 (.96) .47 .35 .46 (.06) .00
Weighted average number of shares outstanding(3)...... 3,783 3,783 3,900 4,017 4,106 4,106 4,326
PRO FORMA STATEMENT OF OPERATIONS DATA(1):
Income before provision for income taxes.............. $ 5,975 $ 1,105 $ 1,936
Provision for income taxes............................ 1,625 301 527
------- ------- -------
Net income............................................ 4,350 804 1,409
======= ======= =======
Net income per share.................................. .64 .12 .20
Weighted average number of shares outstanding(3)...... 6,768 6,768 7,051
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
----------------------------------------------- --------------
1992 1993 1994 1995 1996 1997
------- ------- ------- ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 95 $ 92 $ 394 $ 1,995 $ 763 $ 192
Working capital........................................... 8,478 7,605 13,668 13,691 13,286 13,232
Total assets.............................................. 40,810 37,179 42,529 48,101 47,995 57,768
Total long-term debt, net of current maturities........... 13,067 13,162 16,655 14,657 13,054 13,897
Total stockholders' equity................................ 12,528 8,849 10,686 15,479 17,371 19,832
</TABLE>
- ---------------
(1) For information regarding the pro forma adjustments made to the Company's
historical financial data, see "Unaudited Pro Forma Combined and Condensed
Financial Data."
(2) Does not include the results of operations of Keystone which was acquired as
of June 28, 1997.
(3) Includes shares of Common Stock issuable upon the exercise of outstanding
stock options granted under the 1994 Plan, as described in Note 1(n) to the
Company's audited financial statements included elsewhere in this
Prospectus, and excludes 263,441 shares of Class B Common Stock issued on
June 30, 1997 pursuant to the Keystone Acquisition.
17
<PAGE> 19
UNAUDITED PRO FORMA COMBINED AND CONDENSED FINANCIAL DATA
The following unaudited pro forma combined and condensed statements of
operations for the year ended December 31, 1996 and for the six months ended
June 30, 1997 and 1996 reflect the consolidated historical accounts of the
Company for those periods, adjusted to give pro forma effect to the
Reorganization, the Acquisitions and this offering, as if such transactions had
occurred on January 1, 1996. The following unaudited pro forma combined and
condensed balance sheet as of June 30, 1997 reflects the consolidated historical
accounts of the Company as of that date, adjusted to give pro forma effect to
the Reorganization, the C&C Acquisition and the Keith Acquisition and this
offering, as if such transactions had occurred on June 30, 1997.
The unaudited pro forma financial data and accompanying notes should be
read in conjunction with the Consolidated Financial Statements of the Company
and the related notes as well as the financial statements and related notes of
Keystone, C&C, the Quarry Companies, SMI and Keith Monument, all of which are
included elsewhere in this Prospectus. The Company believes that the assumptions
used in the following statements provide a reasonable basis on which to present
the pro forma financial data. The pro forma financial data is provided for
informational purposes only and should not be construed to be indicative of the
Company's financial condition or results of operations had the transactions and
events described above been consummated on the dates assumed and are not
intended to project the Company's financial condition on any future date or
results of operations for any future period.
18
<PAGE> 20
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
QUARRY OFFERING
KEITH COMPANIES & ADJUSTMENTS PRO FORMA PRO FORMA
COMPANY C&C MONUMENT SMI (A) ADJUSTMENTS AS ADJUSTED
------- ------ -------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents....... $ 192 $ 160 $1,783 $ 838 $40,023 $ (40,163)(A),(E) $ 2,833
Trade receivables, net.......... 11,249 753 1,003 1,149 14,154
Due from affiliates............. 5,375 192 49 (192) (3,690)(E),(F),(G) 1,734
Inventories..................... 13,374 1,141 1,192 611 202(E) 16,520
Current portion of notes
receivable-related party...... 90 (90)(E)
Current portion of notes
receivable-other.............. 29 29
Deferred tax assets............. 467 10 477
Other current assets............ 837 21 98 174 1,130
------- ------ ------ ------- ------- -------- -------
Total current assets.......... 31,494 2,267 4,254 2,580 40,023 (43,741) 36,877
------- ------ ------ ------- ------- -------- -------
Net property, plant and
equipment....................... 21,230 989 1,393 4,784 5,816(E),(F) 34,212
Other assets:
Cash surrender value of life
insurance, net................ 959 4 164 1,127
Notes receivable-related party,
excluding current portion..... 401 (401)(E)
Notes receivable-other,
excluding current portion..... 16 16
Goodwill, net................... 1,731 825 1,806 9,349(E),(F) 13,711
Covenant not-to-compete......... 388 (388)(E)
Debt issuance costs, net........ 89 (89)(B)
Organization costs, net......... 190 (89)(C) 101
Deferred tax assets............. 543 (369) 174
Intangible pension asset........ 93 93
Investments in and advances to
affiliated company............ 1,408 824 (2,033)(F) 199
Other investments............... 31 319 350
Other........................... 209 (127)(E) 82
------- ------ ------ ------- ------- -------- -------
Total other assets............ 5,044 828 2,322 1,437 6,222 15,853
------- ------ ------ ------- ------- -------- -------
Total assets.............. $57,768 $4,084 $7,969 $ 8,801 $40,023 $ (31,703) $86,942
======= ====== ====== ======= ======= ======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Borrowings under lines of
credit........................ 8,668 8,668
Current installments of
long-term debt................ 2,844 278 648 (3,415)(A),(E) 355
Accounts payable................ 2,066 148 96 656 (301)(F) 2,665
Accrued expenses................ 2,358 85 629 12 (72)(E) 3,012
Dividends payable............... 86 86
Income taxes payable............ 131 (16) 115
Current portion of deferred
income........................ 400 400
Customer deposits............... 1,795 845 391 3,031
------- ------ ------ ------- ------- -------- -------
Total current
liabilities............. 18,262 233 1,918 1,707 (3,788) 18,332
------- ------ ------ ------- ------- -------- -------
Long-term debt, excluding
current installments.......... 13,897 786 1,840 5,446 (16,863)(A),(D),(G) 5,106
Deferred compensation........... 3,566 3,566
Deferred income, excluding
current portion............... 200 200
Accrued pension cost............ 1,504 1,504
Accrued postretirement benefit
cost.......................... 507 507
------- ------ ------ ------- ------- -------- -------
Total liabilities......... 37,936 1,019 3,758 7,153 (20,651) 29,215
------- ------ ------ ------- ------- -------- -------
Stockholders' equity:
Common stock.................... 38 21 180 5,502 40,023 (4,003)(D),(F) 41,761
Additional paid-in capital...... 9,174 9,174
Retained earnings............... 10,675 3,044 4,037 (3,854) (7,055)(B),(C),(F) 6,847
Treasury stock.................. (6) 6(F)
Cumulative translation
adjustment.................... (55) (55)
------- ------ ------ ------- ------- -------- -------
Total stockholders' equity.... 19,832 3,065 4,211 1,648 40,023 (11,052) 57,727
------- ------ ------ ------- ------- -------- -------
Total liabilities and
stockholders' equity.... $57,768 $4,084 $7,969 $ 8,801 $40,023 $ (31,703) $86,942
======= ====== ====== ======= ======= ======== =======
</TABLE>
19
<PAGE> 21
- ---------------
The Unaudited Pro Forma Combined Balance Sheet as of June 30, 1997 gives effect
to the Reorganization and the consummation of the C&C Acquisition and the Keith
Acquisition as if they had occurred on June 30, 1997 as follows:
<TABLE>
<S> <C> <C>
(A) Reflects this offering and the application of the proceeds
therefrom as follows:
Issuance of the stock.............................................. $44,617
Expenses for issuance of the stock................................. (4,594)
-------
Net proceeds....................................................... 40,023
Cash paid to sellers............................................... (19,212)
Cash paid to retire sellers debt................................... (2,263)
Retirement of debt assumed......................................... (6,186)
Retirement of current installments of long-term debt............... (2,674)
Retirement of long-term debt....................................... (9,171)
-------
Remaining proceeds................................................. 517
===
(B) Reflects the elimination of debt issuance costs.................... (89)
(C) Reflects the elimination of prior organization costs............... (89)
(D) Represents the Acquisitions:
</TABLE>
<TABLE>
<CAPTION>
KEITH
C&C MONUMENT TOTAL
------- -------- -------
<S> <C> <C> <C> <C>
Cash paid to sellers......................... $ 6,137 $13,075 $19,212
Stock issued to sellers...................... 200 1,500 1,700
Cash paid to retire sellers debt............. 463 1,800 2,263
Bank debt assumed(1)......................... 6,186 -- 6,186
------- ------- -------
Total purchase price(1).................... $12,986 $16,375 $29,361
======= ======= =======
(E) The Acquisitions are accounted for under the purchase method of accounting in
accordance with Accounting Principles Board Opinion No. 16, "Business
Combinations." The purchase price is allocated first to the tangible and
identifiable assets and liabilities of the acquired companies based upon
preliminary estimates of their fair market values, with the remainder allocated to
goodwill:
</TABLE>
<TABLE>
<CAPTION>
KEITH
C&C MONUMENT TOTAL
------- -------- -------
<S> <C> <C> <C> <C>
Net purchase price........................... $ 6,800 $16,375 $23,175
Book value of net assets on June 30, 1997.. 3,065 4,211 7,276
Net assets excluded or eliminated at
Acquisition............................... (929) (710) (1,639)
------- ------- -------
Book value of tangible net assets
acquired................................... 2,136 3,501 5,637
------- ------- -------
Increase in basis............................ $ 4,664 $12,874 $17,538
======= ======= =======
Allocation of increase in basis:
Increase in inventory value to convert LIFO
to fair value............................ -- 202 202
Step-up basis of property, plant and
equipment to fair market value........... 4,342 1,014 5,356
Increase in goodwill......................... 322 11,658 11,980
------- ------- -------
$ 4,664 $12,874 $17,538
======= ======= =======
(F) Reflects the elimination of investments in and advances between C&C, the Quarry
Companies and SMI pursuant to purchase accounting.
(G) Includes the elimination of $3,340,000 due from Swenson Granite Company, Inc., an
affiliate, assumed by the Company during the Reorganization and the assumption of a
$310,000 note payable that was the obligation of Swenson Granite Company, Inc.
prior to the Reorganization.
</TABLE>
--------------------
(1) Includes the assumption of the total debt of the Quarry Companies and
SMI of $5.4 million in conjunction with the acquisition of the
remaining 50% that was not acquired pursuant to the Keystone
Acquisition.
20
<PAGE> 22
UNAUDITED PRO FORMA COMBINED AND CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
-----------------------------------
ELBERTON KEITH PRO FORMA PRO FORMA
COMPANY COMPANIES(F) MONUMENT ADJUSTMENTS AS ADJUSTED
------- ------------ -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues:
Manufacturing.................................. $32,586 $ 16,446 $ (150)(A) $48,882
Quarrying...................................... 12,083 5,545 17,628
Retailing...................................... $7,264 7,264
------- -------- ------ ------- -------
Total net revenues........................... 44,669 21,991 7,264 (150) 73,774
Gross profit:
Manufacturing.................................. 8,248 2,116 10,364
Quarrying...................................... 5,158 1,814 126(B) 7,098
Retailing...................................... 4,832 4,832
------- -------- ------ ------- -------
Total gross profit........................... 13,406 3,930 4,832 126 22,294
Selling, general and administrative expenses..... 9,131 2,868 3,713 (458)(C) 15,254
------- -------- ------ ------- -------
Income from operations........................... 4,275 1,062 1,119 584 7,040
------- -------- ------ ------- -------
Interest expense................................. 1,723 643 (1,301)(D) 1,065
Income before provision (benefit) for income
taxes.......................................... 2,552 419 1,119 1,885 5,975
Provision (benefit) for income taxes............. 643 156 (24) 850(E) 1,625
------- -------- ------ ------- -------
Net income....................................... $ 1,909 $ 263 $1,143 $ 1,035 $ 4,350
======= ======== ====== ======= =======
Net income per share............................. .64
Weighted average number of shares outstanding.... 6,768
</TABLE>
- ---------------
The Unaudited Pro Forma Combined and Condensed Statement of Operations for the
year ended December 31, 1996 gives effect to the Reorganization and the
consummation of the C&C Acquisition and the Keith Acquisition as if they had
occurred on January 1, 1996 as follows:
<TABLE>
<S> <C>
(A) To eliminate intercompany sales........................................................... $ (150)
(B) Reflects the closure of the Caprice quarry................................................ 126
(C) Reflects the following:
Reversal of debt issuance costs....................................................... (70)
Reversal of organization costs........................................................ (33)
Amortization of goodwill.............................................................. 300
Reduction in salary expense........................................................... (620)
Selling, general and administrative expenses related to the Caprice quarry closure.... (35)
-------
(458)
(D) Reflects the elimination of interest expense.............................................. (1,301)
</TABLE>
(E) Reflects the net additional income tax provision as a result of the
above adjustments, at an effective tax rate of 27.2%, and provides for
income tax expense for companies previously taxed as Subchapter S
corporations.
(F) Following is a summary of the Elberton Companies operations for the year
ended December 31, 1996:
<TABLE>
<CAPTION>
QUARRY
COMPANIES &
SMI C&C KEYSTONE TOTAL
----------- ------ -------- -------
<S> <C> <C> <C> <C>
Net revenues:
Manufacturing...................................... $ 1,257 $5,885 $9,304 $16,446
Quarrying.......................................... 5,545 -- -- 5,545
Retailing.......................................... -- -- -- --
------- ------ ------ -------
Total net revenues........................... 6,802 5,885 9,304 21,991
Gross profit:
Manufacturing...................................... 219 1,132 765 2,116
Quarrying.......................................... 1,814 -- -- 1,814
Retailing.......................................... -- -- -- --
------- ------ ------ -------
Total gross profit........................... 2,033 1,132 765 3,930
Selling, general and administrative expenses......... 1,280 669 919 2,868
------- ------ ------ -------
Income (loss) from operations........................ 753 463 (154) 1,062
------- ------ ------ -------
Interest expense..................................... 462 65 116 643
Income (loss) before provision (benefit) for income
taxes.............................................. 291 398 (270) 419
Provision (benefit) for income taxes................. 156 -- -- 156
------- ------ ------ -------
Net income (loss).................................... $ 135 $ 398 $ (270) $ 263
======= ====== ====== =======
</TABLE>
21
<PAGE> 23
UNAUDITED PRO FORMA COMBINED AND CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------
ELBERTON KEITH PRO FORMA PRO FORMA
COMPANY COMPANIES(F) MONUMENT ADJUSTMENTS AS ADJUSTED
------- ------------ -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues:
Manufacturing................................ $15,278 $ 8,365 $ (150)(A) $23,493
Quarrying.................................... 5,489 2,912 8,401
Retailing.................................... $3,359 3,359
------- ------ ------ ------ -------
Total net revenues......................... 20,767 11,277 3,359 (150) 35,253
Gross profit:
Manufacturing................................ 3,640 993 4,633
Quarrying.................................... 1,565 1,209 175(B) 2,949
Retailing.................................... 2,271 2,271
------- ------ ------ ------ -------
Total gross profit......................... 5,205 2,202 2,271 175 9,853
Selling, general and administrative expenses... 4,328 1,370 1,883 (229)(C) 7,352
------- ------ ------ ------ -------
Income from operations......................... 877 832 388 404 2,501
Interest expense............................... 866 389 (690)(D) 565
Income before provision for income taxes....... 11 443 388 1,094 1,936
Provision for income taxes..................... 3 524(E) 527
------- ------ ------ ------ -------
Net income..................................... $ 8 $ 443 $ 388 $ 570 $ 1,409
======= ====== ====== ====== =======
Net income per share........................... .20
Weighted average number of shares
outstanding.................................. 7,051
</TABLE>
- ---------------
The Unaudited Pro Forma Combined and Condensed Statement of Operations for the
six months ended June 30, 1997 gives effect to the Reorganization and the
consummation of the C&C Acquisition and the Keith Acquisition as if they had
occurred on January 1, 1997 as follows:
<TABLE>
<S> <C>
(A) To eliminate intercompany sales.............................................................. $ (150)
(B) Reflects the closure of the Caprice quarry................................................... 175
(C) Reflects the following:
Reversal of debt issuance costs.............................................................. (35)
Reversal of organization costs............................................................... (17)
Amortization of goodwill..................................................................... 150
Reduction in salary expense.................................................................. (310)
Selling, general and administrative expenses related to the Caprice quarry closure........... (17)
----
(229)
(D) Reflects the elimination of interest expense................................................. (690)
</TABLE>
(E) Reflects the net additional income tax provision as a result of the
above adjustments, at an effective tax rate of 27.2%, and provides for
income tax expense for companies previously taxed as Subchapter S
corporations.
(F) Following is a summary of the Elberton Companies operations for the six
months ended June 30 , 1997:
<TABLE>
<CAPTION>
QUARRY
COMPANIES &
SMI C&C KEYSTONE TOTAL
--------------- ------ -------- ------
<S> <C> <C> <C> <C>
Net revenues:
Manufacturing......................................... $ 649 $3,061 $4,654 $ 8,365
Quarrying............................................. 2,912 -- -- 2,912
Retailing............................................. -- -- -- --
------- ------ ------ -------
Total net revenues.............................. 3,561 3,601 4,654 11,277
Gross profit:
Manufacturing......................................... 129 679 186 993
Quarrying............................................. 1,209 -- -- 1,209
Retailing............................................. -- -- -- --
------- ------ ------ -------
Total gross profit.............................. 1,338 679 186 2,202
Selling, general and administrative expenses............ 634 375 361 1,370
------- ------ ------ -------
Income (loss) from operations........................... 704 304 (175) 832
------- ------ ------ -------
Interest expense........................................ 201 35 154 389
------- ------ ------ -------
Income (loss) before provision for income taxes......... 503 269 (329) 443
Provision for income taxes.............................. -- -- -- --
------- ------ ------ -------
Net income.............................................. $ 503 $ 269 $ (329) $ 443
======= ====== ====== =======
</TABLE>
22
<PAGE> 24
UNAUDITED PRO FORMA COMBINED AND CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------
ELBERTON KEITH PRO FORMA PRO FORMA
COMPANY COMPANIES(F) MONUMENT ADJUSTMENTS AS ADJUSTED
------- ------------ -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues:
Manufacturing.............................. $14,827 $ 8,050 $ (80)(A) $22,797
Quarrying.................................. 5,116 2,985 8,101
Retailing.................................. $2,812 2,812
------- ------- ------ ----- -------
Total net revenues....................... 19,943 11,035 2,812 (80) 33,710
Gross profit:
Manufacturing.............................. 3,603 936 4,539
Quarrying.................................. 1,653 937 64(B) 2,654
Retailing.................................. 1,823 1,823
------- ------- ------ ----- -------
Total gross profit....................... 5,256 1,873 1,823 64 9,016
Selling, general and administrative
expenses................................... 4,649 1,376 1,545 (233)(C) 7,338
------- ------- ------ ----- -------
Income from operations....................... 607 497 278 297 1,678
------- ------- ------ ----- -------
Interest expense............................. 934 340 $(701)(D) 573
Income (loss) before provision (benefit) for
income taxes............................... (327) 157 278 998 1,105
Provision (benefit) for income taxes......... (82) 383(E) 301
------- ------- ------ ----- -------
Net income (loss)............................ $ (245) $ 157 $ 278 $ 615 $ 804
======= ======= ====== ===== =======
Net income per share......................... .12
Weighted average number of shares
outstanding................................ 6,768
</TABLE>
- ---------------
The Unaudited Pro Forma Combined and Condensed Statement of Operations for the
six months ended June 30, 1996 gives effect to the Reorganization and the
consummation of the C&C Acquisition and the Keith Acquisition as if they had
occurred on January 1, 1996 as follows:
<TABLE>
<S> <C>
(A) To eliminate intercompany sales.................................................................. $ (80)
(B) Reflects the closure of the Caprice quarry....................................................... 64
(C) Reflects the following:
Reversal of debt issuance costs.................................................................. (35)
Reversal of organization costs................................................................... (17)
Amortization of goodwill......................................................................... 150
Reduction in salary expense...................................................................... (310)
Selling, general and administrative expenses related to the Caprice quarry closure............... (21)
-----
(233)
(D) Reflects the elimination of interest expense..................................................... (701)
(E) Reflects the net additional income tax provision as a result of the above adjustments, at an effective tax
rate of 27.2%, and provides for income tax expense for companies previously taxed as Subchapter S
corporations.
(F) Following is a summary of the Elberton Companies operations for the six months ended June 30, 1996:
</TABLE>
<TABLE>
<CAPTION>
QUARRY
COMPANIES &
SMI C&C KEYSTONE TOTAL
----------- ------ -------- -------
<S> <C> <C> <C> <C>
Net revenues:
Manufacturing..................................... $ 574 $2,861 $4,615 $ 8,050
Quarrying......................................... 2,985 -- -- 2,985
Retailing......................................... -- -- -- --
------ ------ ------ -------
Total net revenues.......................... 3,559 2,861 4,615 11,035
Gross profit:
Manufacturing..................................... 51 599 286 936
Quarrying......................................... 937 -- -- 937
Retailing......................................... -- -- -- --
------ ------ ------ -------
Total gross profit.......................... 988 599 286 1,873
Selling, general and administrative expenses........ 646 300 430 1,376
------ ------ ------ -------
Income (loss) from operations....................... 342 299 (144) 497
====== ====== ====== =======
Interest expense.................................... 236 35 69 340
Income (loss) before provision for income taxes..... 106 264 (213) 157
Provision for income taxes.......................... -- -- -- --
------ ------ ------ -------
Net income.......................................... $ 106 $ 264 $ (213) $ 157
====== ====== ====== =======
</TABLE>
23
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Rock of Ages, founded in 1885, is an integrated quarrier, manufacturer and
distributor of granite and products manufactured from granite. The quarry
division sells granite both to the manufacturing division and to outside
manufacturers, as well as to distributors in Europe and Japan. The manufacturing
division's principal product is granite memorials used primarily in cemeteries,
although it also manufactures some specialized granite products for industrial
applications. The Company owns and operates 13 active quarry properties and 12
manufacturing and sawing facilities in North America, principally in Vermont,
Georgia, and the Province of Quebec. The Company markets and distributes its
memorials on a wholesale basis to approximately 2,124 independent memorial
retailers in the United States and Canada, including approximately 495
independent authorized Rock of Ages retailers that are the primary outlet for
the Company's branded memorials. The Company recently entered into a definitive
agreement to acquire one of the largest of its authorized independent retailers,
which will provide the Company with 17 owned retail outlets and mark the
Company's first significant entry into retailing. The Company's memorials are
marketed under the names of Rock of Ages Sealmark and Colorcraft, as well as
several private labels. The Company believes that the Rock of Ages trademark is
one of the oldest and best known brand names in the granite memorialization
industry.
Prior to 1996, the Company's quarrying and manufacturing operations were
concentrated in Vermont and Quebec, and its manufacturing division produced
primarily high-end branded memorials that were distributed to a relatively small
percentage of the independent memorial retailers in North America. During the
past 20 months, the Company has begun to implement a strategy that involves: (i)
significantly expanding the breadth of its product offerings to include
memorials covering all price points and major color varieties; (ii) increasing
its distribution base; and (iii) vertically integrating forward into the retail
distribution channel in order to move closer to the ultimate memorial customer.
The steps taken by the Company so far in this regard have enabled it to increase
manufacturing revenues from $17.8 million in 1995 to $32.6 million in 1996
($48.9 million in 1996 on a pro forma basis), and to increase its distribution
base from 495 independent retailers in 1995 to approximately 2,124 in 1997
including 17 Company-owned outlets. More importantly, these steps have
positioned the Company favorably to capitalize on the opportunities to
significantly expand its sales and profitability in the granite memorialization
industry.
The Company's primary means of implementing its growth strategy to date has
been through acquisitions, beginning with the acquisitions on December 31, 1995
of Lawson Granite Company and Anderson-Friberg Company, each based in Barre,
Vermont. These acquisitions helped expand the Company's manufacturing capacity
and distribution base, while also broadening its granite memorial product line
to include more non-branded granite memorials at lower price points than the
Company's then-existing product line. In addition, the Company has recently
taken further steps to implement its growth strategy through (i) the Keystone
Acquisition, pursuant to which the Company acquired on June 30, 1997 the largest
granite memorial manufacturer in Elberton, Georgia, and (ii) the execution of
agreements to consummate the C&C Acquisition, pursuant to which the Company will
acquire C&C, which the Company believes is the second-largest granite memorial
manufacturer in Elberton. The Elberton Acquisitions will establish the Company
as the largest granite memorial manufacturer in Elberton, Georgia, which is the
largest granite producing area in North America and will give the Company a
substantially broader product line, greater manufacturing capacity and enhanced
distribution capabilities in the southern United States.
The Company's first significant entry into memorial retailing was initiated
in July 1997, when the Company entered into a definitive agreement to acquire
Keith Monument. It is currently anticipated that the Keith Acquisition will
close concurrently with the consummation of this offering. Keith Monument,
founded in 1867, has been an authorized Rock of Ages retailer for more than 50
years. The Company believes that Keith Monument is one of the largest retailers
of granite memorials in the United States. Upon the closing of the Keith
Acquisition, John E. Keith, a principal owner and the president of Keith
Monument with over 30 years of experience in granite memorial retailing, will
head the Company's retailing operations. Mr. Keith
24
<PAGE> 26
will oversee the implementation of the Company's strategy to significantly
expand its retail operations both through other acquisitions of retailers and by
pursuing strategic alliances with funeral home and cemetery owners, including
consolidators.
The Company records revenues from both manufacturing and quarrying.
Manufacturing revenues are recorded when the finished product is shipped from
Company facilities to an outside customer. The granite quarried by the Company
is sold both to outside customers and used by the Company's manufacturing
division. During 1996, 68.6% of the granite quarried by the Company was sold to
outside customers. The Company records revenue and gross profit related to the
sale of granite sold to an outside customer when the granite is shipped from the
Company's quarry. The Company does not record a sale, nor does the Company
record gross profit, at the time granite is transferred to the Company's
manufacturing division. The Company records revenue and gross profit related to
internally transferred granite only after the granite is manufactured into a
finished product and sold to an outside customer.
The following table sets forth certain historical statement of operations
data as a percentage of net revenues with the exception of manufacturing gross
profit and quarrying gross profit, which are shown as a percentage of
manufacturing revenues and quarrying revenues, respectively.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------- ----------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net revenues..................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Manufacturing.................................. 50.6 53.8 72.9 74.3 73.6
Quarrying...................................... 49.4 46.2 27.1 25.7 26.4
----- ----- ----- ----- -----
Total....................................... 100.0 100.0 100.0 100.0 100.0
Gross profit
Manufacturing.................................. 23.4 24.4 25.3 24.3 23.8
Quarrying...................................... 35.8 39.9 42.7 32.3 28.5
Combined gross profit.......................... 29.5 31.6 30.0 26.4 25.1
Selling, general and administrative expenses..... 17.7 19.5 20.4 23.3 20.8
Income from operations........................... 11.8 12.1 9.6 3.0 4.2
Interest expense................................. 4.8 5.1 3.9 4.7 4.2
Income (loss) before provision (benefit) for
income taxes................................... 7.0 5.3 5.7 (1.6) 0.1
Provision (benefit) for income taxes............. 1.7 1.1 1.4 (0.4) 0.0
Net income (loss)................................ 5.3 4.2 4.3 (1.2) 0.0
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Revenues for the six months ended June 30, 1997 increased 4.1% to $20.8
million from $19.9 million for the six months ended June 30, 1996. This increase
was partly attributable to an increase in manufacturing revenues of $500,000 due
to a greater number of memorial units sold. Although quarry revenues from the
North American market experienced a slight decline during the period ended June
30, 1997, quarry revenues increased by a net $400,000 as a result of increased
exports to Asia.
Gross profit for the six months ended June 30, 1997 remained unchanged at
$5.2 million compared to gross profit for the six months ended June 30, 1996.
The gross profit percentage fell slightly to 25.1% for the six months ended June
30, 1997 from 26.4% for the six months ended June 30, 1996 but was offset by
higher sales volumes during the most recent period. The gross profit margin in
manufacturing declined during the six months ended June 30, 1997 as a result of
a slight shift in the product mix toward lower margin products. The decrease in
the quarry gross profit margin for the six months ended June 30, 1997 was a
result of a shift in product mix toward lower-margin exports.
Selling, general and administrative expenses for the six months ended June
30, 1997 decreased 6.9% to $4.4 million from $4.6 million for the six months
ended June 30, 1996. As a percentage of sales, selling,
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general and administrative expenses decreased to 20.8% from 23.3% for the prior
six month period. This decrease during the most recent period compared to the
prior period resulted from cost savings as a result of the integration of
acquisitions consummated during 1996.
Interest expense for the six month period ended June 30, 1997 decreased to
$866,000 from $934,000 for the six month period ended June 30, 1996. The
reduction in interest expense was the result of reduced borrowing levels during
the most recent period.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995.
Revenues for the fiscal year ended December 31, 1996 increased 35.0% to
$44.7 million from $33.1 million for the year ended December 31, 1995. This
growth was attributable to an increase of $3.9 million in revenues from existing
operations and an increase of $10.9 million in revenues from acquired
manufacturing operations. This increase was offset by a decrease in quarry
revenues as a result of the Company's acquisition of two manufacturers that had
previously been significant customers and a $1.7 million decrease in quarry
sales due to reduced exports to Japan and other Asian markets.
Gross profit for 1996 compared to 1995 increased 28.3% to $13.4 million
from $10.4 million in 1995. The higher total gross profit reflects an increase
of $2.5 million from acquired manufacturing operations and an increase of $1.4
million from existing manufacturing operations. This increase was partly offset
by reduced gross profit of $900,000 from quarrying operations due to lower
revenue. The gross profit percentage fell slightly to 30.0% in 1996 from 31.6%
in 1995 as a result of sales from the lower margin products of the acquired
manufacturing operations. The lower gross margin in 1996 compared to 1995 was
offset slightly by higher margins in the quarry operations due to a price
increase that went into effect during 1996. Although gross profit margins in
both manufacturing and quarrying increased for 1996 compared to 1995, the total
gross profit margin declined as a result of the lower margin manufacturing
business accounting for a higher percentage of total Company revenues.
Selling, general and administrative expenses for 1996 increased 41.5% to
$9.1 million from $6.5 million in 1995. As a percentage of net sales, selling,
general and administrative expenses for 1996 increased to 20.4% from 19.5% in
1995. This increase resulted primarily from increased personnel expense
necessary to support a higher rate of growth in memorial manufacturing and
increased acquisition activity.
Interest expense for 1996 remained unchanged from 1995 at $1.7 million.
Income taxes as a percent of earnings before taxes increased from 20.4% to
25.2% in 1996. Although the Company was in an alternative minimum tax position
for Federal tax purposes, the Company paid higher state taxes as a result of its
income level exceeding the Company's depletion allowances. In 1995, the Company
was in an alternative minimum tax position for Federal taxes and paid only a
nominal amount of state taxes as a result of the magnitude of its depletion
allowances.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994.
Revenues for 1995 decreased 3.2% to $33.1 million from $34.2 million for
the fiscal year ended December 31, 1994. The decrease was attributable to a $1.6
million reduction in quarry sales from reduced exports to Japan and other Asian
markets. This decrease was slightly offset by a $500,000 increase in
manufacturing sales.
Gross profit for 1995 increased 3.5% to $10.4 million from $10.1 million in
1994. The increase was the result of an improvement in the gross profit
percentage to 31.6% in 1995 from 29.5% in 1994. The improved gross margin was in
part a reflection of manufacturing volume increases and changes in the Company's
marketing and pricing strategies to deemphasize lower margin customers.
Additionally, gross profit margins increased as a result of unit cost reductions
in the Company's quarry operations.
Selling, general and administrative expenses for 1995 increased 6.7% to
$6.5 million from $6.0 million in 1994. As a percentage of net revenue, selling,
general and administrative expenses for 1995 increased to 19.5%
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from 17.7% in 1994. This increase resulted primarily from expenses related to
the employee savings and profit sharing plan which was established during fiscal
1995.
Interest expense, net for 1995 remained unchanged at $1.7 million from
1994.
Income taxes as a percent of earnings before taxes decreased from 24.1% in
1994 to 20.4% in 1995. The decrease was the result of a lower level of taxable
income in 1995 which resulted in the Company being in an alternative minimum tax
position for Federal income tax purposes. During 1994, the Company was still in
an alternative minimum tax position but had a higher level of taxable income
which exceeded its depletion allowance for state income tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity. The Company considers liquidity to be its ability to meet its
long and short-term cash requirements. Historically the Company has met these
requirements primarily from cash generated by operating activities and periodic
borrowings under commercial credit facilities. The Company's recent and pending
acquisitions have increased its requirements for external sources of liquidity,
and the Company anticipates that this trend will continue as it further
implements its growth strategy.
Six Months Ended June 30, 1997. For the six months ended June 30, 1997 net
cash used in operating activities was $3.0 million. The six month period results
were primarily attributable to increases in trade receivables and amounts due
from affiliates. Net cash used in investing activities was $1.7 million for the
six month period. The results were primarily attributable to purchase of
property, plant and equipment. Net cash provided by financing activities was
$4.1 million for the six month period. The results were primarily attributable
to borrowings under lines of credit that were partially offset by principal
payments on long-term debt.
Year Ended December 31, 1996. For 1996, net cash provided by operating
activities was $3.9 million. 1996 results were driven primarily by cash provided
by a decrease in trade receivables which were partially offset by an increase in
inventories and receivables due from affiliates. Net cash used in investing
activities was $1.8 million primarily for the purchase of property, plant and
equipment. Net cash used in financing activities was $3.3 million used primarily
for principal repayments on long-term debt, offset by increased borrowings under
lines of credit.
Capital Resources. As of June 30, 1997, the Company had $6.6 million
outstanding and approximately $2.9 million available under its revolving credit
facility with CIT Group -- Business Credit Inc. ("CIT"). The interest rate on
this facility as of such date was 9.5%, based on a formula of prime plus 1%. In
addition, the Company had outstanding a term loan payable to CIT in the
principal amount of $13.6 million, bearing interest at 9.75% based on prime plus
1.25%. The term loan has a final maturity of January 1, 1999, with amortization
requirements of $500,000 per quarter. As of June 30, 1997, the Company had
approximately $1.8 million of indebtedness outstanding under credit facilities
assumed in connection with the Keystone Acquisition, with maturities in 1997,
1998 and 1999 and interest of up to 9.75% per annum (the "Keystone
Indebtedness"). The Company intends to apply a portion of the net proceeds of
the offering toward repayment of outstanding amounts under its credit facility
and term loan with CIT and the Keystone Indebtedness, and has received a
commitment letter for a new $50 million credit facility subject to consummation
of the offering, borrowings under which will be used to repay all remaining
amounts outstanding under the existing credit facility with CIT. As of June 30,
1997, the Company also had $2.1 million outstanding and no availability under a
demand revolving line of credit with the Royal Bank of Canada. The interest rate
on this facility as of such date was 6.25% based on a formula of Canadian prime
plus .75%. The Company's primary need for capital will be to maintain and
improve its manufacturing and quarrying facilities and to finance acquisitions
as part of its growth strategy. The Company has $3.7 million budgeted for
capital expenditures in 1997, of which it had spent $1.6 million through June
30, 1997. The Company believes that the combination of cash flow from
operations, its existing credit facilities, the proceeds of this offering, and
the new credit facility it expects to put in place will be sufficient to fund
its operations for at least the next twelve months.
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SEASONALITY
Historically, the Company's operations have experienced certain seasonal
patterns. Generally the Company's net sales have been highest in the third
quarter and lowest in the first quarter of each year due primarily to weather.
Cemeteries in northern areas generally do not accept granite memorials during
winter months when the ground is frozen because they cannot be properly set. The
Company typically closes certain of its Vermont and Canadian quarries during
these months because of increased operating costs attributable to adverse
weather conditions. The Company has historically incurred a net loss during the
first six months of each calendar year. However, the Company believes that the
variability of its operating results on a quarterly basis will be lessened as
its operations become more geographically dispersed.
INFLATION
The Company believes that the relatively moderate rates of inflation
experienced in recent years have not had a significant effect on its results of
operations.
NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 128, Earnings Per Share, will require a different calculation of
earnings per share and will require a restatement in all prior periods. This
will be effective for periods ending after December 15, 1997.
SFAS No. 130, Reporting Comprehensive Income, will be effective for periods
beginning after December 15, 1997.
SFAS No. 131, Disclosure About Segments of an Enterprise and Related
Information, will be effective for periods beginning after December 15, 1997.
Management does not believe that the above pronouncements will have a
material effect on the Company's financial statements.
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THE DEATH CARE INDUSTRY AND GRANITE MEMORIALIZATION
DEATH CARE INDUSTRY OVERVIEW
The death care industry has traditionally been comprised of three principal
segments: (i) ceremony and tribute, generally in the form of a funeral or
memorial service; (ii) disposition of remains, either through burial or
cremation; and (iii) memorialization, generally through monuments, markers or
inscriptions. The death care industry is relatively stable due to predictable
death rates and demographics relating to aging and wealth. Certain
characteristics generally applicable to the death care industry are summarized
below.
Fragmented nature. Ownership in the death care industry is generally
highly fragmented. With the exception of bronze memorial suppliers (two
companies with an estimated market share of in excess of 80%) and casket
manufacturers (three companies with an estimated 60% market share), the majority
of death care operators are small, privately-owned family companies. At the end
of 1996, consolidators owned (i) less than 12% of the estimated 22,800 funeral
homes, (ii) approximately 890, or less than 10%, of the estimated 9,500
commercial cemeteries, and (iii) less than 5% of the total estimated 23,000
active cemeteries, in the United States.
Barriers to entry. Death care businesses have traditionally been
transferred to successive generations within a family and in most cases have a
heritage, community presence and tradition that act as formidable barriers for
new entrants into existing markets. Presence and tradition afford established
industry operators an important local franchise and provide the opportunity for
significant referral business.
Stability. Death rates in the United States and Canada are fairly
predictable and are expected to rise approximately 1% per year between 1996 and
2010. The general death care industry is therefore relatively stable and fairly
predictable. Business failures are generally uncommon among retailers of death
care products and services, with ownership traditionally passing from generation
to generation.
Consolidation. Consolidators are actively consolidating the funeral home
and cemetery segments of the death care industry; the Company believes this
consolidation will occur in all areas of the death care industry.
Pre-need marketing and selling. An increasing number of general death care
products and services, especially funeral products and services and cemetery
lots controlled by consolidators, are being sold prior to the time of death
("pre-need") rather than at the time of death ("at-need").
Trend toward cremation. In recent years, there has been a steady, gradual
growth in the number of families that have chosen cremation as an alternative to
traditional methods of burial. According to CANA, cremations represented
approximately 22% of the United States burial market in 1996 compared to
approximately 10% in 1980, and CANA expects this rate to rise to 29% by 2010.
Cremation rates vary dramatically by state for religious, cultural and other
reasons. Cremation is generally marketed as a less costly alternative to
interment; in addition, it is increasingly being marketed as a part of a death
care program that incorporates a traditional service and memorialization.
THE GRANITE MEMORIALIZATION INDUSTRY
General. In 1995, there were approximately 1.8 million interments in the
United States. Of these, the Company believes at least 50% were memorialized in
some sort of permanent manner. These memorializations take a number of forms,
depending on the type of interment. Individual cemetery lots typically have
granite or bronze memorials, while communal interments such as community
mausoleums, cremation niches and columbariums have a range of stone, masonry and
wood construction. The Company believes the North American granite
memorialization industry, excluding communal interments such as community
mausoleums and columbariums, is in excess of $1.0 billion in annual retail sales
in 1996.
Granite memorials are manufactured in a wide variety of sizes, designs and
colors, depending on the degree of personalization desired by the customer. The
Company believes the largest selling colors, in descending order of magnitude,
are Elberton Gray, Barre Gray, Black, Dakota Mahogany, Pink and Red, based on
the Company's sales and market information. While there are a number of standard
types of
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memorials, including flush grass markers and various types of upright granite
memorials, their size varies slightly from region to region.
The granite memorialization industry is comprised of three principal areas:
(i) quarrying of the granite; (ii) manufacture and wholesale distribution of the
memorials; and (iii) retail sales of the memorials. The granite memorialization
industry shares some of the fundamental characteristics of the death care
industry, including barriers to entry created by local heritage, community
presence and tradition, structural fragmentation and stable, predictable demand.
However, the granite memorialization industry and its three principal areas have
certain distinguishing characteristics that the Company believes create
attractive opportunities. These characteristics include the following:
Timing and point of sale. Unlike most death care products and services,
the purchase of granite memorials by consumers is typically separated both
physically and chronologically from the funeral planning and service process.
Granite memorials have traditionally been sold primarily through independent
monument retailers rather than at or through funeral homes or cemeteries
(approximately 3,000 of such independent memorial retailers are located outside
funeral homes and cemeteries, according to the Monument Builders of North
America). In addition, granite memorials historically have been sold some time
after the funeral or interment service.
Additional barriers to entry. As in the death care industry generally,
local heritage, community presence and tradition deter entry into the granite
memorialization industry. However, the most significant barriers to entry to the
quarrying of granite include: (i) the limited number of known commercially
exploitable memorial grade granite deposits; (ii) stringent federal, state and
local zoning and environmental laws; and (iii) substantial capital requirements.
Barriers to entry in the manufacture of granite memorials include (a) the need
to be in reasonable proximity to granite quarries producing memorial grade
granite due to the high freight costs associated with transporting granite
blocks; (b) substantial capital costs in establishing and operating a memorial
grade granite manufacturing facility; and (c) the need for highly skilled stone
cutters, sandblasters, sculptors and other skilled artisans necessary to produce
granite memorials.
Ownership structure. The granite memorialization industry is characterized
by increasing fragmentation as one moves closer to the ultimate customer. The
Company estimates that there are approximately 50 quarriers and 140
manufacturers of memorial grade granite in North America. The Company believes
that it is the largest manufacturer of memorial grade granite in North America,
based on revenues. According to the Monument Builders of North America, there
are approximately 3,000 retailers of granite memorials in North America located
outside funeral homes and cemeteries. Most of these quarrying, manufacturing and
retail businesses are privately owned and family run.
Geographic concentration and production costs. The quarrying and
manufacture of granite memorials in North America are concentrated in four
geographic areas: Barre, Vermont; Beebe, Quebec; Elberton, Georgia; and the area
encompassing Milbank, South Dakota, Cold Spring and St. Cloud, Minnesota and
Wausau, Wisconsin (known in the trade as the "Northwest"). Generally, granite
quarriers and manufacturers in each area have the strongest market shares in the
neighboring geographic regions because of the relatively high freight costs
involved in shipping granite. The low cost and low price production area is
Elberton, while the other three regions generally have similar costs and selling
prices.
Competing products. The primary competition for granite memorialization on
individual cemetery lots comes from bronze products which currently constitute
approximately one-third of the aggregate memorialization business, measured in
retail sales dollars. Bronze markers are generally flush rather than upright and
are typically offered in a limited number of styles and designs, with relatively
little opportunity for personalization. Unlike granite memorials, bronze markers
are sold primarily through cemeteries where they have traditionally been
marketed to the consumer as a lower cost alternative to granite and to the
cemeterian as a lower cost cemetery maintenance option. To a lesser extent,
marble is also used as a substitute for granite in memorialization. See
"Business -- Competition."
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OPPORTUNITIES
The Company believes that the aforementioned industry characteristics
present it with the opportunity to:
- Serve the geographically dispersed and fragmented memorial retailers by
offering a full line of granite memorials throughout North America. The
Company is the leading quarrier and manufacturer of granite memorials in
three of the four principal granite memorial producing regions of North
America. Accordingly, the Company is well positioned to provide,
primarily through its own quarrying and manufacturing operations, a
complete line of high quality, granite memorials covering all price
points and major color varieties to North American retailers and to
cemetery and funeral home owners, including consolidators.
- Capitalize on the fragmented nature of granite memorial retailing and the
Company's existing relationships with over 2,100 independent retailers by
making strategic acquisitions of independent retailers in order to build
an integrated network of owned Rock of Ages retailers and thereby capture
the higher margins that have historically existed at the retail level.
- Capitalize on the trend toward cremation by attracting consumer dollars
otherwise spent on casket and burial vault expenses. The Company believes
that with enhanced distribution capabilities, promotion, advertising and
consumer awareness of memorialization, more consumers who have elected
cremation may opt for personalized upright granite memorials.
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BUSINESS
GENERAL
Rock of Ages, founded in 1885, is an integrated granite quarrier,
manufacturer and distributor whose principal product is granite memorials used
primarily in cemeteries. The Company believes that it is the largest quarrier,
manufacturer and distributor of finished granite memorials and granite blocks
for memorial use in North America, based on revenues. The Company owns and
operates 13 active quarry properties and 13 manufacturing and sawing facilities
in North America, principally in Vermont, Georgia and the Province of Quebec.
The Company markets and distributes its memorials on a wholesale basis to
approximately 2,124 independent memorial retailers in the United States and
Canada, including approximately 495 independent authorized Rock of Ages
retailers that are the primary outlet for the Company's branded memorials. The
Company recently entered into a definitive agreement to acquire one of the
largest of its authorized independent retailers, which will provide the Company
with 17 owned retail outlets and mark the Company's first significant entry into
retailing. The Company's memorials are marketed under the names Rock of Ages
Sealmark and Colorcraft, as well as several private labels. The Company believes
the Rock of Ages trademark is one of the oldest and best known brand names in
the granite memorialization industry.
BUSINESS STRATEGY
Rock of Ages believes it is well-positioned to capitalize on the industry
characteristics described previously, and seeks to establish a dominant position
in the granite memorialization industry. The Company intends both to improve the
efficiency of its existing operations and to expand its business significantly.
The principal elements of the Company's operating and growth strategies are
summarized below.
Operating Strategy. The Company pursues an operating strategy that
includes the following key elements:
- Providing, primarily through its own quarrying and manufacturing
operations, a complete line of high quality granite memorials covering
all price points and major color varieties. The Company believes it is
the only industry participant with both quarrying and manufacturing
operations in three of the four principal granite memorial producing
regions of North America.
- Enhancing operational efficiencies through the continued integration of
acquired quarriers and manufacturers and the rationalization of its sales
and distribution efforts.
- Increasing advertising and promotion of the Rock of Ages brands,
including the flagship Rock of Ages Sealmark and Colorcraft brands, in
order to heighten consumer awareness and increase sales of the Company's
products.
Growth Strategy. The Company seeks to expand the scope and profitability
of its operations by implementing a growth strategy that includes forward
vertical integration into retailing, thereby enabling the Company to move closer
to the ultimate customer. The principal elements of this strategy include the
following:
- Acquiring independent granite memorial retailers in selected markets in
order to develop an integrated network of owned Rock of Ages retailers
and thereby capture the higher margins that have historically existed at
the retail level.
- Increasing sales to independent retailers that are current customers and
expanding its independent retailer customer base. During the last two
years, principally through acquisitions of quarriers and manufacturers,
the Company has increased the number of independent retailers to which it
sells its products from approximately 495 in 1995 to approximately 2,124
in 1997.
- Pursuing strategic alliances with funeral home and cemetery owners,
including consolidators, to supply granite memorials to or through them,
in order to increase both pre-need and at-need sales of granite
memorials.
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RECENT AND CONCURRENT ACQUISITIONS
The Company's primary means of implementing its growth strategy to date has
been through acquisitions, beginning with the acquisition on December 31, 1995
of Lawson Granite Company and Anderson-Friberg Company, each based in Barre,
Vermont. These acquisitions helped expand the Company's manufacturing capacity
and distribution base, while also broadening its granite memorial product line
to include more non-branded granite memorials at lower price points than the
Company's then-existing product line. The Company has recently taken further
steps to implement its growth strategy through the Keystone Acquisition and the
proposed C&C Acquisition and Keith Acquisition. The Company believes that these
acquisitions and the continued implementation of the other elements of its
operating and growth strategies will enable it to: (i) expand overall industry
sales of granite memorials, which heretofore have been actively marketed to
consumers primarily only on an at-need basis and in a limited manner; (ii)
increase its share of the granite memorial market by offering a complete product
line with strong brand names through distribution channels that more directly
reach the consumer; and (iii) increase both its relative and total profitability
by capturing some of the higher margins that have historically existed at the
retail level.
Keystone. In June 1997, the Company acquired Keystone, the largest
memorial manufacturer in Elberton, Georgia, including Keystone's 50% ownership
interest in each of SMI and the Quarry Companies. Keystone had revenues of $9.3
million for the year ended December 31, 1996. The Company made the Keystone
Acquisition in order to: (i) become the largest manufacturer of granite
memorials in the largest granite producing area of North America; (ii) expand
the Company's product offering to its and Keystone's customers by combining the
product lines of the two companies and thereby offering easy "one-stop-shopping"
to retailers; (iii) obtain immediate access to an expanded customer base of
independent retailers; (iv) reduce raw material and production costs for certain
granite; and (v) reduce transportation costs and enhance transportation
capabilities. In connection with the Keystone Acquisition, the Company issued
263,441 shares of Class B Common Stock and assumed or incurred $2.7 million of
indebtedness of Keystone.
C&C. In June 1997, the Company also entered into a definitive agreement to
acquire C&C, which the Company believes is the second largest manufacturer of
granite memorials in Elberton, Georgia, and the remaining 50% of each of SMI and
the Quarry Companies owned by the stockholders of C&C. It is expected that the
C&C Acquisition will close concurrently with the consummation of this offering.
C&C had revenues of $5.9 million for the year ended December 31, 1996. The
Company believes that the C&C Acquisition by itself offers many of the same
benefits that the Keystone Acquisition provides, and, in combination with the
Keystone Acquisition, solidifies the Company's position as the largest granite
memorial manufacturer in the Elberton region. The purchase price payable for C&C
is $6.6 million in cash and $200,000 in shares of Class A Common Stock (valued
at the initial public offering price) and approximately $780,000 to repay
outstanding indebtedness of C&C.
Quarry Companies and SMI. As part of the Keystone Acquisition and the C&C
Acquisition, the Company will also acquire the Quarry Companies and SMI and
assume $5.4 million of indebtedness of such companies upon the closing of the
C&C Acquisition. The Quarry Companies and SMI had sales of $6.8 million for the
year ended December 31, 1996. The Quarry Companies own and operate six quarries
located in Georgia, Pennsylvania, North Carolina, South Carolina and Oklahoma.
The Quarry Companies offer the Company an internal source of a variety of
colored granite, including American Black, Salisbury Pink, Autumn Rose and
Kershaw Pink. These colors supplement the Company's product line for both
granite memorials and mausoleums. With the acquisition of SMI, the Company will
obtain a manufacturing facility dedicated primarily to the construction of
mausoleums, which are a more expensive and higher margin product than most other
types of granite memorials.
Keith Monument. In July 1997, the Company entered into a definitive
agreement to acquire substantially all of the assets and liabilities of Keith
Monument. Keith Monument has been an authorized Rock of Ages retailer for more
than 50 years and, the Company believes, is one of the largest retailers of
granite memorials in the United States. It is expected that the Keith
Acquisition will close concurrently with the consummation of this offering.
Keith Monument had revenues of $7.8 million for the year ended June 30, 1997.
The Keith Acquisition offers the Company an immediate presence in memorial
retailing and provides
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the Company with management expertise in the retailing sector. The purchase
price payable for Keith Monument is $16.4 million, consisting of $13.1 million
in cash, $1.5 million in shares of Class A Common Stock (valued at the initial
public offering price) and $1.8 million to repay outstanding indebtedness of
Keith Monument assumed by the Company. Upon the closing of the Keith
Acquisition, John E. Keith, a principal owner and the president of Keith
Monument with over thirty years of experience in granite memorial retailing,
will head the Company's retailing operations. Mr. Keith will oversee the
implementation of the Company's strategy to significantly expand its retail
operations both through other acquisitions of retailers and by pursuing
strategic alliances with funeral home and cemetery owners, including
consolidators.
QUARRYING AND MANUFACTURING OPERATIONS
Quarrying. The Company owns and operates 13 active quarries producing, or
has supply agreements to obtain, each of the largest selling granite memorial
colors in North America (Elberton Gray, Barre Gray, Black, Dakota Mahogany, Pink
and Red, in that order). In 1996, on a pro forma basis assuming the Acquisitions
occurred on January 1, 1996, the Company quarried in excess of 1,500,000 cubic
feet of saleable granite from its quarries in Georgia, Vermont, Pennsylvania,
North Carolina, South Carolina, Oklahoma and the Province of Quebec. The Company
estimates that its U.S. production represents approximately 19% of the total
U.S. output of dimension granite for all uses and at least 25% of the U.S.
output for memorial use. The Company believes it is the largest quarrier of
granite for memorial use in the U.S. based on quantity of output and revenues.
The Company owns a large quarry complex in Barre, Vermont and is currently
the only quarrier of Barre, Vermont gray granite. In 1996, on a pro forma basis
assuming the Acquisitions occurred on January 1, 1996, over 50% of the Company's
U.S. output came from its Barre quarries.
The Company also owns three quarries in the Elberton, Georgia area. While
most black granite for memorial use comes from Africa and India, the Company
owns a quarry in Pennsylvania that produces the largest selling black granite
for memorial use quarried in North America. The Company also owns quarries in
North Carolina and Canada that produce pink granite, and a quarry in Bethel,
Vermont that produces Bethel white granite used primarily for building purposes
outside North America.
The quarrying of granite involves three major processes. The first major
process is to prepare the granite for extraction. The initial step in this
process is to free a mass of stone from the quarry by cutting deep vertical
channels in the stone with jet channeling torches, pneumatic slot-drills or
diamond-wire saws. Next, a series of horizontal "lift" holes are drilled in the
mass. Several of the lift holes are then filled with primer cord explosives
which, after detonation, cause the granite mass to crack along the line where
the holes have been drilled and to lift the mass free from the granite below it.
Occasionally, these horizontal cuts are made with diamond wire saws. After the
granite mass has been separated, pneumatic drills are used to drill a series of
vertical holes to break the mass into large vertical pieces. Horizontal holes
are then drilled to break these pieces into standard size saw blocks, known as
"dimensioned blocks," which are typically ten feet by five feet by five feet and
weigh approximately twenty-five tons.
The second major process in quarrying granite is to extract the dimensioned
block from the quarry. Extraction involves removing the dimensioned blocks from
the quarry with very large forklifts or, in deeper quarries, with cinching
notched wire cable around the block and then hoisting the blocks with very large
derricks, or fixed cranes, or mobile cranes. These derricks range to up to 160
feet in height and up to 250 tons in lifting capacity. Most of the Company's
quarries utilize forklifts for extraction or a combination of forklifts and
fixed or mobile cranes.
The third major process is to transport the dimensioned blocks. Once lifted
from the quarry, the blocks are handled and transported by heavy duty diesel
trucks and fork lifts. These vehicles transport the blocks either to an
inventory area or directly to the manufacturer.
Much of the granite quarried is not suitable for use as a finished memorial
product due to cracks, spots, discoloration and other natural imperfections. The
amount of usable granite varies markedly from quarry to quarry. Some of the
granite not used for memorials is sold to other companies for use in buildings
and other
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non-memorial products. Unusable stone, or "grout," is stored in areas not
expected to be quarried in the future. It is suitable for bridge piers, erosion
control and other uses but the market for this product is very limited.
The granite blocks sold by the Company are delivered to the Company's
manufacturing division as well as to other granite manufacturers in Vermont via
Company owned trucks. Blocks for delivery outside of the production areas are
delivered via common carrier. Barre, Vermont, Elberton, Georgia and Beebe,
Quebec all have at least two large regional or national trucking companies and a
number of independent truckers.
Manufacturing. The Company owns and operates 13 manufacturing and sawing
facilities in North America, principally in Vermont, Georgia and the Province of
Quebec. The Company is in the process of a $3.2 million expansion and
improvement program for its Barre and Canadian manufacturing facilities to add
50,000 square feet of space and manufacturing and sawing equipment and to
reconfigure production. In addition, the Company has ordered $600,000 of
polishing equipment for the manufacturing facilities in Elberton and anticipates
dedicating sawing equipment currently used for curb slabs to memorial slabs. The
Company believes that these improvements and operational changes will increase
memorial production significantly and allow the Company to meet its anticipated
production requirements for the near future.
The manufacture of memorials starts with quarried granite blocks, which are
sawed into slabs of varying thicknesses with computer operated diamond saws and
wire saws at Company saw plants. Once a block has been cut into slabs, the slabs
are transported to nearby manufacturing plants such as the Company's Craftsman
Center in Barre, Vermont. At the manufacturing plant, slabs are manufactured
into memorials and other products.
To manufacture a granite slab four to 12 inches thick into a memorial, the
slabs are first polished at the manufacturing plant by various automatic
polishing machines. Polished slabs are then inspected for flaws and defects and
dimensioned with a hydraulic guillotine machine. Granite is like wood in that it
splits uniformly along the grain. After dimensioning, the granite pieces are
taken to stations to be shaped by stonecutting wire saws, diamond saws and
carborundum wheels. Once shaped, memorials may be hand-carved into virtually any
desired shape. This hand carving is generally done by the Company. The final
step in memorial manufacturing is to sandblast the semi-finished memorial with a
silicon carbide abrasive which etches the desired design into the memorial. This
sandblasting step may be done by the Company or a retailer. Once complete, the
memorial is inspected and branded products are then sandblasted with the Rock of
Ages or other seal. Finished products are then crated and shipped to customers.
In addition to granite memorials, the Company also manufactures precision
industrial granite products, such as machine bases and surface plates, which are
utilized in the automotive, aeronautic, computer, machine tool, optical,
precision grinding and inspection industries, as well as granite press rolls
used in the manufacture of paper. These are small but profitable niche markets
within the granite industry with limited competition and limited growth
prospects.
The Company's granite deposits in Georgia, Vermont, Pennsylvania, North
Carolina, South Carolina, Oklahoma and the Province of Quebec are expected to
continue to meet the Company's current and anticipated raw materials needs for
many years, and the Company believes it will continue to have access to adequate
quantities of other granite at competitive prices.
The Company has entered into a Supply and Distribution Agreement with
Missouri Red Quarries, Inc., the owner of Keystone immediately prior to the
Keystone Acquisition ("Missouri Red"), and G. Thomas Oglesby, Jr., who controls
Missouri Red (the "Missouri Red Supply Agreement"), and a Supply and
Distribution Agreement with Keystone Granite Company, Inc., an affiliate of
Missouri Red ("KGCI"), and Missouri Red (the "Keystone Supply Agreement", and,
together with the Missouri Red Supply Agreement, the "Supply Agreements"). Under
the Missouri Red Supply Agreement, Missouri Red has agreed, for a 20-year term,
to supply the Company at specified prices with the Company's requirements of
Missouri Red granite blocks for memorial use, and has appointed the Company as
its exclusive distributor to buy and sell all grades of Missouri Red granite for
memorial use in the specified territory. The Company has agreed to purchase
certain minimum annual amounts of Missouri Red granite blocks, and such supply
arrangements are exclusive for memorial use so long as the Company purchases
certain minimum amounts of Missouri Red
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<PAGE> 37
granite blocks within specified periods of time, provided that in any event the
Company has a first priority to purchase all monumental grade Missouri Red
granite quarried by Missouri Red during the term of the Missouri Red Supply
Agreement. The terms of the Keystone Supply Agreement are substantially similar
to the Missouri Red Supply Agreement, including the 20-year term, except that
the Keystone Supply Agreement applies to KGCI granite blocks, any other granite
blocks quarried at the KGCI quarries and Topaz granite blocks (collectively,
"Topaz") and the Company has agreed to purchase all monumental grade Topaz
produced by KGCI during the term of the Keystone Supply Agreement. Should the
Company fail to purchase the specified minimum quantity of Topaz, then KGCI has
the right to sell to others subject to the Company's right to supply priority.
\Pursuant to the Supply Agreements, the Company has a right of refusal with
respect to any sale of the quarries, land, buildings or equipment, or the stock
of, Missouri Red or KGCI outside the Oglesby family. The Company also has a
mutual supply agreement (the "Dakota Agreement") with Dakota Granite Company
("Dakota Granite"), whereby Dakota Granite has agreed to supply the Company with
its requirements for Dakota Mahogany blocks, slabs and finished monuments, and
the Company has agreed to supply Dakota Granite with its requirements for Barre
Gray blocks, slabs and finished monuments, and each party has agreed to purchase
such requirements exclusively from the other. The Dakota Agreement is terminable
by either party upon 180-days prior notice.
Other significant raw materials which the Company uses in its manufacturing
operations include industrial diamond segments for saw blades and wires and
abrasives. There are a number of sources for these raw materials and the Company
believes it will continue to have access to adequate quantities of such
materials at competitive prices.
The Company had manufacturing backlogs of $13,833,000 as of June 30, 1997
and $14,386,000 as of June 30, 1996. These backlogs occurred in the normal
course of business. The Company does not have a material backlog in its
quarrying operations.
As noted above, regional and national trucking companies are readily
available to deliver granite memorials. Also, the Company owns eight trucks for
delivery of finished memorials to customers. In addition, as a result of the
Acquisitions, the Company will be able to ship full truckload quantities of
memorials from Barre to Elberton and back via dedicated trucks, which the
Company believes will improve the efficiency of national delivery of its
products. As a result, the Company believes it will have a significant
competitive cost advantage in the transportation of memorials.
The Company does not normally maintain a significant inventory of finished
manufactured products in anticipation of future orders. Approximately 75% of the
Company's orders are delivered within two to twelve weeks, as is customary in
the granite memorial industry. The Company does accumulate inventory of granite
blocks from September through December in preparation for the winter months when
its northern quarries are inactive. During the winter months, the Company offers
a special payment plan to granite block customers ordering in December by giving
90-day payment terms. Additionally, any orders for granite memorials placed
after September 1st but before February 1st may receive special payment terms
allowing payment on the following June 1st. The Company is entitled to make
delivery at its discretion no later than April of the following year. The winter
payment terms accounted for approximately $2 million in Company sales in 1996.
MARKETING AND DISTRIBUTION; RETAILING
The Company is best known for its granite memorials. Rock of Ages produces
each of the standard types of memorials, including flush grass markers and
various types of upright memorials, and is recognized for its ability to
manufacture highly personalized granite memorials designed to meet the specific
needs of individual customers. For example, the Company has built a full size
granite replica of a Mercedes Benz for a customer.
Rock of Ages currently sells its granite memorial products to an estimated
2,124 independent memorial retailers in North America. Its flagship brands
bearing the Rock of Ages seal are sold only to approximately 495 independent
authorized Rock of Ages retailers who have written supply agreements with the
Company. These branded Rock of Ages memorials are made of the highest quality
granite available and are guaranteed in perpetuity to the customer and the
cemetery against defects in the granite (including discoloration) or
workmanship. The Company believes its warranty is the strongest in the memorial
industry.
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<PAGE> 38
The Company generally limits the number of retailers authorized to sell
branded Rock of Ages products in any geographic region. The Company seeks to
select as its authorized retailers large and well-established companies that can
provide high levels of design assistance, personalization and high quality
sandblast carving and lettering, as well as the service of setting the memorial
in the cemetery.
Authorized retailer agreements may be terminated by either the Company or
the retailer upon 30 days' notice. Under these agreements, the authorized
retailer is free to purchase granite memorials from any source, but the Company
expects its authorized retailers to promote the Rock of Ages brand and purchase
reasonable quantities of its branded and unbranded granite memorials annually.
Most authorized Rock of Ages retailers purchase both branded and lower-priced
unbranded memorials from the Company. The Company also supplies private label
and unbranded granite memorials not bearing the various Rock of Ages seals to a
large number of other retailers.
The Company's growth strategy principally involves vertically integrating
forward into retailing. Pursuant to the Keith Acquisition, the Company will
acquire what it believes is one of the largest retailers of granite memorials in
the United States. Upon the closing of the Keith Acquisition, John E. Keith, a
principal owner and president of Keith Monument with over 30 years experience in
granite memorial retailing, will head the Company's retailing operations. Mr.
Keith will oversee the implementation of the Company's strategy to significantly
expand its retail operations both through other acquisitions of other
independent retailers and by pursuing strategic alliances with funeral home and
cemetery owners, including consolidators. While the Company currently supplies a
limited amount of granite memorials to funeral homes and cemetery owners,
including consolidators, the Company has not yet established a strategic
alliance with any such group.
The Company will seek to acquire well established full service granite
memorial retailers with experienced personnel and strong market share in their
marketing region, including both its existing authorized Rock of Ages retailers
and other independent retailers. All owned retailers will be positioned as Rock
of Ages retailers and will offer Rock of Ages branded products as well as other
brands provided by the Company. The Company recognizes that certain of its
customers, including both authorized Rock of Ages retailers and its other
retailers, will prefer to remain as independently owned retailers or may not be
viable acquisition targets for the Company due to price, size, location or other
reasons.
The Company believes the opportunity to become a part of an integrated
quarrier, manufacturer and retailer of granite memorials promoting Rock of Ages
branded memorials will be an attractive option for many granite memorial
retailers who are currently customers of the Company. Likewise, the Company
believes its improved knowledge of the retail market gained from owning
retailers and the presence of John E. Keith, a prominent memorial retailer, as
an officer and director will help it to better serve and be more responsive to
the needs of its customers who remain independently owned. Since most
independent retailers have competed with Rock of Ages authorized retailers for
many years, the Company believes that the establishment of an owned Rock of Ages
retail network through acquisition of existing granite memorial retail outlets
should not disrupt the market in a fashion that would occur if a new entrant to
the market entered the business or a manufacturer established new outlets
instead of acquiring existing outlets.
COMPETITION
The granite memorial industry is highly competitive. The Company competes
with other granite quarriers and manufacturers in the sale of granite blocks on
the basis of price, color, quality, geographic proximity, service, design
availability and availability of supply. All of the Company's colors of granite
are subject to competition from granite blocks of similar color supplied by
quarriers located throughout the world.
There are approximately 140 manufacturers of granite memorials in North
America. There are also manufacturers of granite memorials in India, South
Africa, China and Portugal who sell finished memorials in North America. The
Company competes based upon price, breadth of product line and design
availability as well as production capabilities and delivery options. The
Company's quarrying and manufacturing competitors include both domestic and
international companies, some of which may have greater financial, technical,
manufacturing, marketing and other resources than the Company. Additionally,
foreign competitors of the Company may have access to lower cost labor and
better commercial deposits of certain colors of memorial
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<PAGE> 39
grade granite, and may be subject to less restrictive regulatory requirements
than the Company. Companies in South Africa, India, China and Portugal
manufacture and export finished granite memorials into North America. See "Risk
Factors -- Competition."
The competition for retail sales of granite memorials is also intense and
is based on price, quality, service, design availability and breadth of product
line. Competitors include funeral home and cemetery owners, including
consolidators, which have greater financial resources than the Company as well
as approximately 3,000 independent retailers of granite memorials located
outside funeral homes and cemeteries. See "Risk Factors -- Relationships with
Retailers".
PATENTS, TRADEMARKS AND LICENSES
The Company holds a number of domestic and foreign patents, trademarks and
copyrights, including the original registered trademark "Rock of Ages" which the
Company first registered in 1914. The Company believes the loss of a single
patent, trademark or copyright, other than the "Rock of Ages" trademarks, would
not have a material adverse effect on the Company's business, financial
condition or results of operations.
EMPLOYEES
As of October 15, 1997, the Company had approximately 580 employees. After
the consummation of the C&C Acquisition and the Keith Acquisition, the Company
will have approximately 795 employees. The Company believes its relationship
with its employees is good. A significant number of the Company's employees in
Barre and Canada are represented by one of two labor unions. Some of the
Company's employees in Elberton are also represented by a union. The Company has
recently entered into collective bargaining agreements with its employees in
Barre which are scheduled to expire in 2000, and the Company's collective
bargaining agreements with its employees in Canada are scheduled to expire in
1999.
PROPERTIES
Following consummation of the Acquisitions, the Company will own the
following quarry and manufacturing properties:
<TABLE>
<CAPTION>
PROPERTY FUNCTION
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
VERMONT
Barre
Quarry Properties
E. L. Smith Quarry................................ Quarrying of dimensional Barre Gray granite blocks
Adam-Pirie Quarry................................. Quarrying of dimensional Barre Gray granite blocks
Manufacturing Properties
Associated Saw Plant.............................. Slabbing of granite blocks
Rock of Ages Manufacturing Plant.................. Manufacturing of memorials
Press Roll Production Plant....................... Manufacturing of granite press rolls
Rock of Ages Saw Plant #1......................... Slabbing of granite blocks
Lawson Production Plant........................... Slabbing of granite blocks and memorials production
facility
Bethel
Quarry Properties
Bethel Quarry..................................... Quarrying of dimensional Bethel White granite blocks
GEORGIA
Madison County
Quarry Properties
Royalty/Berkeley Quarries......................... Quarrying of dimensional Royalty Blue and Berkeley Blue
granite blocks
Oglethorpe County
Caprice Quarry.................................... Quarrying of dimensional Caprice Blue blocks
Millstone Quarry.................................. Quarrying of dimensional Millstone Gray
</TABLE>
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<TABLE>
<CAPTION>
PROPERTY FUNCTION
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Elberton
Manufacturing Properties
Southern Mausoleum Plant.......................... Manufacturing of memorials
Keystone Memorials Plant.......................... Manufacturing of memorials
Keywest Plant..................................... Manufacturing of memorials
Childs & Childs Plant............................. Manufacturing of memorials
CANADA
Stanstead, Quebec
Quarry Properties
Stanstead Quarry.................................. Quarrying of dimensional Stanstead Gray granite blocks
Guenette, Quebec
Quarry Properties
Laurentian Quarry................................. Quarrying of dimensional Laurentian Rose granite blocks
Beebe Plain, Quebec
Manufacturing Properties
Rock of Ages Manufacturing Plant.................. Manufacturing of memorials
Adru Manufacturing Plant.......................... Manufacturing of memorials
PENNSYLVANIA
St. Peters
Quarry Properties
American Black Quarry............................. Quarrying of dimensional black granite blocks
Manufacturing Properties
Saw Plant......................................... Slabbing of granite blocks
NORTH CAROLINA
Salisbury
Quarry Properties
Salisbury Pink Quarry............................. Quarrying of dimensional Salisbury Pink granite blocks
Manufacturing Properties
Carolina Plant.................................... Manufacturing of flush and granite under bronze markers
OKLAHOMA
Mill Creek
Quarry Properties
Autumn Rose Quarry................................ Quarrying of dimensional Autumn Rose granite blocks
SOUTH CAROLINA
Kershaw County
Quarry Properties
Kershaw Quarry.................................... Quarrying of dimensional Kershaw granite blocks
Lancaster County
Quarry Properties
Coral Gray Quarry................................. Quarrying of dimensional Coral Gray granite blocks
</TABLE>
In addition, upon consummation of the Keith Acquisition, the Company will
own or lease 17 retail outlets and a sandblasting facility in Kentucky.
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The following table sets forth certain information relating to the
Company's quarry properties. Each of the quarries listed below: (i) is owned by
the Company (other than the Kershaw quarry, which is leased with 40 years
remaining on the lease); (ii) is an open-pit quarry; (iii) contains granite that
is suitable for extraction as dimension granite for memorial or other use; (iv)
is serviced by electricity provided by local utility companies (other than the
Bethel quarry which is serviced by internal generators); and (v) has adequate
and modern extraction and other equipment. The Company presently has no
exploration plans in place.
<TABLE>
<CAPTION>
TOTAL NET SALEABLE NET SALEABLE
APPROXIMATE DATE ORIGINAL COST RECOVERABLE RECOVERABLE
OF COMMENCEMENT PRIOR OWNER, MEANS OF OF RESERVES(1) RESERVES
QUARRY OF OPERATIONS (DATE ACQUIRED) ACCESS EACH PROPERTY (CUBIC FEET) (YEARS)(2)
- ------------------- ----------------- ----------------------- ----------- ------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
E.L. Smith......... 1880 E.L. Smith Quarry Co. Paved road $ 7,562,676 2,460,000,000 4,920
(1948)
Adam-Pirie......... 1880 J.K. Pirie Quarry Paved road $ 4,211,363 985,000,000 6,560
(1955)
Bethel............. 1900 Woodbury Granite Dirt road $ 174,024 76,665,000 383
Company, Inc. (1957)
Royalty/Berkeley... 1923 Coggins Granite (1991) Paved road $ 2,794,500 6,695,000 67
Millstone.......... 1985 Coggins Granite (1991) Paved road $ 1,195,900 5,663,000 56
Caprice............ 1968 Caprice Blue Quarry Paved road $ 0 No estimate No estimate
Inc.(1997)
Stanstead.......... 1920 Brodies Limited and Paved road $ 505,453 32,670,000 217
Stanstead Granite
Company (1960)
Laurentian......... 1944 Brodies Limited (1960) Paved road $ 860,115 3,920,000 52
American Black..... 1973 Pennsylvania Granite Paved road $ 2,900,000 14,701,000 98
Inc. (1997)
Salisbury.......... 1918 Pennsylvania Granite Paved road $ 3,886,592 19,602,000 87
Inc. (1997)
Autumn Rose........ 1969 Autumn Rose Quarry Inc. Paved road $ 200,000 735,000 21
(1997)
Kershaw............ 1955 Pennsylvania Granite Paved road $ 200,000 635,000 22
Inc. (1997)
Coral Gray......... 1955 Pennsylvania Granite Paved road $ 200,000 No estimate No estimate
Inc. (1997)
</TABLE>
- ---------------
(1) Net saleable reserves are based on internal Company estimates, except for
the reserves for the E.L. Smith, Adam-Pirie and Bethel quarries, which are
based on independent assessments by CA Rich Consultants, Inc.
(2) Based on internal Company estimates using current production levels.
The estimates of saleable reserves of the Company are based on historical
quarry operations, workable reserves in the existing quarries and immediately
adjacent areas, current work force sizes and current demand. While quarry
operations decrease the granite deposits, the size of the granite deposits in
which the Company's quarries are located are large and extend well beyond
existing working quarry perimeters. The Company has historically expanded quarry
perimeters or opened other quarries in the deposit as necessary to utilize
reserves and the Company has adequate acreage for expansions as and when
necessary. Most of the Company's quarries have operating histories dating back
50 or more years. The Company has no reason to believe that it will deplete its
granite reserves at any time in the foreseeable future.
Dimension granite is not considered a valuable mineral or commodity such as
gold, nor is it traded on any commodities exchange. The prices charged by the
Company to third parties for granite blocks depend on the characteristics of
(such as color) and costs to quarry each granite block. The price per cubic foot
currently charged by the Company for its granite blocks is generally comparable
to other granite suppliers and typically does not exceed $30.
REGULATION
The Company's quarry and manufacturing operations are subject to
substantial regulation by federal and state governmental statutes and agencies,
including OSHA, the Mine Safety and Health Administration and similar state and
Canadian authorities. The Company's operations are also subject to extensive
laws, and regulations administered by the EPA and similar state and Canadian
authorities for the protection of the
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environment, including but not limited to those relating to air and water
quality, solid and hazardous waste handling and disposal. These laws and
regulations may require parties to fund remedial action or to pay damages
regardless of fault. Environmental laws and regulations may also impose
liability with respect to divested or terminated operations even if the
operations were divested or terminated many years ago. In addition, current and
future environmental or occupational health and safety laws, regulations or
regulatory interpretations may require significant expenditures for compliance
which could require the Company to modify or curtail its operations. The Company
cannot predict the effect of such laws, regulations or regulatory
interpretations on its business, financial condition, results of operations.
While the Company expects to be able to continue to comply, in all material
respects, with existing laws and regulations, any material non-compliance could
have a material adverse affect on the Company's business, financial condition
and results of operations.
LEGAL MATTERS
The Company is a party to legal proceedings that arise from time to time in
the ordinary course of its business. While the outcome of these proceedings
cannot be predicted with certainty, management does not expect these matters to
have a material adverse effect on the Company.
The Company carries insurance with coverages that it believes to be
customary in its industry. Although there can be no assurance that such
insurance will be sufficient to protect the Company against all contingencies,
management believes that its insurance protection is reasonable in view of the
nature and scope of the Company's operations.
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<PAGE> 43
MANAGEMENT
DIRECTORS AND OFFICERS
Certain information concerning directors, executive officers and other
officers of the Company is set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS(1)
George R. Anderson........................ 57 Senior Vice President, Chief Financial
Officer, Treasurer, Director
James L. Fox(2)........................... 45 Director
Peter A. Friberg.......................... 46 Senior Vice President -- Memorial Sales,
Director
Mark A. Gherardi.......................... 39 Senior Vice President -- Barre and Canada
Manufacturing Operations, Director
Jon M. Gregory............................ 48 President -- Quarry Division, Director
John E. Keith(2).......................... 50 President -- Retail Division, Director
Richard C. Kimball........................ 57 President -- Memorials Division, Vice
Chairman of the Board of Directors
G. Thomas Oglesby, Jr. ................... 51 President -- Keystone Division, Director
Kurt M. Swenson........................... 52 President and Chief Executive Officer,
Chairman of the Board of Directors
Charles M. Waite.......................... 64 Director
Fredrick E. Webster, Jr.(2)............... 59 Director
OTHER OFFICERS
Robert Otis Childs, III(2)................ 38 President -- C&C Division
Albert Gherardi, Jr. ..................... 61 Vice President -- Facilities Management
Edward E. Haydon.......................... 57 Senior Vice President -- National Accounts
Manager
John R. Monson............................ 56 Secretary and General Counsel
George T. Oglesby, III.................... 27 Vice President -- Keystone Division
Gerald E. Parrott......................... 48 Vice President -- Precision Products
</TABLE>
- ---------------
(1) Each officer serves for a term of one year.
(2) Messrs. Childs, Fox, Keith and Webster will assume their respective
positions upon consummation of this offering.
George R. Anderson has been the Senior Vice President, Chief Financial
Officer and a director of the Company since 1984. Mr. Anderson joined the
Company in 1969 as the Chief Accountant and subsequently held the positions of
Controller and Treasurer. He has been a director of the Barre Granite
Association and a trustee of the Granite Group Insurance Trust and the Barre
Belt Multi-Employer Pension Plan. Mr. Anderson's term as a director will expire
in 1999.
Robert Otis Childs, III will become, upon consummation of the C&C
Acquisition, President -- C&C Division. Since 1983, Mr. Childs has been Vice
President for Marketing of C&C. He has been President and a member of the Board
of Directors of the American Monument Association, and is the President-elect
and a director of the Manufacturers and Wholesalers Division of the Monument
Builders of North America.
James L. Fox. Since 1989, Mr. Fox has been Executive Vice President and
General Manager of First Data Investor Services Group, a division of First Data
Corporation. Mr. Fox's term as a director of the Company will expire in 1999.
Peter A. Friberg has been Senior Vice President -- Memorial Sales, of the
Company since 1996 and a director of the Company since January 1996. From 1975
to 1995, Mr. Friberg co-owned and co-managed the Anderson-Friberg Company, a
memorial manufacturing company, in Barre, Vermont, serving as President
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<PAGE> 44
from 1991 to 1995. From 1991 to 1993, Mr. Friberg was President of the Barre
Granite Association. Mr. Friberg's term as a director of the Company will expire
in 1998.
Albert Gherardi, Jr. has been Vice President, Facilities Management of the
Company since 1996. Prior to 1996, Mr. Gherardi held various positions over a
40-year period with Lawson Granite Company, a memorials company that the Company
acquired in 1996. Albert Gherardi, Jr. is the father of Mark A. Gherardi.
Mark A. Gherardi has been Senior Vice President, Barre and Canada
Manufacturing Operations and a director of the Company since 1996. Prior to
1996, Mr. Gherardi held various sales and production positions over a 20-year
period with Lawson Granite Company. Mr. Gherardi's term as a director of the
Company will expire in 1998. Mark Gherardi is the son of Albert Gherardi, Jr.
Jon M. Gregory has been President -- Quarry Division since 1993 and has
been a director of the Company since 1995. Since joining the Company in 1975,
Mr. Gregory has served in various positions including Senior Vice President of
the Memorials Division, Manager of Manufacturing and line production supervisor.
Mr. Gregory's term as a director of the Company will expire in 1998.
Edward E. Haydon has been Senior Vice President -- National Accounts
Manager since 1996 and President of Rock of Ages Canada, Inc. since 1985. In
addition, Mr. Haydon was also Senior Vice President, Memorial Operations from
1991 to 1993. Mr. Haydon is also a Director of the Canadian Stone Association,
and a Trustee of the Manufacturers and Wholesalers Division of Monument Builders
of North America.
John E. Keith will become, upon consummation of the Keith Acquisition, the
President -- Retail Division and a director of the Company. Mr. Keith has been
an owner of and President of Keith Monument since 1989. From 1965 to 1989, Mr.
Keith held various officer positions with Keith Monument. Mr. Keith's term as a
director of the Company will expire in 2000.
Richard C. Kimball has been President -- Memorials Division, and Vice
Chairman of the Board of Directors since 1993 and a director of the Company
since 1986. Prior to joining the Company, Mr. Kimball served as a director,
principal and President of The Bigelow Company, Inc., a strategic planning and
investment banking firm from 1972 until 1993. Mr. Kimball's current term as a
director of the Company will expire in 2000.
John R. Monson has been Secretary of the Company since 1984 and General
Counsel of the Company since August, 1996. Since 1974, Mr. Monson has been a
partner, director and member of Wiggin & Nourie, P.A., a law firm located in
Manchester, New Hampshire that has represented the Company since 1984.
G. Thomas Oglesby, Jr. became the President -- Keystone Division and a
director of the Company in connection with the consummation of the Keystone
Acquisition in June 1997. Since 1982, Mr. Oglesby has been President of Keystone
Memorials Inc. Mr. Oglesby was a member of the Board of Directors and served
four separate terms as President of the Elberton Granite Association from 1979
until 1996. He is a director of the American Monument Association and the
Manufacturers and Wholesalers Division of the Monument Builders of North
America. He is the father of George T. Oglesby, III. Mr. Oglesby's current term
as a director of the Company will expire in 1999.
George T. Oglesby, III was elected Vice President -- Keystone Division in
connection with the consummation of the Keystone Acquisition in June 1997. Since
1992, Mr. Ogelsby has held various sales and management positions with Keystone
Memorials Inc. He is a member of the Board of Directors of the Elberton Granite
Association.
Gerald E. Parrott has been Vice President -- Precision Products since 1992.
From 1976 to 1992 he was Chief Engineer of the Company.
Kurt M. Swenson has been the President and Chief Executive Officer and
Chairman of the Board of Directors of the Company since 1984. Mr. Swenson has
been the Chief Executive Officer and a director of Swenson Granite Company, Inc.
since 1974. He is also a director of the American Monument Association, the
Funeral and Memorial Information Council, the National Building Granite
Quarriers Association and Group Polycor International. Mr. Swenson is also a
director and the President of the StonExpo Federation and a
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<PAGE> 45
trustee of the Manufacturers and Wholesalers' Division of Monument Builders of
North America. Mr. Swenson's current term as a director of the Company will
expire in 2000.
Charles M. Waite has been a director of the Company since 1985. Since 1989,
Mr. Waite has been managing partner of Chowning Partners, a financial consulting
firm that provides consulting services to New England companies. Mr. Waite's
current term as a director will expire in 2000.
Fredrick E. Webster, Jr., Ph.D. has been a Professor of Management at the
Amos Tuck School of Business Administration of Dartmouth College since 1965. He
is also a management consultant and lecturer. Dr. Webster serves as a director
of Vermont Public Radio and the American Marketing Association. He is also a
member of the Corporation of Mary Hitchcock Memorial Hospital. Mr. Webster's
term as a director will expire in 1999.
COMMITTEES OF THE BOARD OF DIRECTORS
The principal function of the Audit Committee, which, upon consummation of
this offering, will consist of Messrs. Fox and Waite, is to endeavor to assure
the integrity and adequacy of financial statements issued by the Company. It is
intended that the Audit Committee will review internal auditing systems and
procedures as well as the activities of the public accounting firm performing
the external audit.
The principal function of the Compensation Committee, which, upon
consummation of this offering, will consist of Messrs. Fox, Waite and Webster,
is to review periodically the suitability of the remuneration arrangements
(including benefits) for the executive officers of the Company and to administer
the 1994 Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1996, the Compensation Committee of the Board of Directors was
comprised of Kurt Swenson, Guy A. Swenson, Jr. and Charles M. Waite. During his
1996 service on the Compensation Committee, Mr. Swenson was the President and
Chief Executive Officer of the Company and Mr. Swenson participated in all
compensation decisions, including those related to his own compensation.
COMPENSATION OF DIRECTORS
Directors who are not also officers of the Company are paid annual
directors' retainers of $5,000, and $250 for each meeting of the Board,
including committee meetings. Directors are also eligible for stock option
grants under the 1994 Plan.
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<PAGE> 46
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the Chief
Executive Officer of the Company and each of the four other most highly
compensated executive officers of the Company (the "Named Executive Officers")
for the year ended December 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ---------------------
-------------------- SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(#) COMPENSATION(1)
- --------------------------------- ----- --------- -------- --------------------- ---------------
<S> <C> <C> <C> <C> <C>
Kurt M. Swenson.................. 1996 $304,320 $15,220 12,500 $ 1,050
President, Chief Executive
Officer, Chairman of the Board
of Directors
Richard C. Kimball............... 1996 $204,360 $14,000 12,500 $ 1,050
President -- Memorials
Division, Vice Chairman of the
Board of Directors
George R. Anderson............... 1996 $154,440 $10,500 25,000 $ 1,050
Senior Vice President, Chief
Financial Officer, Director
Jon M. Gregory................... 1996 $153,360 $10,500 50,000 $ 1,050
President -- Quarry Division,
Director
Mark A. Gherardi................. 1996 $140,040 $12,500 75,000 --
Senior Vice President -- Barre
and Canada Manufacturing
Operations, Director
</TABLE>
- ---------------
(1) In each case, represents a matching contribution under the Company's 401K
plan.
STOCK OPTION GRANTS
The following table sets forth certain information concerning grants of
stock options made during the year ended December 31, 1996 by the Company to the
Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
INDIVIDUAL GRANTS AT ASSUMED ANNUAL
------------------------------------------------------- RATES
NUMBER OF PERCENT OF OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(4)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME GRANTED(1) FISCAL YEAR(2) PER SHARE(3) DATE 5% 10%
- ---------------------------- ---------- -------------- ------------ ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Kurt M. Swenson............. 12,500 2.1% $ 4.12 12/31/01 $ 14,229 $ 31,441
Richard C. Kimball.......... 12,500 2.1% $ 3.74 12/31/01 12,916 28,541
George R. Anderson.......... 25,000 4.3% $ 3.74 12/31/01 25,832 59,083
Jon M. Gregory.............. 50,000 8.5% $ 3.74 12/31/01 51,665 114,165
Mark A. Gherardi............ 75,000 12.8% $ 3.59 01/01/01 74,389 164,380
</TABLE>
- ---------------
(1) The options represent the right to acquire Class B Common Stock, which is
convertible on a share-for-share basis into Class A Common Stock.
(2) Based on an aggregate of 587,500 options granted to employees and directors
of the Company in fiscal 1996, including the Named Executive Officers.
(3) The exercise price of each option was equal to the fair market value of the
Common Stock on the date of grant as determined by the Board of Directors.
(4) These amounts represent certain assumed annual rates of appreciation
calculated from the exercise price, as required by the rules of the
Securities and Exchange Commission. Actual gains, if any, on stock option
exercises and Common Stock holdings are dependent on the future performance
of the Common Stock. There can be no assurance that the amounts reflected in
the table will be the actual amounts achieved.
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<PAGE> 47
The following table sets forth information concerning the fiscal year-end
value of unexercised options held at December 31, 1996 by each of the Named
Executive Officers, using the exercise price of options granted in December,
1996 as the fiscal year-end value per share of Common Stock. Each of the stock
options set forth below represents the right to acquire Class B Common Stock.
During 1996, no stock options were exercised by any of the Named Executive
Officers. The Company has not granted any stock appreciation rights.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT DECEMBER 31, 1996 AT DECEMBER 31, 1996
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Kurt M. Swenson............................... 62,500 50,000 $ 66,000 $ 44,000
Richard C. Kimball............................ 47,500 40,000 60,300 40,200
George R. Anderson............................ 35,000 40,000 40,200 26,800
Jon M. Gregory ............................... 25,000 50,000 20,100 13,400
Mark A. Gherardi.............................. 15,000 60,000 2,250 9,000
</TABLE>
PENSION PLANS
The Company maintains a qualified pension plan (the "Pension Plan"), and
non-qualified salary continuation agreements (the "Salary Continuation
Agreements") for certain executive officers of the Company. The Company's
Pension Plan is noncontributory and provides benefits based upon length of
service and final average earnings. Generally, employees age 21 with one year of
continuous service are eligible to participate in the retirement plan. The
annual pension benefits shown for the qualified plan assume a participant
attains age 65 during 1997 and retires immediately. The Employee Retirement
Income Security Act of 1974 places limitations on the compensation used to
calculate pensions and on pensions which may be paid under federal income tax
qualified plans, and some of the amounts shown on the following table may exceed
the applicable limitations. Such limitations are not currently applicable to the
Salary Continuation Agreements.
The following table shows the total estimated annual retirement benefits
payable upon normal retirement under the Pension Plan for the Named Executive
Officers at the specified executive remuneration and years of continuous
service.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
FINAL AVERAGE
COMPENSATION 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
---------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$125,000.................... $ 39,492 $ 52,656 $ 65,820 $ 78,984 $ 78,984
$150,000.................... $ 47,742 $ 63,656 $ 79,570 $ 95,484 $ 95,484
$175,000.................... $ 55,992 $ 74,656 $ 93,320 $111,984 $111,984
$200,000.................... $ 64,242 $ 85,656 $107,070 $128,484 $128,484
$225,000.................... $ 72,492 $ 96,656 $120,820 $144,984 $144,984
$250,000.................... $ 80,742 $107,656 $134,570 $161,484 $161,484
$275,000.................... $ 88,992 $118,656 $148,320 $177,984 $177,984
$300,000.................... $ 97,242 $129,656 $194,484 $194,484 $194,484
$325,000.................... $105,492 $140,656 $175,820 $210,984 $210,984
$350,000.................... $113,742 $151,656 $189,570 $227,484 $227,484
$375,000.................... $121,992 $162,656 $203,320 $243,984 $243,984
</TABLE>
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<PAGE> 48
These calculations are based on the retirement formula in effect as of
December 31, 1996, which provides an annual life annuity at age 65 equal to 1.8%
of a participant's final five-year average compensation (excluding bonus) plus
.4% of a participant's final five-year average compensation in excess of Social
Security Covered Compensation times years of service to a maximum of 30 years.
Estimated years of continuous service for each of the Named Executive Officers,
as of December 31, 1996 and rounded to the full year, are: Mr. G. Anderson, 28
years; Mr. J. Gregory, 21 years; Mr. M. Gherardi, 16 years; Mr. R. Kimball, 4
years; and Mr. K. Swenson, 13 years.
In addition, the Company's Salary Continuation Agreements provide for
supplemental pension benefits to certain executive officers of the Company,
including the Named Executive Officers. The following table sets forth the
supplemental pension benefits for the Named Executive Officers.
<TABLE>
<CAPTION>
ANNUAL
TOTAL YEARS RETIREMENT
ANNUAL BASE OF SERVICE BENEFIT
NAME COMPENSATION AT AGE 65 AT AGE 65
------------------------------------------------ ------------ ----------- ----------
<S> <C> <C> <C>
M. Gherardi..................................... $140,000 27 $ 22,680
G. Anderson..................................... $154,440 35 $ 32,432
R. Kimball...................................... $204,360 12 $ 24,523
K. Swenson...................................... $304,320 26 $ 87,036
J. Gregory...................................... $153,360 39 $ 35,886
</TABLE>
These calculations are based on individual Salary Continuation Agreements,
which provide a 100% joint and survivor annuity at age 65 equal to a percentage,
ranging from .6% to 1.1%, of a participant's highest annual base compensation
times full years of service. The percentage range has been determined by the
Board of Directors. There is no compensation increases assumed in these
calculations.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Kurt M. Swenson
(the "Swenson Employment Agreement") for retention of his services as President
and Chief Executive Officer of the Company. The term of the Swenson Employment
Agreement commences on the date of consummation of the offering (the
"Commencement Date") and continues until the fifth anniversary thereof, provided
that on the third and each subsequent anniversary of the Commencement Date such
term will automatically be extended for one additional year, unless, not later
than ninety days prior to the expiration of the term, the Company or Mr. Swenson
gives notice that the term will not be extended. The Swenson Employment
Agreement provides for continued payment of salary and benefits over the
remainder of the term if Mr. Swenson's employment is terminated by the Company
without Cause (as defined in the Swenson Employment Agreement) or as a result of
death or disability or by Mr. Swenson for Good Reason (as defined in the Swenson
Employment Agreement). The Swenson Employment Agreement also provides for a lump
sum payment to Mr. Swenson equal to the sum of (i) accrued but unpaid salary,
and a prorated bonus amount equal to the greater of the largest annual bonus
paid to Mr. Swenson during the prior three years and the annual bonus payable in
respect of the most recently completed fiscal year (the "Highest Annual Bonus"),
through the date of termination and (ii) three times the sum of (A) his then
annual salary and (B) Highest Annual Bonus, and for continuation of benefits for
three years, if Mr. Swenson's employment is terminated by the Company (other
than for Cause, death or disability) during the twelve-month period following,
or prior to but in connection with, or by Mr. Swenson during the twelve-month
period following, a Change in Control (as defined in the Swenson Employment
Agreement). In the event of such a termination, Mr. Swenson may elect in lieu of
the lump sum payment described above, to receive in a lump sum or over the then
remaining term of the Swenson Employment Agreement, an amount equal to the total
amount he would have been entitled to receive if his employment had been
terminated by the Company Without Cause or by Mr. Swenson for Good Reason. If
any payment or distribution by the Company to or for the benefit of Mr. Swenson
under the Swenson Employment Agreement would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred by
Mr. Swenson with respect to such excise tax, then Mr. Swenson will
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<PAGE> 49
generally be entitled to receive an additional payment such that after payment
by Mr. Swenson of all taxes, Mr. Swenson retains an amount of the additional
payment equal to the excise tax imposed.
The Company has entered into an employment agreement with G. Thomas
Oglesby, Jr. and George T. Oglesby, III and will enter into employment
agreements with each of Robert Otis Childs, III, John E. Keith and Roy H. Keith,
Jr. (such persons, together with G. Thomas Oglesby, Jr., being referred to as
the "Acquisition Executives" and such employment agreements with the Acquisition
Executives being referred to collectively as the "Acquisition Employment
Agreements"), upon consummation of the C&C Acquisition and Keith Acquisition.
The Acquisition Employment Agreement with Mr. Oglesby provides for an initial
five-year term commencing on June 27, 1997, and each of the other Acquisition
Employment Agreements provides, in effect, for an initial five-year term
commencing on the date of the offering. Pursuant to the Acquisition Employment
Agreements, the Executives will hold the respective positions listed for such
persons under "Management -- Directors and Officers". The Acquisition Employment
Agreements provide for benefits of the type generally provided to key executives
of the Company, and for continued payment of salary and benefits over the
remainder of the term if the Executive's employment is terminated by the Company
without Cause. The Acquisition Employment Agreements and related undertakings
generally prohibit the Executives from competing with the Company during the
term of employment and for two years thereafter, and contain customary
confidentiality provisions in favor of the Company. In addition, the Acquisition
Employment Agreements of G. Thomas Oglesby, Jr. and John E. Keith provide that,
so long as they remain employed under their respective Acquisition Employment
Agreements, they will be nominated for election to the Board of Directors of the
Company, subject to certain conditions. The Company will also enter into
employment agreements with Richard C. Kimball, George R. Anderson, Jon Gregory
and Edward E. Haydon (the "Officer Employment Agreements"), effective upon
consummation of this offering. The Officer Employment Agreements will contain
substantially the same terms as the Acquisition Employment Agreements, except
that they will not include any right to be nominated for election to the
Company's Board of Directors.
In connection with the acquisitions of Lawson Granite Company and the
Anderson Friberg Company, the Company on January 1, 1996 entered into five-year
employment agreements (the "Lawson-AFCO Employment Agreements") with Peter
Friberg, Albert Gherardi, Jr., Mark Gherardi and Paula Plante (the "Lawson-AFCO
Employees") providing for the employment of such persons in their current
positions. The Lawson-AFCO Employment Agreements contain substantially the same
terms as the Acquisition Employment Agreements except that they provide for
certain severance payments upon certain conditions occurring.
INCENTIVE PLAN
1994 Amended and Restated Stock Plan. Under the 1994 Plan, 1,500,000
shares of Common Stock have been reserved for issuance to officers, directors,
employees and consultants of the Company and its subsidiaries. Awards under the
1994 Plan made by the Board of Directors prior to the consummation of this
offering will be satisfied in shares of Class B Common Stock and awards made
under the 1994 Plan made on or after that date will be satisfied in shares of
Class A Common Stock. As of the date of this Prospectus, options for 862,500
shares of Class B Common Stock have been granted and were outstanding under the
1994 Plan and no such options have been exercised. Options for 383,252 shares of
Class A Common Stock will be granted in connection with the Acquisitions and to
two non-employee directors who will assume their positions upon consummation of
this offering. In addition, as of the date of this Prospectus, options to
acquire 254,248 shares of Class A Common Stock remained available for future
issuance under the 1994 Plan. Under the terms of the 1994 Plan, "incentive stock
options" ("ISOs") within the meaning of Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), "nonqualified stock options" or options which
do not qualify as ISOs ("NQSOs"), awards of Common Stock, and opportunities to
make direct purchases, of Common Stock ("Awards") may be granted by the Board of
Directors to employees (including officers and directors who are employees),
directors and consultants of the Company, except that ISOs may be granted only
to persons who are employees of the Company at the time the ISOs are granted.
Initially, each ISO will be exercisable over a period, determined by the
Board of Directors in its discretion, not to exceed ten years from the date of
grant, as required by the Code. In addition, in the case of an ISO granted to an
individual who, at the time such ISO is granted, owns shares of capital stock of
the
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<PAGE> 50
Company representing more than ten percent of the total combined voting power of
all classes of stock of the Company, the exercise period for an ISO may not
exceed five years from the date of grant. Options may be exercisable during the
exercise period at such times, in such amount, in accordance with such terms and
conditions, and subject to such restrictions as are set forth in the option
agreement evidencing the grant of such options. The Board of Directors generally
has the right to accelerate the exercisability of any options granted under the
1994 Plan which would otherwise be unexercisable. Upon certain consolidations or
mergers, the board of directors of any entity assuming the obligations of the
Company may make equitable adjustments to the options, accelerate the
exercisability of options or terminate them in exchange for a cash payment.
The 1994 Plan shall expire at the end of the day on November 20, 2004,
except with respect to options or Awards outstanding on such date. The Board of
Directors may terminate the 1994 Plan sooner at any time or amend the Plan at
any time, subject to the terms of the 1994 Plan.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") provides that no director of the Company shall
be personally liable to the Company or to any stockholder for monetary damages
arising out of such director's breach of fiduciary duty, except to the extent
that the elimination or limitation of liability is not permitted by the Delaware
General Corporation Law. The Delaware General Corporation Law, as currently in
effect, permits charter provisions eliminating the liability of directors for
breach of fiduciary duty, except that such charter provisions may not eliminate
or limit the liability of directors for: (i) any breach of the director's duty
of loyalty to a corporation or its stockholders; (ii) any acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law; (iii) any payment of a dividend or approval of a stock purchase or other
transaction that is illegal under Section 174 of the Delaware General
Corporation Law; or (iv) any transaction from which the director derived an
improper personal benefit. A principal effect of this provision of the
Certificate of Incorporation is to limit or eliminate the potential liability of
the Company's directors for monetary damages arising from any breach of their
duty of care, unless the breach involves one of the four exceptions described in
clauses (i) through (iv) of the immediately preceding sentence.
The Certificate of Incorporation and the Company's By-laws further provide
for the indemnification of the Company's directors and officers to the fullest
extent permitted by Section 145 of the Delaware General Corporation Law,
including circumstances in which indemnification is otherwise discretionary.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
At the present time, there is no pending litigation or proceeding involving
any director, officer, employee or agent of the Company in which indemnification
will be required or permitted. The Company is not aware of any threatened
litigation or proceeding which may result in a claim for such indemnification.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to the closing of the offering, the Company will effect a
reorganization (the "Reorganization") as follows: (i) the reincorporation merger
of Rock of Ages Corporation, a Vermont corporation and the immediate predecessor
to the Company ("ROA Vermont"), with and into a newly-formed Delaware
corporation, with the Company surviving as a Delaware corporation (the
"Reincorporation Merger"), which occurred on August 12, 1997, whereby the Class
A and Class B Common Stock was created and each outstanding share of common
stock of ROA Vermont was converted into one half of a share of Class B Common
Stock; (ii) the merger of Swenson Granite Company ("Swenson Granite") with and
into the Company, with the Company as the surviving corporation (the "Swenson
Merger"), in which Swenson Granite's stockholders will receive 1,618.123 shares
of Class B Common Stock for each share of Swenson Granite capital stock held by
them; and (iii) immediately prior to the Swenson Merger, Swenson Granite will
distribute its curb and landscaping business (essentially all of its operating
assets and operating liabilities) to its stockholders (the "Swenson Granite
Distribution") through a pro rata distribution of all of the member
49
<PAGE> 51
interests in a newly formed limited liability company to be named Swenson
Granite Company LLC ("Swenson LLC"). Following the Swenson Granite Distribution
and prior to the Swenson Merger, the sole asset of Swenson Granite will be its
93% stock interest in the Company and its only liabilities will be a $3,340,000
intercompany payable to the Company and a $310,000 note payable described below.
The Swenson Merger exchange ratio of 1,618,123 shares of Class B Common Stock
for each share of Swenson Granite Common Stock was determined by dividing the
number of outstanding shares of the Company held by Swenson Granite at the time
of the Swenson Merger by the total number of shares of common stock of Swenson
Granite which will be outstanding at such time. In determining this ratio,
Swenson Granite and the Company sought to maintain in the Swenson Granite
shareholders as a group the same aggregate percentage ownership of the Company
as was held by Swenson Granite immediately prior to the Swenson Merger, as well
as to preserve the same ownership proportions of such shareholders relative to
one another with respect to the Company as they held with respect to Swenson
Granite immediately prior to the Swenson Merger. Upon consummation of the
Swenson Merger, the shares of the Company held by Swenson Granite will be
cancelled, the Company will forgive the intercompany payable and the Company
will assume the note payable. Kurt M. Swenson and his brother Kevin C. Swenson
own in the aggregate approximately 60.6% of Swenson Granite. Robert Pope, a
security holder of more than five percent of the Class B Common Stock of the
Company, will become President and Chief Executive Officer of Swenson LLC
following the Swenson Granite Distribution.
Swenson Granite is a party to certain financing agreements of the Company
with CIT and is a co-maker and/or guarantor of all indebtedness of the Company
due to CIT. See "Management's Discussion and Analysis -- Liquidity and Capital
Resources". Upon consummation of the Swenson Granite Distribution and the
offering, Swenson LLC will be released by CIT as a party, co-maker and/or
guarantor of the Company's indebtedness to CIT, and the Company will remain
liable with respect thereto. As of June 30, 1997, the Company carried on its
books approximately $4.6 million due from Swenson Granite with respect to
borrowings by the Company under these credit facilities and advanced by the
Company to Swenson Granite. Of this amount, approximately $3.3 million will not
be assumed or repaid by Swenson LLC in connection with the Swenson Granite
Distribution and will remain an obligation of the Company. The balance of
approximately $1.3 million, together with any net advances from the Company to
Swenson Granite from and after June 30, 1997 to the date of the Swenson Granite
Distribution and the consummation of the offering, will be repaid by Swenson LLC
to the Company on or before December 31, 1997.
In connection with the Company's acquisition of Lawson Granite Company and
Anderson Friberg Company in December 1995, Swenson Granite is obligated under
certain notes and agreements related thereto (the "Lawson-Anderson Friberg
Obligations"). Except for certain employment agreement and other obligations to
Robert F. Pope (the "Pope Obligations"), the Chief Operating Officer of Swenson
Granite who, effective upon the Swenson Granite Distribution, will become
President and Chief Executive Officer of Swenson LLC, none of the
Lawson-Anderson Friberg Obligations, including but not limited to a note payable
to Paula Plante in the amount of $310,000, will be assumed by Swenson LLC and
will become direct obligations of the Company as a result of the Swenson Merger.
The Company will indemnify Swenson LLC with respect to such obligations, other
than the Pope Obligations as to which Mr. Pope will release, and Swenson LLC
will provide an indemnity to, Swenson Granite and the Company.
Swenson LLC will own two granite quarries, one in Concord, New Hampshire
and other in Woodbury, Vermont. Both have been owned by Swenson Granite for more
than 40 years. The Company anticipates that it will continue to purchase
Woodbury granite from Swenson LLC at the same price Swenson LLC charges its
landscape manufacturing operations. The Company expects that it will continue to
be able to purchase all of the excess output of the Woodbury quarry (beyond that
required by Swenson LLC for its curb and landscaping operations) for resale for
both memorial and other uses. Because of the proximity of the Woodbury quarry to
Barre, Vermont, the Company has provided, and expects to continue to provide,
certain maintenance services and equipment to the Woodbury quarry. Both the
Company and Swenson LLC will have the right to terminate these services at any
time and the Company will have no obligation to purchase or continue to purchase
Woodbury granite from Swenson LLC. The Company's sales of Woodbury granite
provided by Swenson Granite represented 1.8% of 1996 sales of the Company (1.1%
assuming the Acquisitions occurred as of January 1, 1996). The Company believes
these arrangements with Swenson LLC
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<PAGE> 52
are as favorable, or more favorable, than would be available from an unrelated
party for comparable granite blocks.
It is expected that, effective upon the Swenson Granite Distribution,
ongoing pension liabilities under the Pension Plan (which is sponsored jointly
by the Company and Swenson Granite) in respect of the employees of Swenson
Granite will be assumed by Swenson LLC, and appropriate assets, determined in
accordance with applicable law, will be transferred from the Pension Plan to a
pension plan established by Swenson LLC. It is anticipated that in connection
with the Swenson Granite Distribution, the 401(k) accounts of Swenson Granite
employees who participate in 401(k) plans jointly sponsored by the Company and
Swenson Granite will remain in a jointly sponsored plan since each employee's
account is fully funded and vested as each contribution is made.
Upon consummation of the Swenson Granite Distribution, Kurt M. Swenson, the
Company's Chairman and Chief Executive Officer, will own approximately 30% of
all outstanding member interests of Swenson LLC. Mr. Swenson, who has served as
Chairman of the Board and Chief Executive Officer of Swenson Granite since 1974,
will resign as President, Chief Executive Officer of Swenson Granite, effective
upon the consummation of the Swenson Granite Distribution. However, Mr. Swenson
will continue to serve as a non-officer Chairman of the Board of Swenson LLC,
but will have no involvement with the day to day operations of Swenson LLC.
Neither Mr. Swenson nor any other officer of the Company, will receive salary,
bonus, expenses or other compensation from Swenson LLC except for any pro rata
share of earnings attributable to their ownership interest.
In connection with the Keystone Acquisition, the Company entered into the
Supply Agreements with Missouri Red and KGCI. See "Business -- Quarrying and
Manufacturing Operations". G. Thomas Oglesby, Jr. is the sole owner of Missouri
Red and the trustee of a trust for the benefit of his mother and others which
hold 100% of KGCI. G. Thomas Oglesby, Jr. is an officer of the Company. The
Company believes the terms and conditions of the Supply Agreements are as
favorable as would be available from unrelated suppliers. Also in connection
with the Keystone Acquisition, the Company agreed to grant to G. Thomas Oglesby,
Jr. and George T. Oglesby, III, principal owners and officers of Keystone,
options under the 1994 Plan to purchase 75,000 shares and 50,000 shares,
respectively, at an exercise price per share equal to the initial public
offering price per share of the Class A Common Stock. See "Management --
Directors and Officers."
In connection with the C&C Acquisition, the Company has agreed to grant to
Robert Otis Childs, III, one of the principal owners of C&C, an option under the
1994 Plan to purchase 75,000 shares of Class A Common Stock at an exercise price
per share equal to the initial public offering price per share of the Class A
Common Stock. See "Management -- Directors and Officers."
In connection with the Keith Acquisition, the Company agreed to (i) enter
into a five year triple net lease agreement with John E. Keith, who will become
an officer and director of the Company upon consummation of the Keith
Acquisition, and Roy Keith, Jr., the principal owners of Keith Monument, for
office buildings and retail locations containing 28,000 square feet at an annual
rent of $120,000; and (ii) grant to John E. Keith and Roy Keith, Jr. options
under the 1994 Plan to purchase an aggregate of 125,000 shares of Class A Common
Stock at an exercise price per share equal to the initial public offering price
per share of the Class A Common Stock. See "Management -- Directors and
Officers."
Upon consummation of the offering, the Company will grant to each of James
L. Fox and Frederick E. Webster, Jr., each of whom will become non-employee
directors of the Company at that time, options under the 1994 Plan to purchase
29,126 shares of Class A Common Stock at an exercise price per share equal to
the initial public offering price per share of the Class A Common Stock.
The Company has adopted a policy pursuant to which any future transaction
with one of its officers, directors or affiliates will be on terms no less
favorable to the Company than could be obtained from unrelated third parties and
will be approved by a majority of the disinterested members of the Board of
Directors.
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<PAGE> 53
PRINCIPAL AND SELLING STOCKHOLDERS
The following tables set forth certain information as to the beneficial
ownership of the Common Stock as of October 14, 1997, and as adjusted to reflect
the sale of 2,900,000 shares of Class A Common Stock offered hereby, by (i) each
person known by the Company to be the beneficial owner of 5% or more of Common
Stock; (ii) each director of the Company; (iii) each of the executive officers
of the Company; (iv) all directors and executive officers as a group; and (v)
each Selling Stockholder. Unless otherwise indicated, the Company believes all
persons listed have sole voting power and sole investment power with respect to
the shares shown.
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK
BENEFICIALLY OWNED SHARES OF BENEFICIALLY OWNED
PRIOR TO OFFERING(2) CLASS A AFTER OFFERING(2)
NAME AND ADDRESS OF --------------------- COMMON STOCK -------------------
BENEFICIAL OWNER(1) NUMBER PERCENT TO BE SOLD NUMBER PERCENT
- ---------------------------------------- --------- ------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
Kurt M. Swenson(3)+..................... 1,143,989 27.6 -- 1,143,989 16.5
Kevin C. Swenson(4)..................... 1,061,489 25.6 -- 1,061,489 15.3
Mark A. Gherardi(5)+.................... 277,573 6.7 -- 277,573 4.0
Missouri Red Quarries, Inc.(6).......... 263,441 6.4 -- 263,441 3.8
G. Thomas Oglesby, Jr.(7)+.............. 263,441 6.4 -- 278,441 4.0
George T. Oglesby, III(8)............... -- * -- 10,000 *
Peter A. Friberg(9)+.................... 206,375 5.0 -- 206,375 3.0
Robert L. Pope(10)...................... 206,375 5.0 -- 206,375 3.0
Richard C. Kimball(11)+................. 91,626 2.2 -- 91,626 1.3
George R. Anderson(12)+................. 74,126 1.8 -- 74,126 1.1
Jon M. Gregory(13)+..................... 54,126 1.4 -- 59,126 *
Charles M. Waite+....................... 29,126 * -- 29,126 *
John E. Keith(14)+...................... -- * -- 100,735 1.5
James L. Fox(14)+....................... -- * -- 5,825 *
Frederick E. Webster, Jr.(14)+.......... -- * -- 5,825 *
Guy A. Swenson, III(15)................. 48,544 1.2 32,000 16,544 *
Guy A. Swenson, Jr. (15)................ 45,307 1.1 30,307 15,000 *
Peter B. Moore(15)...................... 40,453 1.0 8,000 32,453 *
John D. Swenson(15)..................... 32,362 * 27,362 5,000 *
George M. Karnedy....................... 29,126 * 26,126 3,000 *
Christian P. Swenson(15)................ 24,272 * 17,272 7,000 *
Melvin A. Friberg Irrevocable Trust for
the benefit of Andrew C. Friberg(9)... 12,945 * 12,945 -- *
Melvin A. Friberg Irrevocable Trust for
the benefit of Lindsay S.
Friberg(9)............................ 12,945 * 12,945 -- *
Melvin A. Friberg Irrevocable Trust for
the benefit of Elizabeth F.
Pope(10).............................. 12,945 * 12,945 -- *
Melvin A. Friberg Irrevocable Trust for
the benefit of Gregory J. Pope(10).... 12.945 * 12,945 -- *
Melvin A. Friberg Irrevocable Trust for
the benefit of Michael R. Pope(10).... 12,945 * 12,945 -- *
Melvin A. Friberg Irrevocable Trust for
the benefit of Joseph Yalicki......... 12,945 * 12,945 -- *
Carolyn Friberg(9)...................... 9,709 * 9,709 -- *
Merilyn Friberg(9)...................... 9,709 * 9,709 -- *
Sally S. Friberg(9)..................... 9,709 * 9,709 -- *
Nancy F. Pope(10)....................... 9,709 * 9,709 -- *
Susan S. Vogelsang(15).................. 9,709 * 200 9,509 *
Carl Yalicki............................ 9,709 * 9,709 -- *
</TABLE>
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<PAGE> 54
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK
BENEFICIALLY OWNED SHARES OF BENEFICIALLY OWNED
PRIOR TO OFFERING(2) CLASS A AFTER OFFERING(2)
NAME AND ADDRESS OF --------------------- COMMON STOCK -------------------
BENEFICIAL OWNER(1) NUMBER PERCENT TO BE SOLD NUMBER PERCENT
- ---------------------------------------- --------- ------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
J. Malcolm Swenson...................... 8,091 * 8,000 91 *
All directors and executive officers as
a group (11 persons).................. 2,145,382 51.7 -- 2,272,767 32.8
</TABLE>
- ---------------
+ Executive Officer and/or Director
* Less than 1%
(1) The business address of each director, executive officer and 5% stockholder
of the Company is c/o Rock of Ages Corporation, 772 Graniteville Road,
Graniteville, Vermont 05654.
(2) The listed persons hold Class B Common Stock except as otherwise specified.
Shares of Class B Common Stock held by the Selling Stockholders will
automatically convert into Class A Common Stock on a share-for-shares basis
upon the sale by the Selling Stockholders of such shares pursuant to the
offering.
(3) Includes (i) 82,500 shares subject to stock options exercisable within 60
days and (ii) 18,750 shares held by a trust for the benefit of the children
of Kurt M. Swenson of which John R. Monson is the sole trustee. Mr. Monson
is Secretary and General Counsel to the Company. Mr. Swenson disclaims any
voting power or beneficial interest in the 18,750 shares held by the trust.
Kurt M. Swenson is the brother of Kevin C. Swenson.
(4) Includes 18,750 shares held by a trust for the benefit of the children of
Kevin C. Swenson of which John R. Monson is the sole trustee. Mr. Swenson
disclaims any voting power or beneficial interest in these shares. Kevin C.
Swenson is the brother of Kurt M. Swenson.
(5) Includes 30,000 shares subject to currently exercisable stock options.
(6) Missouri Red Quarries, Inc. is 100% owned by G. Thomas Oglesby, Jr. who is
its President and the sole director of Missouri Red Quarries, Inc.
(7) Includes 263,441 shares owned by Missouri Red Quarries, Inc. Common Stock
Beneficially Owned After Offering also includes 15,000 shares of Class A
Common Stock subject to options which will be granted and exercisable upon
consummation of the offering. G. Thomas Oglesby, Jr. is the father of
George T. Oglesby, III.
(8) Represents shares of Class A Common Stock subject to stock options that
will be granted and exercisable upon consummation of the offering.
(9) Includes 30,000 shares subject to currently exercisable options. Excludes
25,890 shares held by trusts established by Melvin A. Friberg for the
benefit of his children of which Peter A. Friberg is Trustee and 9,709
owned by each of his wife, sister and mother all listed as Selling
Stockholders. Mr. Friberg disclaims any beneficial interest in such shares
being sold.
(10) Includes 30,000 shares subject to currently exercisable options. Excludes
38,835 shares held by trusts established by Melvin A. Friberg for the
benefit of his children of which Robert L. Pope is Trustee and 9,709 shares
held by his wife all listed as Selling Stockholders. Mr. Pope disclaims any
beneficial interest in such shares being sold.
(11) Includes 62,500 shares subject to currently exercisable stock options.
(12) Includes 45,000 shares subject to currently exercisable stock options.
(13) Includes 30,000 shares subject to currently exercisable stock options.
(14) Represents shares of Class A Common Stock subject to stock options that
will be granted and exercisable upon consummation of the offering. Also
includes 88,235 shares of Class A Common Stock to be issued to National
Memorial Corporation in connection with the Keith Acquisition. Mr. Keith is
the president and a 50% owner of National Memorial Corporation.
(15) The listed holder, or beneficiaries of the listed trusts are relatives of
Kurt M. Swenson and his brother Kevin C. Swenson.
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<PAGE> 55
DESCRIPTION OF CAPITAL STOCK
The following summarizes the material terms of the capital stock of the
Company.
GENERAL
The authorized capital stock of the Company consists of 30,000,000 shares
of Class A Common Stock, par value $.01 per share, 3,000,000 shares of which
will be issued and outstanding upon the consummation of this offering (assuming
an initial offering price of $17.00 per share); 15,000,000 shares of Class B
Common Stock, par value $.01 per share, 3,487,957 shares of which will be issued
and outstanding upon consummation of this offering; and 2,500,000 shares of
Preferred Stock, par value $.01 per share, none of which will be outstanding
upon consummation of this offering. As of October 15, 1997 there were 3,763,441
shares of Class B Common Stock outstanding, all of which were held by Swenson
Granite and Missouri Red, no shares of Class A Common Stock outstanding and no
shares of Preferred Stock outstanding.
CLASS A COMMON STOCK AND CLASS B COMMON STOCK
The shares of Class A Common Stock and Class B Common Stock are
substantially identical, except for voting rights and certain conversion rights,
as described below.
Voting Rights. Each share of Class A Common Stock entitles the holder to
one vote on each matter submitted to a vote of the Company's stockholders and
each share of Class B Common Stock entitles the holder to ten votes on each such
matter, in each case including the election of directors. Except as required by
applicable law, holders of the Class A Common Stock and Class B Common Stock
will vote together as a single class on all matters submitted to a vote of the
stockholders. Neither the Class A Common Stock nor the Class B Common Stock has
cumulative voting rights. See "Risk Factors -- Control by Existing Stockholders"
and "Anti-Takeover Effects of Certain Provisions of the Charter and By-laws and
of Delaware Law."
Any action that can be taken at a meeting of the stockholders may be taken
by written consent in lieu of the meeting if the Company receives consents
signed by stockholders having the minimum number of votes that would be
necessary to approve the action at a meeting at which all shares entitled to
vote on the matter were present. This could permit the holders of Class B Common
Stock to take all actions required to be taken by the stockholders without
providing the other stockholders the opportunity to vote or raise other matters
at a meeting.
Dividends. Holders of Class A Common Stock and Class B Common Stock are
entitled to receive dividends at the same rate if and when declared by the Board
of Directors out of funds legally available therefor, subject to the dividend
and liquidation rights of any Preferred Stock that may be issued and
outstanding.
If a dividend or distribution payable in Class A Common Stock is made on
the Class A Common Stock, the Company must also make a pro rata and simultaneous
dividend or distribution on the Class B Common Stock payable in shares of either
Class A Common Stock or Class B Common Stock. Conversely, if a dividend or
distribution payable in Class B Common Stock is made on the Class B Common
Stock, the Company must also make a pro rata and simultaneous dividend or
distribution on the Class A Common Stock payable solely in shares of Class A
Common Stock.
Conversion. Class A Common Stock has no conversion rights. Class B Common
Stock will be convertible into Class A Common Stock, in whole or in part, at any
time and from time to time at the option of the holder on the basis of one share
of Class A Common Stock for each share of Class B Common Stock converted. Each
share of Class B Common Stock will also automatically convert into one share of
Class A Common Stock upon transfer to any person or entity other than a
"Permitted Transferee." For this purpose, a Permitted Transferee is (i) a spouse
or lineal descendant of any person duly holding shares of Class B Common Stock
(a "Qualified Holder") and any spouse of such lineal descendant (all such
spouses and lineal descendants, collectively, "Family Members"), (ii) the
trustee of a trust for the sole benefit of a Qualified Holder or Family Member,
(iii) a partnership comprised exclusively of Qualified Holders or Family members
or other entity wholly owned by Qualified Holders or Family Members, or (iv) the
executor, administrator or
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<PAGE> 56
personal representative of the estate of a Qualified Holder or Family Member, or
the guardian or conservator of a Qualified Holder or any Family Member who has
been adjudged disabled by a court of competent jurisdiction.
Liquidation. In the event of liquidation of the Company, after payment of
the debts and other liabilities of the Company and after making provision for
the holders of Preferred Stock, if any, the remaining assets of the Company will
be distributable ratably among the holders of the Class A Common Stock and Class
B Common Stock treated as a single class.
Other Provisions. The holders of shares of the Common Stock are not
entitled to preemptive rights. Neither the Class A Common Stock nor the Class B
Common Stock may be subdivided or combined in any manner unless the other class
is subdivided or combined in the same proportion.
PREFERRED STOCK
The Board of Directors may, without further action by the Company's
stockholders, from time to time, direct the issuance of shares of Preferred
Stock in series and may, at the time of issuance, determine the rights,
preferences and limitations of each series. Satisfaction of any dividend
preferences of outstanding shares of Preferred Stock would reduce the amount of
funds available for the payment of dividends on shares of Common Stock. Holders
of shares of Preferred Stock may be entitled to receive a preference payment in
the event of any liquidation, dissolution or winding-up of the Company before
any payment is made to the holders of shares of Common Stock. Under certain
circumstances, the issuance of shares of Preferred Stock may render more
difficult or tend to discourage a merger, tender offer or proxy contest, the
assumption of control by a holder of a large block of the Company's securities
or the removal of incumbent management. The Board of Directors, without
stockholder approval, may issue shares of Preferred Stock with voting and
conversion rights which could adversely affect holders of shares of Common
Stock. Upon consummation of the offering, there will be no shares of Preferred
Stock outstanding, and the Company has no present intention to issue any shares
of Preferred Stock.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CHARTER AND BY-LAWS AND OF DELAWARE
LAW
Charter and By-Laws
The Certificate of Incorporation and the By-laws, together with certain
provisions of Delaware law, contain certain provisions that could discourage
potential takeover attempts and make more difficult the acquisition of a
substantial block of the Common Stock. The Certificate of Incorporation provides
for a Board of Directors that is divided into three classes. The directors in
Class I hold office until the first annual meeting of stockholders following
this offering, the directors in Class II hold office until the second annual
meeting of stockholders following this offering, and the directors in Class III
hold office until the third annual meeting of stockholders following this
offering (or, in each case, until their successors are duly elected and
qualified or until their earlier resignation, removal from office for cause or
death), and, after each such election, the directors in each such class will
then serve in succeeding terms of three years and until their successors are
duly elected and qualified. The classification system of electing directors, the
ability of stockholders to remove directors only for cause (and only upon a
two-thirds vote) and the inability of stockholders to call a special meeting may
tend to discourage a third party from making a tender offer or otherwise
attempting to obtain control of the Company and may maintain the incumbency of
the Board of Directors, as the classification of the Board of Directors and such
other provisions generally increase the difficulty of, or may delay, replacing a
majority of the directors. In addition, such classification system and such
other provisions may be amended only upon an 85% stockholder vote.
The Certificate of Incorporation authorizes the directors to issue, without
stockholder approval, shares of Preferred Stock in one or more series and to fix
the voting powers, designations, preferences and relative, participating,
optional or other special rights (and the qualifications, limitations or
restrictions of such preferences and rights) of the shares of each such series.
The Certificate of Incorporation and By-laws provide that special meetings of
the Company's stockholders may be called only by the Chairman of the Board, (if
there is one), or the President, any Vice President, (if there is one), the
Secretary or any Assistant Secretary,
55
<PAGE> 57
(if there is one), and shall be called by any such officer at the written
request of a majority of the directors. The By-laws also provide that
nominations for directors may not be made by stockholders at any annual or
special meeting thereof unless the stockholder intending to make a nomination
notifies the Company of its intentions a specified number of days in advance of
the meeting and furnishes to the Company certain information regarding itself
and the intended nominee. The By-laws also require a stockholder to provide to
the Secretary of the Company advance notice of business to be brought by such
stockholder before any annual or special meeting of stockholders as well as
certain information regarding such stockholder and others known to support such
proposal and any material interest they may have in the proposed business. These
provisions could delay stockholder actions that are favored by the holders of a
majority of the outstanding stock of the Company until the next stockholders'
meeting.
Delaware Anti-Takeover Statute
The Company is subject to Section 203 of the Delaware General Corporation
Law which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the time that such stockholder became an
interested stockholder, unless: (i) prior to such time, the board of directors
of the corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an interested stockholder; (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned (x) by persons who are directors and also
officers and (y) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (iii) at or subsequent
to such time, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least two-thirds of the outstanding
voting stock which is not owned by the interested stockholder. The application
of Section 203 may limit the ability of stockholders to approve a transaction
that they may deem to be in their best interests.
In general, Section 203 defines "business combination" to include: (i) any
merger or consolidation involving the corporation and the interested
stockholder; (ii) any sale, transfer, pledge or other disposition of 10% or more
of the assets of the corporation to or with the interested stockholder; (iii)
subject to certain exceptions, any transaction which results in the issuance or
transfer by the corporation of any stock of the corporation to the interested
stockholder; (iv) any transaction involving the corporation which has the effect
of increasing the proportionate share of the stock of any class or series of the
corporation beneficially owned by the interested stockholder; or (v) the receipt
by the interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an "interested stockholder" as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person associated with, affiliated with or
controlling or controlled by such entity or person.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
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<PAGE> 58
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering and the C&C Acquisition and Keith
Acquisition, the Company will have 6,487,957 shares of Common Stock (6,922,957
shares if the Underwriters' over-allotment option is exercised in full)
outstanding. The 2,900,000 shares of Class A Common Stock (3,335,000 shares if
the Underwriters' over-allotment option is exercised in full) offered hereby
will be freely tradable in the United States without restriction or further
registration under the Securities Act, unless purchased or held by "affiliates"
(as such term is defined in Rule 144) of the Company. All 3,487,957 shares of
Class B Common Stock outstanding upon completion of this offering and 100,000
shares of Class A Common Stock to be issued pursuant to the C&C Acquisition and
the Keith Acquisition (assuming an initial public offering price of $17 per
share) will be "restricted securities" within the meaning of Rule 144 (the
"Restricted Shares").
Restricted Shares may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rules 144 or 701
promulgated under the Securities Act, which are summarized below. Sales of the
Restricted Shares in the public market, or the availability of such shares for
sale, could adversely affect the market price of the Class A Common Stock. Of
the 3,587,957 Restricted Shares, 263,441 shares will be eligible for sale in the
public market pursuant to Rule 144 after June 30, 1998. The remaining 3,324,516
Restricted Shares will be eligible for sale in the public market pursuant to
Rule 144 upon the first anniversary of the consummation of the offering. In
addition, 459,150 shares of Common Stock that are reserved for issuance upon the
exercise of vested options granted pursuant to the 1994 Plan will be available
for sale 90 days after the Effective Date, subject to compliance with Rule 701
and the lock-up agreements described below, if applicable.
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for at
least one year would be entitled to sell within any three-month period a number
of shares that does not exceed the greater of: (i) one percent of the number of
shares of Common Stock then outstanding (which will equal approximately 30,000
shares of Class A Common Stock and 34,880 shares of Class B Common Stock
immediately after this offering); or (ii) the average weekly reported trading
volume during the four calendar weeks preceding the filing of a Form 144 with
respect to such sale. Sales under Rule 144 are also subject to certain manner of
sale provisions and notice requirements and to the availability of current
public information about the Company. Under Rule 144(k), a person who is not
deemed to have been an affiliate of the Company at any time during the 90 days
preceding a sale, and who has beneficially owned the shares proposed to be sold
for at least two years, is entitled to sell such shares without complying with
the manner of sale, public information, volume limitation or notice provisions
of Rule 144.
In general, under Rule 701, beginning 90 days after the Effective Date,
certain shares issued upon the exercise of options granted by the Company prior
to the date of this Prospectus will also be available for sale in the public
market. Any employee, officer or director of or consultant to the Company who
purchased his or her shares pursuant to a written compensatory plan or contract
may be entitled to rely on the resale provisions of Rule 701. Rule 701 permits
affiliates and non-affiliates to sell their Rule 701 shares under Rule 144
without complying with the holding period requirements of Rule 144. Rule 701
further provides that non-affiliates may sell such shares in the public market
in reliance on Rule 144 without having to comply with the public information,
volume limitation or notice provisions of Rule 144. In both cases, a holder of
Rule 701 shares is required to wait until 90 days after the date of this
Prospectus before selling such shares in the public market.
An aggregate of 1,500,000 shares of Common Stock will be reserved for
issuance to employees and directors of the Company pursuant to the 1994 Plan.
Currently, 862,500 shares of Class B Common Stock are issuable under existing
options granted to employees pursuant to the 1994 Plan. In addition, upon
consummation of the offering, options exercisable for a total of 383,252 shares
of Class A Common Stock will be granted under the 1994 Plan to employees in
connection with the Acquisitions and to two new directors. After consummation of
the offering, the Company intends to file one or more registration statements on
Form S-8 with respect to shares of Common Stock issuable under the 1994 Plan.
See "Management -- Incentive Plan." Shares covered by any such registration
statement will be eligible for sale in the public market upon the effectiveness
of such registration statement (which occurs immediately upon filing), subject
to the limitations of Rule 144 that are applicable to affiliates and to the
lock-up agreements described below, if
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<PAGE> 59
applicable. Upon the expiration of the lock-up agreements, 399,650 shares of
Common Stock subject to vested options granted pursuant to the 1994 Plan will be
available for public sale, subject to effectiveness of such a registration
statement with respect to such shares or compliance with Rule 701.
The Company, and the executive officers and directors and holders of more
than 2% of the Common Stock have agreed with Raymond, James & Associates, Inc.
not to sell, offer to sell, contract to sell, pledge or otherwise dispose of or
transfer any shares of Common Stock, or any securities convertible into or
exchangeable or exercisable for or any rights to purchase or acquire Common
Stock for a period of 180 days following the date of this Prospectus without the
prior written consent of Raymond James & Associates, Inc., other than, in the
case of the Company, the issuance of options to purchase Common Stock or shares
of Common Stock issuable upon the exercise thereof, issuances of Common Stock in
connection with the C&C Acquisition and the Keith Acquisition and other
issuances of capital stock in connection with other acquisitions, provided such
shares of Common Stock issued upon the exercise of options and such shares of
capital stock issued in connection with any such other acquisitions shall not be
transferable prior to the end of the aforesaid 180-day period. Raymond James &
Associates, Inc. may, in its sole discretion and at any time without notice,
release all or any portion of the securities subject to lock-up agreements.
Prior to the offering, there has been no market for the Class A Common
Stock. No predictions can be made as to the effect, if any, that market sales of
shares of Class A Common Stock or the availability of such shares for sale will
have on the market price prevailing from time to time. Nevertheless, sales of
significant amounts of Class A Common Stock could adversely affect the
prevailing market price of Class A Common Stock, as well as impair the ability
of the Company to raise capital through the issuance of additional equity
securities.
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<PAGE> 60
CERTAIN UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
The following is a general summary of certain United States federal income
and estate tax consequences of the purchase, ownership, sale or other taxable
disposition of the Class A Common Stock by any person or entity other than (a) a
citizen or resident of the United States, (b) a corporation created or organized
in or under the laws of the United States or of any state thereof and (c) a
person or entity otherwise subject to United States federal income taxation on
income from sources outside the United States (a "non-U.S. Holder"). This
summary does not address all United States federal tax considerations that may
be relevant to non-U.S. Holders in light of their particular circumstances or to
certain non-U.S. Holders that may be subject to special treatment under United
States federal income or estate tax laws. This summary is based upon the
Internal Revenue Code of 1986, as amended, existing, temporary and proposed
regulations promulgated thereunder and administrative and judicial decisions,
all of which are subject to change, possibly with retroactive effect. In
addition, this summary does not address the effect of any state, local or
foreign tax laws. Each prospective purchaser of the Class A Common Stock should
consult its tax advisor with respect to the tax consequences of purchasing,
owning and disposing of the Class A Common Stock.
DIVIDENDS
Dividends paid to a non-U.S. Holder of Class A Common Stock generally will
be subject to a withholding of United States federal income tax at a 30% rate
(or such lower rate as may be specified by an applicable income tax treaty)
unless the dividend is effectively connected with the conduct of a trade or
business of the non-U.S. Holder within the United States in which case the
dividend will be taxed at ordinary federal income tax rates. If the non-U.S.
Holder is a corporation, such effectively connected income may also be subject
to an additional "branch profits tax." A non-U.S. Holder may be required to
satisfy certain certification requirements in order to claim treaty benefits or
otherwise claim a reduction of, or exemption from, the withholding described
above.
SALE OR OTHER DISPOSITION OF CLASS A COMMON STOCK
A non-U.S. Holder generally will not be subject to United States federal
income tax in respect of any gain recognized on the sale or other taxable
disposition of Class A Common Stock unless (i) the gain is effectively connected
with the conduct of a trade or business of the non-U.S. Holder within the United
States, (ii) in the case of a non-U.S. Holder who is an individual and holds the
Class A Common Stock as a capital asset, the holder is present in the United
States for 193 or more days in the taxable year of the disposition and the gain
is considered derived from sources within the United States, (iii) the non-U.S.
Holder is subject to tax pursuant to the provisions of United States federal
income tax law applicable to certain United States expatriates or (iv) the
Company is or has been during certain periods preceding the disposition a "U.S.
real property holding corporation" for United States federal income tax purposes
and certain other requirements are met. The Company does not believe that it has
ever been, or is likely to become, a U.S. real property holding corporation.
ESTATE TAX
Class A Common Stock owned or treated as owned by an individual non-U.S.
Holder at the time of death will be includible in the individual's gross estate
for United States federal estate tax purposes, unless an applicable treaty
provides otherwise, and may be subject to United States federal estate tax.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Dividends. United States backup withholding tax generally will not apply to
dividends paid on the Class A Common Stock to a non-U.S. Holder at an address
outside the United States. The Company must report annually to the Internal
Revenue Service and to each nonU.S. Holder the amount of dividends paid to, and
the tax withheld with respect to, such holder, regardless of whether any tax was
withheld. This information may also be made available to the tax authorities in
the non-U.S. Holder's country of residence.
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<PAGE> 61
Sale or Other Disposition of Class A Common Stock. Upon the sale or other
taxable disposition of Class A Common Stock by a non-U.S. Holder to or through a
United States office of a broker, the broker must backup withhold at a rate of
31% and report the sale to the Internal Revenue Service, unless the holder
certifies its non-U.S. Holder status under penalties of perjury or otherwise
establishes an exemption. Upon the sale or other taxable disposition of Class A
Common Stock by a non-U.S. Holder to or through the foreign office of a United
States broker, or a foreign broker with a certain relationship to the United
States, the broker must report the sale to the Internal Revenue Service (but not
backup withhold) unless the broker has documentary evidence in its files that
the seller is a non-U.S. Holder and/or certain other conditions are met or the
holder otherwise establishes an exemption. Amounts withheld under the backup
withholding rules generally are allowable as a refund or credit against a
non-U.S. Holder's United States federal income tax liability, if any, provided
that the required information is furnished to the Internal Revenue Service on a
timely basis.
Proposed Regulations. The Department of the Treasury has issued proposed
Treasury regulations concerning the non-U.S. Holder certification procedures
regarding U.S. withholding tax on certain amounts paid to non-U.S. persons,
which generally are proposed to be effective with respect to payments made after
December 31, 1998. Prospective investors should consult their tax advisors
concerning the effect, if any, of the adoption of such proposed Treasury
regulations on an investment in the Class A Common Stock.
60
<PAGE> 62
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), through their representative
Raymond James & Associates, Inc. (the "Representative"), have severally agreed
to purchase from the Company and the Selling Stockholders the following
respective numbers of shares of Class A Common Stock at the public offering
price less the underwriting discounts and commissions set forth on the cover
page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
Raymond James & Associates, Inc. .........................................
---------
Total........................................................... 2,900,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Class A Common
Stock offered hereby are subject to approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to take
and pay for all shares of Class A Common Stock offered hereby (other than those
covered by the over-allotment option described below) if any such shares are
purchased.
The Underwriters, through the Representative, propose to offer part of the
shares of Class A Common Stock directly to the public at the public offering
price set forth on the cover page of this Prospectus and part of the shares to
certain dealers at a price that represents a concession not in excess of $
per share under the public offering price. The Underwriters may allow, and such
dealers may re-allow, a concession not in excess of $ per share to certain
other dealers. The Representative has advised the Company that the Underwriters
do not intend to confirm sales to any accounts over which they exercise
discretionary authority.
The Company has granted the Underwriters an option exercisable not later
than 30 days after the date of this Prospectus, to purchase up to an aggregate
of 435,000 additional shares of Class A Common Stock, at the public offering
price, less the underwriting discounts and commissions set forth on the cover
page of this Prospectus. To the extent that the Underwriters exercise such
option, each of the Underwriters will have a firm commitment to purchase
approximately the same percentage thereof as the number of shares of Class A
Common Stock to be purchased by it shown in the above table bears to the total
shown, and the Company will be obligated, pursuant to the option, to sell such
shares to the Underwriters. The Underwriters may exercise their option only to
cover over-allotments made in connection with the sale of the shares of Class A
Common Stock offered hereby. If purchased, the Underwriters will sell such
additional shares on the same terms as those on which the shares are being
offered.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against, or to contribute to, losses arising out of certain
liabilities in connection with this offering, including liabilities under the
Securities Act.
At the request of the Company, the Underwriters have reserved for sale, at
the initial public offering price, up to 250,000 shares of Class A Common Stock
to be sold and offered hereby by the Company to certain employees and customers
of the Company and other persons. The number of shares of Class A Common Stock
available for sale to the general public will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares which are not orally
confirmed for purchase within one day of the pricing of the offering will be
offered by the Underwriters to the general public on the same terms as the other
shares offered hereby. Certain individuals purchasing reserved shares may be
required to agree not to sell, offer or otherwise dispose of any shares of Class
A Common Stock for a period of 180 days after the date of this Prospectus.
61
<PAGE> 63
The Company, its executive officers and directors, and holders of more than
2% of the Common Stock prior to the consummation of the offering, have agreed
not to sell, offer to sell, contract to sell, pledge or otherwise dispose of or
transfer any shares of Common Stock, or any securities convertible into or
exchangeable or exercisable for, or any rights to purchase or acquire, Common
Stock for a period of 180 days following the date of this Prospectus without the
prior written consent of Raymond James & Associates, Inc., other than, in the
case of the Company, the issuance of options to purchase Common Stock or shares
of Common Stock issuable upon the exercise thereof, issuances of Common Stock in
connection with the C&C Acquisition and the Keith Acquisition and other
issuances of capital stock of the Company in connection with other acquisitions,
provided such shares of Common Stock issued upon the exercise of options and
such shares of capital stock issued in connection with any such other
acquisitions shall not be transferable prior to the end of the aforesaid 180-day
period. Raymond James & Associates, Inc. may, in its sole discretion and at any
time without notice, release all or any portion of the shares subject to such
lock-up agreements.
Prior to this offering, there has been no public market for the Class A
Common Stock of the Company. The initial public offering price the Class A
Common Stock was determined by negotiation between the Company and the
Representative. Among the factors considered in such negotiations were
prevailing market conditions, the value of publicly traded companies believed to
be comparable to the Company, the results of operations of the Company in recent
periods, estimates of the business potential of the Company, the present state
of the Company's development and other factors deemed relevant.
The Representative, acting on behalf of the Underwriters, may over-allot
the shares offered hereby and, during the course of this offering, may engage in
stabilizing and syndicate short covering and may impose a penalty bid on members
of the offering syndicate. Over-allotment involves sales of shares in excess of
the total number being offered, thereby creating a syndicate short position.
Stabilizing involves a bid by the syndicate to purchase shares in the open
market at a specified price, which may not exceed the public offering price and
may be decreased but not increased. Syndicate short covering involves open
market purchases of shares to cover all or a portion of the syndicate short
position created by over-allotments. A penalty bid permits the Representative to
reclaim selling concessions from a syndicate member when shares sold by that
member in the offering are purchased by the Representative in the open market to
cover a syndicate short position or pursuant to a stabilizing bid. All of these
activities may cause the market price of the Class A Common Stock to be higher
than otherwise might be the case in the absence of these activities. These
transactions may be effected on the Nasdaq National Market or otherwise and, if
commenced, may be discontinued at any time.
The foregoing includes a summary of certain principal terms of the
Underwriting Agreement and does not purport to be complete. Reference is made to
the copy of the Underwriting Agreement that is on file as an exhibit to the
Registration Statement on Form S-1 (the "Registration Statement") under the
Securities Act and filed by the Company with the Commission with respect to the
shares of Class A Common Stock offered hereby, of which this Prospectus is a
part.
LEGAL MATTERS
The validity of the issuance of the shares of Class A Common Stock offered
hereby will be passed upon for the Company by Skadden, Arps, Slate, Meagher &
Flom LLP, Boston, Massachusetts. Certain legal matters will be passed upon for
the Underwriters by Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A.,
Miami, Florida.
EXPERTS
The audited financial statements of the Company, the audited financial
statements of Keystone, the audited financial statements of C&C, and the audited
financial statements of Keith Monument, have been included herein and in the
Registration Statement in reliance upon the reports of KPMG Peat Marwick LLP,
independent auditors, as of the dates and for the periods indicated in their
reports appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing. The audited financial statements of the
Quarry Companies and SMI have been included herein and in the Registration
Statement in reliance upon
62
<PAGE> 64
the report of Greene and Company, L.L.P., independent certified public
accountants as of the dates and for the periods indicated in their reports
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
AVAILABLE INFORMATION
The Company filed with the Commission the Registration Statement under the
Securities Act with respect to the shares of Class A Common Stock being offered
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits and schedules thereto, to which
reference is hereby made. Statements made in this Prospectus as to the contents
of any contract, agreement or other document referred to are not necessarily
complete; with respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is made to the exhibit
for a more complete description thereof.
The Registration Statement and the exhibits and schedules thereto may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and will also be available for inspection and copying at the regional
offices of the Commission located at 7 World Trade Center, New York, New York
10048 and at Northwestern Atrium Center, 500 West Madison Street (Suite 1400),
Chicago, Illinois 60661. Copies of such material may also be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Additionally, the Commission
maintains a World Wide Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission at (http://www.sec.gov). Upon consummation of this offering,
the Company will become subject to the information requirements of the Exchange
Act, and in accordance therewith will be required to file periodic reports and
other information with the Commission.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements.
63
<PAGE> 65
INDEX TO FINANCIAL STATEMENTS
ROCK OF AGES CORPORATION
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Independent Auditors' Report......................................................... F-4
Consolidated Balance Sheets at December 31, 1995 and 1996 and June 30, 1997
(unaudited)........................................................................ F-5
Consolidated Statements of Operations for the years ended December 31, 1994, 1995 and
1996 and the six months ended June 30, 1996 and 1997 (unaudited)................... F-7
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1994, 1995 and 1996 and the six months ended June 30, 1997 (unaudited)............. F-8
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995 and
1996 and the six months ended June 30, 1996 and 1997 (unaudited)................... F-9
Notes to Consolidated Financial Statements........................................... F-11
CHILDS & CHILDS GRANITE CO., INC.,
C & C GRANITE CO., INC., QUARRY COMPANIES AND SMI
Independent Auditors' Report......................................................... F-24
Combined Balance Sheet as of May 31, 1997 and August 31, 1997 (unaudited)............ F-25
Combined Statement of Operations for the Eleven-Month Period ended May 31, 1997 and
the Three-Month Periods ended August 31, 1996 and 1997 (unaudited)................. F-26
Combined Statement of Stockholders' Equity for the Eleven-Month Period ended May 31,
1997 and the Three-Month Period ended August 31, 1997 (unaudited).................. F-27
Combined Statement of Cash Flows for the Eleven-Month Period ended May 31, 1997 and
the Three-Month Periods ended August 31, 1996 and 1997 (unaudited)................. F-28
Notes to Combined Financial Statements............................................... F-29
KEYSTONE MEMORIALS, INC., QUARRY COMPANIES AND SMI
Independent Auditors' Report......................................................... F-33
Combined Balance Sheet as of April 30, 1997 and July 31, 1997 (unaudited)............ F-34
Combined Statement of Operations for the Ten-Month Period ended April 30, 1997 and
the Three-Month Periods ended July 31, 1996 and 1997 (unaudited)................... F-35
Combined Statement of Stockholder's Deficit for the Ten-Month Period ended April 30,
1997 and the Three-Month Period ended July 31, 1997 (unaudited).................... F-36
Combined Statement of Cash Flows for the Ten-Month Period ended April 30, 1997 and
the Three-Month Periods ended July 31, 1996 and 1997 (unaudited)................... F-37
Notes to Combined Financial Statements............................................... F-38
KEITH MONUMENT COMPANIES
Independent Auditors' Report......................................................... F-43
Combined Balance Sheets as of June 30, 1996 and 1997................................. F-44
Combined Statements of Operations for the Years ended June 30, 1995, 1996 and 1997... F-45
Combined Statements of Stockholders' Equity for the Years ended June 30, 1995, 1996
and 1997........................................................................... F-46
Combined Statements of Cash Flows for the Years ended June 30, 1995, 1996 and 1997... F-47
Notes to Combined Financial Statements............................................... F-48
PENNSYLVANIA GRANITE CORPORATION
Independent Auditors' Report on Financial Statements................................. F-56
Consolidated Balance Sheets as of May 31, 1997 and April 30, 1997.................... F-57
Consolidated Statement of Operations and Accumulated Deficit for the Eleven Months
ended May 31, 1997................................................................. F-58
</TABLE>
F-1
<PAGE> 66
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Consolidated Statement of Operations and Accumulated Deficit for the Ten Months ended
April 30, 1997..................................................................... F-59
Consolidated Statement of Cash Flows for the Eleven Months ended May 31, 1997........ F-60
Consolidated Statement of Cash Flows for the Ten Months ended April 30, 1997......... F-61
Notes to Consolidated Financial Statements........................................... F-62
PENNSYLVANIA GRANITE CORPORATION
Accountants' Review Report........................................................... F-68
Consolidated Balance Sheets as of August 31, 1996 and 1997 (unaudited)............... F-69
Consolidated Statement of Operations and Accumulated Deficit for the Three-Month
Period ended August 31, 1997 (unaudited)........................................... F-70
Consolidated Statement of Operations and Accumulated Deficit for the Three-Month
Period ended August 31, 1996 (unaudited)........................................... F-71
Consolidated Statement of Cash Flows for the Three-Months ended August 31, 1997
(unaudited)........................................................................ F-72
Consolidated Statement of Cash Flows for the Three-Months ended August 31, 1996
(unaudited)........................................................................ F-73
Notes to Financial Statements........................................................ F-74
PENNSYLVANIA GRANITE CORPORATION
Independent Auditors' Report on Financial Statements................................. F-79
Consolidated Balance Sheet as of June 30, 1996....................................... F-80
Consolidated Statement of Operations and Accumulated Deficit for the Year ended
June 30, 1996...................................................................... F-81
Consolidated Statement of Cash Flows for the Year ended June 30, 1996................ F-82
Notes to Consolidated Financial Statements........................................... F-83
CAPRICE BLUE QUARRY, INC.
Independent Auditors' Report on Financial Statements................................. F-88
Balance Sheets as of May 31, 1997 and April 30, 1997................................. F-89
Statement of Operations and Accumulated Deficit for the Eleven Months ended May 31,
1997............................................................................... F-90
Statement of Operations and Accumulated Deficit for the Ten Months ended April 30,
1997............................................................................... F-91
Statement of Cash Flows for the Eleven Months ended May 31, 1997..................... F-92
Statement of Cash Flows for the Ten Months ended April 30, 1997...................... F-93
Notes to Financial Statements........................................................ F-94
CAPRICE BLUE QUARRY, INC.
Accountants' Review Report........................................................... F-97
Balance Sheets as of August 31, 1996 and 1997 (unaudited)............................ F-98
Statement of Operations and Accumulated Deficit for the Three-Month Period ended
August 31, 1997 (unaudited)........................................................ F-99
Statement of Operations and Accumulated Deficit for the Three-Month Period ended
August 31, 1996 (unaudited)........................................................ F-100
Statement of Cash Flows for the Three-Months ended August 31, 1997 (unaudited)....... F-101
Statement of Cash Flows for the Three-Months ended August 31, 1996 (unaudited)....... F-102
Notes to Financial Statements........................................................ F-103
SOUTHERN MAUSOLEUMS, INC.
Independent Auditors' Report......................................................... F-106
Balance Sheets as of May 31, 1997 and April 30, 1997................................. F-107
Statement of Operations and Accumulated Deficit for the Eleven Months ended May 31,
1997............................................................................... F-108
</TABLE>
F-2
<PAGE> 67
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Statement of Operations and Accumulated Deficit for the Ten Months ended April 30,
1997............................................................................... F-109
Statement of Cash Flows for the Eleven Months ended May 31, 1997..................... F-110
Statement of Cash Flows for the Ten Months ended April 30, 1997...................... F-111
Notes to Financial Statements........................................................ F-112
SOUTHERN MAUSOLEUMS, INC.
Accountants' Review Report........................................................... F-116
Balance Sheets as of August 31, 1996 and 1997 (unaudited)............................ F-117
Statement of Operations and Accumulated Deficit for the Three-Month Period ended
August 31, 1997 (unaudited)........................................................ F-118
Statement of Operations and Accumulated Deficit for the Three-Month Period ended
August 31, 1996 (unaudited)........................................................ F-119
Statement of Cash Flows for the Three-Months ended August 31, 1997 (unaudited)....... F-120
Statement of Cash Flows for the Three-Months ended August 31, 1996 (unaudited)....... F-121
Notes to Financial Statements........................................................ F-122
AUTUMN ROSE QUARRY, INC.
Independent Auditors' Report on Financial Statements................................. F-126
Balance Sheets as of May 31, 1997 and April 30, 1997................................. F-127
Statement of Operations and Accumulated Deficit for the Eleven Months ended May 31,
1997............................................................................... F-128
Statement of Operations and Accumulated Deficit for the Ten Months ended April 30,
1997............................................................................... F-129
Statement of Cash Flows for the Eleven Months ended May 31, 1997..................... F-130
Statement of Cash Flows for the Ten Months ended April 30, 1997...................... F-131
Notes to Financial Statements........................................................ F-132
AUTUMN ROSE QUARRY, INC.
Accountants' Review Report........................................................... F-136
Balance Sheets as of August 31, 1996 and 1997 (unaudited)............................ F-137
Statement of Operations and Accumulated Deficit for the Three-Month Period ended
August 31, 1997 (unaudited)........................................................ F-138
Statement of Operations and Accumulated Deficit for the Three-Month Period ended
August 31, 1996 (unaudited)........................................................ F-139
Statement of Cash Flows for the Three-Months ended August 31, 1997 (unaudited)....... F-140
Statement of Cash Flows for the Three-Months ended August 31, 1996 (unaudited)....... F-141
Notes to Financial Statements........................................................ F-142
</TABLE>
F-3
<PAGE> 68
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Rock of Ages Corporation:
We have audited the accompanying consolidated balance sheets of Rock of
Ages Corporation and Subsidiaries as of December 31, 1995 and 1996 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Rock of Ages
Corporation and Subsidiaries as of December 31, 1995 and 1996, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
Burlington, Vermont /s/ KPMG Peat Marwick LLP
March 24, 1997, except as to
Note 13 which is as of
August 12, 1997
F-4
<PAGE> 69
ROCK OF AGES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- JUNE 30,
1995 1996 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 1,994,534 $ 763,056 $ 191,855
Trade receivables, less allowance for doubtful
accounts of $445,627 in 1995 and $564,242 in
1996........................................... 10,757,049 8,525,463 11,248,648
Due from affiliates............................... 2,292,677 3,584,644 5,375,181
Inventories (note 2).............................. 10,110,107 11,323,613 13,374,103
Deferred tax assets (note 6)...................... 270,071 419,871 467,161
Other current assets.............................. 190,755 322,216 837,308
----------- ----------- -----------
Total current assets........................... 25,615,193 24,938,863 31,494,256
----------- ----------- -----------
Property, plant and equipment:
Granite reserves and development costs............ 6,747,993 7,045,644 7,045,644
Land.............................................. 1,937,132 1,981,230 2,151,084
Buildings and land improvements................... 8,028,757 8,661,575 8,850,364
Machinery and equipment........................... 18,548,026 19,331,762 21,616,857
Furniture and fixtures............................ 13,329 13,270 208,722
Construction-in-process........................... 208,239 372,028 1,955,824
----------- ----------- -----------
35,483,476 37,405,509 41,828,495
Less accumulated depreciation, depletion and
amortization................................... 17,306,340 18,809,535 20,598,189
----------- ----------- -----------
Net property, plant and equipment.............. 18,177,136 18,595,974 21,230,306
----------- ----------- -----------
Other assets:
Cash surrender value of life insurance, net of
loans of $95,412 in 1995 and 1996.............. 752,007 917,137 959,478
Goodwill, less accumulated amortization of $30,450
in 1996........................................ 1,779,113 1,748,663 1,730,663
Debt issuance costs, less accumulated amortization
of $229,976 in 1995 and $104,040 in 1996....... 157,019 123,293 88,683
Organization costs, less accumulated amortization
of $26,688 in 1995 and $63,961 in 1996......... 72,644 212,799 189,985
Deferred tax assets (note 6)...................... 763,862 597,576 543,176
Intangible pension asset (note 8)................. 0 93,418 93,418
Investments in and advances to affiliated
companies (note 5)............................. 378,614 217,953 1,407,760
Other investments, at cost which approximates
market......................................... 109,119 59,366 30,948
Other............................................. 296,333 489,734 0
----------- ----------- -----------
Total other assets............................. 4,308,711 4,459,939 5,044,111
----------- ----------- -----------
Total assets (notes 3 and 4).............. $48,101,040 $47,994,776 $57,768,673
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 70
ROCK OF AGES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- JUNE 30,
1995 1996 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under lines of credit (note 3)......... $ 2,579,859 $ 3,500,437 $ 8,667,627
Current installments of long-term debt (note 4)... 4,096,813 2,081,481 2,844,419
Accounts payable.................................. 1,929,388 1,693,144 2,066,541
Accrued expenses.................................. 1,668,822 1,969,976 2,357,840
Income taxes payable.............................. 397,409 466,711 131,149
Current portion of deferred income................ 400,000 400,000 400,000
Customer deposits................................. 851,673 1,541,602 1,794,819
----------- ----------- -----------
Total current liabilities................. 11,923,964 11,653,351 18,262,395
Long-term debt, excluding current installments (note
4)................................................ 14,656,514 13,054,399 13,896,615
Deferred compensation (note 8)...................... 3,232,094 3,504,090 3,566,431
Deferred income, excluding current portion.......... 800,000 400,000 200,000
Accrued pension cost (note 8)....................... 1,504,512 1,504,512 1,504,512
Accrued postretirement benefit cost (note 8)........ 504,750 506,938 506,938
----------- ----------- -----------
Total liabilities......................... 32,621,834 30,623,290 37,936,891
----------- ----------- -----------
Commitments (note 7)
Stockholders' equity:
Preferred stock -- $.01 par value;
2,500,000 shares authorized
No shares issued or outstanding
Common Stock -- Class A, $.01 par value;
30,000,000 shares authorized
No shares issued or outstanding
Common stock -- Class B, $.01 par value;
15,000,000 shares authorized
3,500,000 shares issued and outstanding
in 1995 and 1996............................... 35,000 35,000 37,634
Additional paid-in capital........................ 5,593,843 5,593,843 9,174,007
Retained earnings................................. 9,827,918 11,736,082 10,675,378
Cumulative translation adjustment................. 22,445 6,561 (55,237)
----------- ----------- -----------
Total stockholders' equity................ 15,479,206 17,371,486 19,831,782
----------- ----------- -----------
Total liabilities and stockholders'
equity.................................. $48,101,040 $47,994,776 $57,768,673
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 71
ROCK OF AGES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------------------- -----------------------
1994 1995 1996 1996 1997
----------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues........................ $34,187,749 33,087,783 44,668,851 19,943,096 20,767,426
Cost of revenues.................... 24,094,198 22,638,804 31,262,530 14,686,791 15,562,135
----------- ---------- ---------- ---------- ----------
Gross profit.............. 10,093,551 10,448,979 13,406,321 5,256,305 5,205,291
Selling, general and administrative
expenses.......................... 6,048,890 6,453,425 9,131,459 4,649,628 4,327,952
----------- ---------- ---------- ---------- ----------
Income from operations.... 4,044,661 3,995,554 4,274,862 606,677 877,339
----------- ---------- ---------- ---------- ----------
Other expenses:
Interest expense.................. 1,652,895 1,678,178 1,723,355 933,684 866,064
Early retirement plan expense
(note 8)....................... -- 563,857 -- -- --
----------- ---------- ---------- ---------- ----------
Total other expenses...... 1,652,895 2,242,035 1,723,355 933,684 866,064
----------- ---------- ---------- ---------- ----------
Income (loss) before
provision (benefit) for
income taxes............ 2,391,766 1,753,519 2,551,507 (327,007) 11,275
Provision (benefit) for income taxes
(note 6).......................... 576,485 358,021 643,343 (82,452) 2,843
----------- ---------- ---------- ---------- ----------
Net income (loss)......... $ 1,815,281 1,395,498 1,908,164 (244,555) 8,432
=========== ========== ========== ========== ==========
Net income (loss) per share......... $ .47 .35 .46 (.06) .00
Weighted average number of common
shares outstanding................ 3,899,897 4,017,257 4,105,912 4,105,912 4,326,287
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 72
ROCK OF AGES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
AND THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
ISSUED AND
OUTSTANDING
SHARES OF
CLASS B CLASS B ADDITIONAL CUMULATIVE TOTAL
COMMON COMMON PAID-IN RETAINED TRANSLATION STOCKHOLDERS'
STOCK STOCK CAPITAL EARNINGS ADJUSTMENT EQUITY
----------- ------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993...... 3,500,000 $35,000 2,212,044 6,617,139 (15,467) 8,848,716
Net income...................... -- -- -- 1,815,281 -- 1,815,281
Cumulative translation
adjustment.................... -- -- -- -- 22,142 22,142
--------- ------- --------- --------- ------- ----------
Balance at December 31, 1994...... 3,500,000 35,000 2,212,044 8,432,420 6,675 10,686,139
Net income...................... -- -- -- 1,395,498 -- 1,395,498
Acquisitions (note 12).......... -- -- 3,381,799 -- -- 3,381,799
Cumulative translation
adjustment.................... -- -- -- -- 15,770 15,770
--------- ------- --------- --------- ------- ----------
Balance at December 31, 1995...... 3,500,000 35,000 5,593,843 9,827,918 22,445 15,479,206
Net income...................... -- -- -- 1,908,164 -- 1,908,164
Cumulative translation
adjustment.................... -- -- -- -- (15,884) (15,884)
--------- ------- --------- --------- ------- ----------
Balance at December 31, 1996...... 3,500,000 35,000 5,593,843 11,736,082 6,561 17,371,486
Net income...................... -- -- -- 8,432 -- 8,432
Dividends (note 13)............. -- -- -- (1,069,136) -- (1,069,136)
Acquisition (note 13)........... 263,441 2,634 3,580,164 -- -- 3,582,798
Cumulative translation
adjustment.................... -- -- -- -- (61,798) (61,798)
--------- ------- --------- --------- ------- ----------
Balance at June 30, 1997.......... 3,763,441 $37,634 9,174,007 10,675,378 (55,237) 19,831,782
========= ======= ========= ========= ======= ==========
</TABLE>
See accompanying notes to consolidated financial statements
F-8
<PAGE> 73
ROCK OF AGES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------------------------- -------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss).............. $ 1,815,281 1,395,498 1,908,164 (244,555) 8,432
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Depreciation, depletion and
amortization.............. 1,399,028 1,413,336 1,846,298 1,049,466 984,841
Decrease (increase) in cash
surrender value of life
insurance................. 26,068 71,132 (165,130) (82,565) (42,341)
Loss (gain) on sale of
property, plant and
equipment................. (319,917) (45,063) (5,500) (3,389) 20,004
Loss (equity) in income of
affiliated companies...... (134,264) 43,156 160,661 134,434 19,019
Deferred taxes.............. 79,967 (131,676) 16,486 (152,452) 7,110
Changes in assets and
liabilities:
Decrease (increase) in
trade receivables...... (1,524,444) (1,727,154) 2,231,586 2,046,113 (1,269,760)
Decrease (increase) in due
from affiliates........ (421,630) 378,885 (1,291,967) (1,416,988) (1,319,007)
Decrease (increase) in
inventories............ 2,148,792 243,979 (1,081,430) (1,686,701) (918,391)
Increase in other current
assets................. (4,022) (36,783) (131,461) (391,593) (497,668)
Decrease (increase) in
intangible pension
asset.................. (178,630) 481,366 (93,418) -- --
Decrease (increase) in
other assets........... 184,454 101,365 (193,401) (762,900) 19,779
Increase (decrease) in
accounts payable....... 499,742 (205,627) (236,244) 477,197 (22,375)
Increase in accrued
expenses............... 733,651 85,493 301,154 515,851 224,869
Increase (decrease) in
income taxes payable... 541,354 (290,090) 69,302 (136,775) (298,374)
Increase in customer
deposits............... 5,918 228,447 689,929 266,453 253,217
Increase (decrease) in
deferred
compensation........... (14,706) 9,264 271,996 73,565 62,341
Decrease in deferred
income................. (400,000) (400,000) (400,000) (200,000) (200,000)
Increase in accrued
pension cost........... 86,700 29,912 2,188 -- --
Increase in accrued
postretirement benefit
cost................... 9,345 10,811 -- 45,000 --
---------- ---------- ---------- ---------- ----------
Net cash provided by
(used in) operating
activities........... 4,532,687 1,656,251 3,899,213 (469,839) (2,968,304)
---------- ---------- ---------- ---------- ----------
Cash flows from investing
activities:
Purchases of property, plant
and equipment............... (502,918) (896,447) (1,648,505) (883,593) (1,589,953)
Proceeds from sale of property,
plant and equipment......... 751,866 70,836 14,476 11,000 --
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE> 74
ROCK OF AGES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------------------------- -------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Increase in investments in and
advances to affiliates...... -- -- -- -- (171,020)
Decrease (increase) in other
investments................. 1,927 (53,933) 49,753 10,897 28,418
Acquisitions, net of cash
acquired.................... -- 2,642 (238,310) -- 73,256
----------- ----------- ----------- ----------- -----------
Net cash provided by
(used in) investing
activities........... 250,875 (876,902) (1,822,586) (861,696) (1,659,299)
----------- ----------- ----------- ----------- -----------
Cash flows from financing
activities:
Net borrowings (repayments)
under lines of credit....... (3,062,646) 2,454,269 920,578 2,401,628 5,167,190
Increase in debt issuance
costs....................... (190,027) (2,569) (36,415) (36,415) --
Increase in organization
costs....................... (97,565) (1,766) (172,689) (172,689) --
Proceeds from long-term debt... -- -- 122,082 -- --
Principal payments on long-term
debt........................ (1,145,802) (1,644,533) (4,126,635) (2,376,882) (1,048,990)
----------- ----------- ----------- ----------- -----------
Net cash provided by
(used in) financing
activities........... (4,496,040) 805,401 (3,293,079) (184,358) 4,118,200
----------- ----------- ----------- ----------- -----------
Effect of exchange rate changes
on cash........................ 14,498 16,176 (15,026) (32,665) (61,798)
----------- ----------- ----------- ----------- -----------
Net increase (decrease)
in cash and cash
equivalents.......... 302,020 1,600,926 (1,231,478) (1,548,558) (571,201)
Cash and cash equivalents,
beginning of period............ 91,588 393,608 1,994,534 1,994,534 763,056
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents, end of
period......................... $ 393,608 1,994,534 763,056 445,976 191,855
=========== =========== =========== =========== ===========
Supplemental cash flow
information:
Cash paid during the period
for:
Interest.................... $ 1,780,181 1,678,178 1,520,420 933,684 866,064
Income taxes................ 150,150 711,299 742,626 168,983 351,155
</TABLE>
Supplemental non-cash investing and financing activities:
See Note 12 for non-cash activities relating to the acquisitions.
In 1994, $3,663,747 in borrowings under lines of credit was refinanced as
long-term debt.
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------------------------- -------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Acquisitions:
Assets acquired................ $ -- 9,186,561 625,416 -- 6,807,521
Liabilities assumed and
issued...................... -- (5,449,882) (387,106) -- (3,224,723)
Capital contributed............ -- (3,381,799) -- -- --
Common stock issued............ -- -- -- -- (3,582,798)
---------- ---------- ---------- ---------- ----------
Cash paid...................... -- 354,880 238,310 -- --
Less cash acquired............. -- (357,522) -- -- (73,256)
---------- ---------- ---------- ---------- ----------
Net cash paid for
(received from)
acquisitions......... $ -- (2,642) 238,310 -- (73,256)
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE> 75
ROCK OF AGES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Rock of Ages Corporation, together with its wholly-owned subsidiaries (the
"Company"), Rock of Ages Canada, Inc., Royalty Granite Corporation, Rock of Ages
International, and Associated Memorials, Inc. is an integrated quarrier,
manufacturer and distributor of granite and products manufactured from granite.
The quarry division sells granite both to the manufacturing division and to
outside manufacturers, as well as to distributors in Europe and Japan. The
manufacturing division's principal product is granite memorials used primarily
in cemeteries, although it also manufactures some specialized granite products
for industrial applications. Manufacturing revenues were approximately 50%, 60%
and 60% of total revenues in 1994, 1995 and 1996 respectively, with the balance
being quarry revenues. Foreign revenues represented approximately 44.9%, 40.7%
and 28.9% of total revenues in 1994, 1995 and 1996, respectively.
(a) Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
(b) Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid investments purchased with a maturity of three months or less to
be cash equivalents.
(c) Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method.
(d) Depreciation, Depletion and Amortization
Property, plant and equipment are stated at cost. Depreciation is
calculated using the straight-line and declining balance methods, based upon the
following estimated useful lives:
<TABLE>
<S> <C>
Buildings and land improvements........................ 5 to 40 years
Machinery and equipment................................ 3 to 20 years
Furniture and fixtures................................. 5 to 12 years
</TABLE>
Depreciation expense amounted to $1,281,415, $1,253,186 and $1,659,160 in
1994, 1995 and 1996, respectively.
Cost depletion and amortization of granite reserves and development costs
is provided by charges to operations based on cubic feet produced in relation to
estimated reserves of the property. Cost depletion and amortization charged to
operations amounted to $71,010, $69,338 and $54,013 in 1994, 1995 and 1996,
respectively.
(e) Foreign Currency Translation
The Company translates the accounts of its foreign subsidiary in accordance
with Statement of Financial Accounting Standards No. 52, under which all assets
and liabilities are translated at the rate of exchange in effect at year end.
Revenue and expense accounts are translated using weighted average exchange
rates in effect during the year. Gains or losses from foreign currency
translation are charged to "cumulative translation adjustment" which is included
in stockholders' equity in the accompanying consolidated balance sheets.
F-11
<PAGE> 76
ROCK OF AGES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
(f) Income Taxes
The Company files its Federal income tax returns on a consolidated basis.
Rock of Ages Canada, Inc. is responsible for income taxes in Canada.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to the differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(g) Goodwill
Goodwill was recorded in 1995 as a result of two acquisitions (see Note 12)
and is being amortized over 40 years using the straight-line method.
Amortization expense amounted to $30,450 in 1996. The Company assesses the
recoverability of this intangible asset by determining whether the amortization
of the goodwill balance over its remaining life can be recovered through
undiscounted future operating cash flows of the acquired operation. The amount
of goodwill impairment, if any, is measured based on projected discounted future
operating cash flows using a discount rate reflecting the Company's average cost
of funds. The assessment of the recoverability of goodwill will be impacted if
estimated future operating cash flows are not achieved.
(h) Debt Issuance Costs
Debt issuance costs are amortized using the straight-line method over the
term of the related borrowing. Amortization expense amounted to $40,603, $70,124
and $70,141 in 1994, 1995 and 1996, respectively.
(i) Organization Costs
Organization costs are amortized using the straight-line method over 60
months. Amortization expense amounted to $6,000, $20,688 and $32,534 in 1994,
1995 and 1996, respectively.
(j) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. Adoption of the Statement did not have a material impact on the Company's
financial position, results of operations, or liquidity.
(k) Deferred Income
Deferred income represents revenues received in 1992 in relation to a
distribution agreement. Revenue is being recognized over six years beginning in
1993, per the terms of the agreement.
F-12
<PAGE> 77
ROCK OF AGES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
(l) Revenue Recognition
The manufacturing division recognizes revenue upon shipment of finished
orders. The quarry division recognizes revenue upon sales order at which time
ownership passes to the customer although the block may not be shipped until a
later date.
(m) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to use 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
reporting period. Actual results could differ from these estimates.
(n) Stock-Based Employee Compensation
The Company uses the intrinsic value based method per APB Opinion No. 25,
Accounting for Stock Issued to Employees, for all of its stock-based employee
compensation arrangements.
(o) Net Income Per Share
Net income per share is computed by dividing earnings available for common
shares by the weighted average number of common shares outstanding during each
year. Common stock equivalent shares are not included in the per share
calculations where the effect of their inclusion would be antidilutive.
(p) Interim Consolidated Financial Statements
The consolidated financial statements for the six months ended June 30,
1996 and 1997 are unaudited but, in the opinion of management, include all
normal, recurring adjustments necessary for a fair presentation of results for
these interim periods. The results of operations for the interim periods are not
necessarily indicative of trends or results expected for a full year.
(2) INVENTORIES
Inventories consist of the following at December 31, 1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Raw materials..................................... $ 6,994,078 7,065,320
Work-in-process................................... 1,304,347 1,694,671
Finished goods and supplies....................... 1,811,682 2,563,622
----------- -----------
$10,110,107 11,323,613
=========== ===========
</TABLE>
(3) LINES OF CREDIT
The Company and an affiliate, Swenson Granite Company, Inc., may be
advanced up to a maximum of $9,500,000 under the terms of line of credit
agreements with a lending institution, based on percentages of eligible accounts
receivable and eligible inventory. The line of credit arrangements expire August
1999 and bear interest at the Chemical Bank prime rate plus 1%, and are secured
by substantially all assets of the Company. Amounts outstanding as of December
31, 1995 and 1996 were $1,179,859 and $1,779,124, respectively.
F-13
<PAGE> 78
ROCK OF AGES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) LINES OF CREDIT -- (CONTINUED)
Effective November 30, 1995, Rock of Ages Canada, Inc. entered into a line
of credit agreement with a lending institution. Under the terms of this
agreement, a maximum of approximately $2,400,000 may be advanced based on
percentages of eligible accounts receivable, eligible inventory, and tangible
fixed assets. The line of credit agreement will be reviewed at least annually
for any revisions to the agreement, bears interest at the prime rate plus 3/4%,
and is secured by substantially all assets of the subsidiaries. Amounts
outstanding as of December 31, 1995 and 1996 were $1,400,000 and $1,721,313,
respectively.
(4) LONG-TERM DEBT
Long-term debt at December 31, 1995 and 1996 consists of the following:
<TABLE>
<CAPTION>
1995 1996
----------- ----------
<S> <C> <C>
Note payable -- bank, interest at Chemical Bank prime plus
1 1/4%, payable in quarterly installments of $100,000
with the final installment of $2,500,000 due October
1998, secured by substantially all assets of the
Company.................................................. $ 3,600,000 3,200,000
Note payable -- bank, interest at Chemical Bank prime plus
1 1/4%, payable in quarterly installments of $400,000
with the final installment of $8,400,000 due January
1999, secured by substantially all assets of the
Company.................................................. 13,010,384 11,410,385
Notes payable -- bank, interest at prime plus 1%,
unsecured, paid in full in January 1996.................. 1,320,622 --
Note payable -- Small Business Administration, interest at
10.147%, secured by property, plant and equipment, paid
in full in January 1996.................................. 327,230 --
Note payable -- VEDA, interest at 4%, unsecured, paid in
full in January 1996..................................... 118,233 --
Note payable -- Dutton, interest at 6%, payable in monthly
principal and interest payments of $674, unsecured, due
December 2003............................................ 51,280 46,130
Note payable -- Friberg, interest at 8%, unsecured, paid in
full in April 1996....................................... 325,578 --
Note payable -- bank, interest at lender's operational rate
plus 1%, payable in monthly installments of $3,649 plus
interest, due April 2004, secured by property with a net
book value of $336,330 at December 31, 1996.............. -- 321,068
Note payable -- bank, interest at 10.5%, payable in monthly
principal and interest installments of $1,216, due March
2000, secured by machinery with a net book value of
$39,792 at December 31, 1996............................. -- 40,012
Note payable -- bank, interest at prime plus 1.5%, payable
in monthly installments of $608 plus interest, due
November 2001, secured by property with a net book value
of $40,193 at December 31, 1996.......................... $ -- 35,269
</TABLE>
F-14
<PAGE> 79
ROCK OF AGES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) LONG-TERM DEBT -- (CONTINUED)
<TABLE>
<CAPTION>
1995 1996
----------- ----------
<S> <C> <C>
Obligation under capital lease, interest at 7.99%, payable
in monthly installments of $1,680 plus interest, due
December 2000, secured by equipment with a cost and
accumulated depreciation of $95,731 and $1,595,
respectively, at December 31, 1996....................... -- 83,016
----------- ----------
18,753,327 15,135,880
Less current installments.................................. 4,096,813 2,081,481
----------- ----------
Long-term debt, excluding current installments............. $14,656,514 13,054,399
=========== ==========
</TABLE>
All bank-related obligations are guaranteed by an affiliate, Swenson
Granite Company, Inc.
Future maturities of the December 31, 1996 long-term debt are as follows:
<TABLE>
<CAPTION>
OBLIGATION OTHER
UNDER LONG-TERM
YEAR ENDED DECEMBER 31: CAPITAL LEASE DEBT
----------------------------------------------------------- ------------- ----------
<S> <C> <C>
1997.................................................. $ 20,163 2,067,444
1998.................................................. 20,163 4,468,983
1999.................................................. 20,163 1,670,669
2000.................................................. 41,337 6,671,596
2001.................................................. -- 56,810
Thereafter............................................ -- 117,362
-------- ----------
101,826 15,052,864
==========
Interest included in obligation under capital lease........ 18,810
--------
$ 83,016
========
</TABLE>
The financing agreements with banks contain various restrictive covenants
with respect to the maintenance of financial ratios, capital additions, and
other items. As of December 31, 1996 all covenants have been complied with or
waived by the banks.
(5) INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES
Investments in and advances to affiliated companies, accounted for under
the equity method, at December 31, 1995 and 1996 consists of a 50% equity
interest in Rock of Ages of Asia of $378,613 and $217,953, respectively.
The Company's equity (loss) in the income of Rock of Ages Asia was
$134,264, $(43,156) and $(160,661), in 1994, 1995 and 1996, respectively. Sales
to Rock of Ages Asia were $3,911,195, $2,997,845 and $592,100 in 1994, 1995 and
1996, respectively. Accounts receivable from Rock of Ages Asia was $2,221,824,
$2,327,054 and $769,354 as of December 31, 1994, 1995 and 1996, respectively.
See note 13.
F-15
<PAGE> 80
ROCK OF AGES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) INCOME TAXES
A summary of components of the provision for income taxes for the years
ended December 31, 1994, 1995 and 1996 is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Current............................................ $496,518 $381,719 $626,857
Deferred........................................... 79,967 (23,698) 16,486
-------- -------- --------
Total.................................... $576,485 $358,021 $643,343
======== ======== ========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1995 and 1996 are presented below:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Deferred tax assets:
Accrued pension, accrued postretirement benefit cost and
deferred compensation.................................. $ 903,743 $ 890,941
Allowance for doubtful accounts........................... 79,096 94,920
Accrued expenses.......................................... 60,224 86,120
Deferred income........................................... 326,400 217,600
Inventories, principally due to additional costs
inventoried for tax purposes pursuant to the Tax Reform
Act of 1986............................................ 211,634 237,279
Other assets.............................................. 297,426 374,789
---------- ----------
Total gross deferred tax assets................... 1,878,523 1,901,649
Less valuation allowance.......................... (482,241) (495,877)
---------- ----------
Total net deferred tax assets..................... 1,396,282 1,405,772
---------- ----------
Deferred tax liabilities:
Quarry development........................................ (309,176) (375,445)
Other liabilities......................................... (53,173) (12,880)
---------- ----------
Total gross deferred tax liabilities.............. (362,349) (388,325)
---------- ----------
Net deferred tax assets........................... $1,033,933 $1,017,447
========== ==========
</TABLE>
The reconciliation of differences between the statutory U.S. federal income
tax rate and the Company's effective tax rate follows:
<TABLE>
<CAPTION>
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
U.S. statutory rate......................................... 34.0% 34.0% 34.0%
State taxes................................................. 5.9 6.0 6.1
Valuation allowance change.................................. (5.3) -- --
Other....................................................... (10.5) (19.6) (14.9)
----- ----- -----
Effective tax rate.......................................... 24.1% 20.4% 25.2%
===== ===== =====
</TABLE>
SFAS No. 109 requires a valuation allowance against deferred tax assets if,
based on the weight of available evidence, it is more likely than not that some
or all of the deferred tax assets will not be realized. Management believes that
it is more likely than not that the results of future operations will generate
sufficient taxable income to realize the net deferred tax assets.
F-16
<PAGE> 81
ROCK OF AGES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) LEASES
The Company has several noncancellable operating leases for vehicles and
equipment which expire over the next four years. Rental expense for operating
leases was $118,211, $164,467 and $161,607 during 1994, 1995 and 1996,
respectively.
Future minimum lease payments under noncancellable operating leases (with
initial or remaining lease terms in excess of one year) are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31:
----------------------------------------------------------
<S> <C>
1997...................................................... $149,763
1998...................................................... 134,777
1999...................................................... 105,008
2000...................................................... 37,989
--------
$427,537
========
</TABLE>
The Company also acts as the lessor of various parcels of land. Rental
income was $28,841, $32,182 and $32,210 in 1994, 1995 and 1996, respectively.
Future minimum rentals to be received under noncancellable leases are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31:
----------------------------------------------------------
<S> <C>
1997...................................................... $ 22,950
1998...................................................... 19,950
1999...................................................... 19,575
2000...................................................... 16,950
2001...................................................... 16,200
Thereafter................................................ 44,550
--------
$140,175
========
</TABLE>
(8) PENSION AND RETIREMENT PLANS
Pension Plans -- Non-Union
The Company has a defined benefit pension plan which covers all salaried
employees of the Company and its affiliate, Swenson Granite Company, Inc. who
have attained age 21 and have completed one year of service. Employees with five
or more years of service are entitled to pension benefits beginning at normal
retirement age (65) equal to 1.8% of average compensation times years of
credited service. Maximum number of years of credited service is equal to 30
years.
The Company makes contributions in such amounts and at such times as it
shall determine in accordance with an established funding method and policy,
which is consistent with plan objectives and the requirements of the Employee
Retirement Income Security Act of 1974 (ERISA). The Company's contributions for
the year ended December 31, 1994, 1995 and 1996 were based on the minimum
funding requirements of ERISA.
Plan assets consist of marketable securities and an unallocated insurance
contract.
F-17
<PAGE> 82
ROCK OF AGES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) PENSION AND RETIREMENT PLANS -- (CONTINUED)
Net periodic pension cost for the Company's defined benefit pension plan
for the years ended December 31, 1995 and 1996, charged to operations in the
accompanying consolidated statements of operations, excluding the expense
incurred as a result of the early retirement window described below, consisted
of the following:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Service cost-benefits attributable to service during the
period.................................................. $ 222,485 $ 392,429
Interest cost on projected benefit obligation............. 881,644 1,042,864
Return on plan assets..................................... (1,660,367) (1,342,269)
Net amortization and deferral............................. 1,149,127 776,636
----------- -----------
Net periodic pension cost................................. $ 592,889 $ 869,660
=========== ===========
</TABLE>
Assumptions used by the Company in the determination of pension plan
information consisted of the following as of December 31, 1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Discount rate.......................................................... 7.25% 7.25%
Rate of increase in compensation levels................................ 5.50% 5.50%
Expected long-term rate of return on plan assets....................... 9.00% 9.00%
</TABLE>
The following table sets forth the funded status of the plan and amounts
recognized in the accompanying consolidated balance sheets at December 31, 1995
and 1996:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Actuarial present value of accumulated benefit
obligation including vested benefits of $10,760,173 in
1995 and $11,654,986 in 1996.......................... $(11,087,582) $(12,225,920)
============ ============
Actuarial present value of projected benefit
obligation............................................ (12,845,942) (15,045,099)
Plan assets at fair value............................... 9,901,354 11,296,553
------------ ------------
Projected benefit obligation in excess of plan assets... (2,944,588) (3,748,546)
Unrecognized net gain from past experience different
from that assumed and the effects of changes in
assumptions........................................... (500,947) (899,363)
Unrecognized net prior service cost..................... 865,707 2,209,852
Unrecognized net obligation............................. 1,075,316 933,545
------------ ------------
Accrued pension cost.................................... $ (1,504,512) $ (1,504,512)
============ ============
</TABLE>
Effective November 1, 1995 the Company offered an early retirement window
for eligible employees. As a result, the Company recognized a curtailment loss
of $563,857 which has been charged to other expenses in the accompanying
consolidated statement of operations.
Postretirement Benefits
In addition to providing pension benefits, the Company and its affiliate,
Swenson Granite Company, Inc. (Swenson) have sponsored a defined benefit
postretirement health care plan for early retirees. No other Company employees
or retirees are eligible to participate in the plan. The Company and Swenson
also sponsor defined benefit postretirement group life insurance plans for union
and non-union employees. The death benefit provided to union retirees is $6,000;
the death benefit provided to non-union retirees is 0.75 times the retiree's
salary on the date of retirement (capped at $60,000). Included in selling,
general and administrative
F-18
<PAGE> 83
ROCK OF AGES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) PENSION AND RETIREMENT PLANS -- (CONTINUED)
expenses of the Company is its share of the net periodic postretirement benefit
costs of $219,428, $194,719 and $188,076 for the years ended December 31, 1994,
1995 and 1996, respectively.
Net periodic postretirement benefit costs for the Company and its affiliate
for the years ended December 31, 1994, 1995 and 1996 consisted of the following:
<TABLE>
<CAPTION>
POSTRETIREMENT POSTRETIREMENT
1994 MEDICAL LIFE INSURANCE TOTAL
---------------------------------------------- -------------- -------------- --------
<S> <C> <C> <C>
Service cost-benefits attributable to service
during the period........................... $ -- $ 14,728 $ 14,728
Interest cost on accumulated postretirement
benefit obligation.......................... 49,000 99,079 148,079
Net amortization and deferral................. 37,625 66,053 103,678
------- -------- --------
Net periodic postretirement benefit cost...... $86,625 $179,860 $266,485
======= ======== ========
1995
Service cost-benefits attributable to service
during the period........................... $ -- $ 12,559 $ 12,559
Interest cost on accumulated postretirement
benefit obligation.......................... 35,677 98,599 134,276
Net amortization and deferral................. 24,410 66,053 90,463
------- -------- --------
Net periodic postretirement benefit cost...... $60,087 177,211 237,298
======= ======== ========
1996
Service cost-benefits attributable to service
during the period........................... $ -- $ 20,308 $ 20,308
Interest cost on accumulated postretirement
benefit obligation.......................... 22,096 106,150 128,246
Net amortization and deferral................. 9,878 66,053 75,931
------- -------- --------
Net periodic postretirement benefit cost...... $31,974 $192,511 $224,485
======= ======== ========
</TABLE>
The amounts recognized in the accompanying consolidated balance sheets as
of December 31, 1995 and 1996, representing the Company's share of the funded
status of the plans, were $504,750 and $506,938, respectively. The following
table sets forth the funded status for the Company and its affiliate as of
December 31, 1995 and 1996:
<TABLE>
<CAPTION>
POSTRETIREMENT POSTRETIREMENT
1995 MEDICAL LIFE INSURANCE TOTAL
-------------------------------------------- -------------- -------------- -----------
<S> <C> <C> <C>
Accumulated postretirement benefit
obligation:
Retirees.................................. $(429,652) $(1,048,213) $(1,477,865)
Fully eligible active plan participants... -- (148,911) (148,911)
Other active plan participants............ -- (181,823) (181,823)
--------- ----------- -----------
Accumulated postretirement benefit
obligation in excess of plan assets....... (429,652) (1,378,947) (1,808,599)
Unrecognized transition obligation.......... 73,231 1,188,952 1,262,183
Unrecognized net (gain)/loss from past
experience different from that assumed.... (22,012) 16,184 (5,828)
--------- ----------- -----------
Accrued postretirement benefit cost......... $(378,433) $ (173,811) $ (552,244)
========= =========== ===========
</TABLE>
F-19
<PAGE> 84
ROCK OF AGES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) PENSION AND RETIREMENT PLANS -- (CONTINUED)
<TABLE>
<CAPTION>
POSTRETIREMENT POSTRETIREMENT
MEDICAL LIFE INSURANCE TOTAL
-------------- -------------- -----------
<S> <C> <C> <C>
1996
Accumulated postretirement benefit
obligation:
Retirees.................................. $(285,441) $(1,094,623) $(1,380,064)
Fully eligible active plan participants... -- (193,450) (193,450)
Other active plan participants............ -- (219,676) (219,676)
--------- ----------- -----------
Accumulated postretirement benefit
obligation in excess of plan assets....... (285,441) (1,507,749) (1,793,190)
Unrecognized transition obligation.......... 48,821 1,122,899 1,171,720
Unrecognized net (gain)/loss from past
experience different from that assumed.... (79,047) 133,080 54,033
--------- ----------- -----------
Accrued postretirement benefit cost......... $(315,667) $ (251,770) $ (567,437)
========= =========== ===========
</TABLE>
The weighted-average discount rate used in determining the actuarial
present value of the accumulated postretirement benefit obligation was 7.25% and
7.5% as of December 31, 1995 and 1996, respectively.
For measurement purposes, a 9% rate of increase in the per capita cost of
covered health care benefits was assumed for 1996 and was assumed to gradually
decrease to 4% over the next 6 years. An increase in the assumed health care
cost trend rates of 1 percentage point in each year would result in an increase
in the postretirement medical plan accumulated postretirement benefit obligation
as of December 31, 1996 of $9,846 and the aggregate of the service and the
interest cost components of the postretirement medical plan net periodic
postretirement benefit cost for 1996 would increase by $687.
Union Employee Plans
Union employees participate in a multi-employer defined benefit pension
plan. The Company contributes amounts as required by the union contract. At the
present time, there is not sufficient information to accurately determine the
Company's share of the liability for unfunded vested benefits of the plan. If
the Company terminated its operations or withdrew from the plan, it would be
required, under federal law, to accelerate funding of its proportionate share of
the plan's unfunded vested benefits. The amount charged to operations in the
accompanying consolidated statements of operations was $284,591, $456,470 and
$713,738 in 1994, 1995 and 1996, respectively.
Deferred Compensation Plans
The Company has deferred compensation agreements with certain employees
under a salary continuation plan. Generally, the terms of the plan provides for
specified monthly payments to the employee or the beneficiary for a 15-year
period beginning at the employee's retirement, disability or death. In certain
cases, the plan also provides for minimum payments in the event of termination
other than retirement, disability or death.
Net periodic deferred compensation cost, charged to operations in the
accompanying consolidated statements of operations, under the plan for the years
ended December 31, 1994, 1995 and 1996 consisted of the following:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Service cost earned during the period.............. $ 33,635 $ 13,369 $ 56,108
Interest cost on projected benefit obligation...... 87,457 87,876 98,386
Net amortization and deferral...................... 18,761 18,761 31,392
-------- -------- --------
Net periodic deferred compensation cost............ $139,853 $120,006 $185,886
======== ======== ========
</TABLE>
F-20
<PAGE> 85
ROCK OF AGES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) PENSION AND RETIREMENT PLANS -- (CONTINUED)
The following table sets forth the funded status of the plan as of December
31, 1995 and 1996 and amounts recognized in the accompanying consolidated
balance sheets as of December 31, 1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Actuarial present value of projected benefit obligation... $(1,159,113) $(1,445,083)
Plan assets at fair value................................. -- --
----------- -----------
Projected benefit obligation in excess of plan assets..... (1,159,113) (1,445,083)
Unrecognized net gain from past experience different from
that assumed and the effect of changes in assumptions... (57,128) (17,589)
Unrecognized net obligation............................... 41,205 36,736
Unrecognized prior service obligation..................... 90,121 251,873
Adjustment required to recognize minimum liability........ (570) (183,418)
----------- -----------
Deferred compensation..................................... $(1,085,485) $(1,357,481)
=========== ===========
</TABLE>
The assumed rate of return used in determining the value of accumulated
plan benefits was 7.25% and 7.5% for the years ended December 31, 1995 and 1996,
respectively.
The Company also has deferred compensation agreements with former
stockholders of Lawson Granite Company and a former stockholder of
Anderson-Friberg Company which are not covered under the Company's salary
continuation plan. Total annual payments of $224,000 begin in 2000 and end at
various dates through 2020. The present value of these payments was $2,146,609
as of December 31, 1995 and 1996, which is included in deferred compensation in
the consolidated balance sheets.
Savings and Profit Sharing Plan
The Company has a defined contribution savings plan under Section 401(k) of
the Internal Revenue Code for employees whose employment is not governed by a
collective bargaining agreement and who have completed one year of service. The
Company's contribution was $12,088, $19,804 and $27,587 in 1994, 1995 and 1996,
respectively.
The Company has a defined contribution savings plan under Section 401(k) of
the Internal Revenue Code for employees covered by a collective bargaining
agreement who have completed one year of service. The Company's contribution was
$7,257, $13,830 and $24,362 in 1994, 1995 and 1996, respectively.
(9) STOCK-BASED EMPLOYEE COMPENSATION
Under the terms of the Amended and Restated 1994 Stock Plan, 1,500,000
options were reserved for issuance to key employees to purchase equivalent
shares of common stock at exercise prices ranging from $2.40 to $4.12. The
options granted have a five year term and vest at 20% per year over this period.
The following table sets forth the stock option transactions for the years
ended December 31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
NUMBER WEIGHTED AVERAGE
OF SHARES EXERCISE PRICE
----------- ----------------
<S> <C> <C>
Outstanding, December 31, 1993, 1994 and 1995............ 275,000 $ 2.49
Granted, January 2, 1996............................... 225,000 3.59
Granted, December 31, 1996............................. 362,500 3.75
------- -----
Outstanding, December 31, 1996........................... 862,500 3.31
======= =====
Exercisable, December 31, 1996........................... 282,500 2.99
Weighted average remaining contractual life.............. 3.4 years
</TABLE>
The Company has adopted the disclosure-only provisions of Statement of
Financial Standards No. 123, Accounting for Stock-Based Compensation.
Accordingly, no compensation cost has been recognized for stock options granted
under the plan during 1996 as the options were all granted at exercise prices
which equaled the fair value at the date of the grant. There were no awards
granted during 1995 and 1994. Had compensation cost for the Company's stock
option plan been determined based on the fair value at the grant date for awards
F-21
<PAGE> 86
ROCK OF AGES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) STOCK-BASED EMPLOYEE COMPENSATION -- (CONTINUED)
during 1996 consistent with the provisions of SOFAS No. 123, the Company's net
income would have been reduced to the pro forma amount indicated below:
<TABLE>
<S> <C>
Net income, as reported.................................. $1,908,164
Net income, pro forma.................................... 1,798,619
Net income per share, pro forma.......................... $ .44
</TABLE>
Pro forma net income reflects only options granted in 1996. Therefore, the
full impact of calculating compensation cost for stock options under SFAS No.
123 is not reflected in the pro forma net income amounts presented because
compensation cost is reflected over the options' vesting periods and
compensation cost for options granted prior to January 1, 1995 is not
considered.
The fair value of each option grant is estimated on the date of the grant
using the Minimum Value Method with the following weighted-average assumptions
used for grants in 1996: risk-free interest rate of 6%; dividend yield of $0;
and expected lives of five (5) years.
(10) RELATED PARTY TRANSACTIONS
The Company is related, through common ownership, to Swenson Granite
Company, Inc. (Swenson). The Company paid a management fee of $632,000,
$912,000, $936,000 in 1994, 1995 and 1996, respectively. Sales to Swenson were
$0, $0 and $729,611 and purchases from Swenson were $0, $0 and $197,047 in 1994,
1995 and 1996, respectively.
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About the
Fair Value of Financial Instruments", requires disclosure of information about
the fair value of certain financial instruments for which it is practicable to
estimate that value. For purposes of the following disclosure the fair value of
a financial instrument is the amount at which the instrument could be exchanged
in a current transaction between willing parties other than in a forced sale or
liquidation. Management has determined that the carrying values of its financial
assets and liabilities approximate fair value at December 31, 1996.
(12) ACQUISITIONS
Effective December 31, 1995 Swenson Granite Company purchased all of the
outstanding stock of Lawson Granite Company and Anderson-Friberg Company. The
aggregate cost of these acquisitions was $5,715,288 made up of 463 shares of
Swenson stock valued at $3,381,799, a $310,000 note payable, $354,880 in cash
paid in 1996, and $2,146,609 in deferred compensation arrangements. Accordingly,
the purchase price was allocated to the assets acquired and liabilities assumed
based upon their respective fair values. This treatment resulted in $1,779,113
of cost in excess of net assets acquired, or goodwill, and was accounted for
under the purchase method. The net assets from the acquisition were contributed
by Swenson to the Company.
The following unaudited pro forma information has been prepared assuming
that the acquisitions occurred at the beginning of the periods presented. The
pro forma information is presented for information purposes only and is not
necessarily indicative of what would have occurred if the acquisitions had been
made as of those dates.
<TABLE>
<CAPTION>
(UNAUDITED) YEARS ENDED
DECEMBER 31,
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
Net revenues...................................... $43,689,296 $41,199,480
Net income........................................ 1,842,046 1,462,688
Net income per share.............................. .47 .36
</TABLE>
The Company also acquired certain assets and assumed certain liabilities of
Adru Granite, Inc. for $238,310 in 1996. The results of operations were not
material in relation to the Company's consolidated results of operations.
F-22
<PAGE> 87
ROCK OF AGES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(13) SUBSEQUENT EVENTS
On June 27, 1997 the Company dividended assets of $1,069,136 to Swenson
Granite Company, Inc.
On June 30, 1997 the Company acquired all of the outstanding stock of KSMG,
a successor to Keystone Memorials, Inc. for 263,441 shares of the Company's
stock which was accounted for under the purchase method. The fair market value
of KSMG on the date of acquisition was $3,582,798. As of June 30, 1997
investments in and advances to affiliated companies included Keystone's share of
its investment in and advances to four Quarry Companies and Southern Mausoleums,
Inc.
The following unaudited pro forma information has been prepared assuming
that the acquisitions occurred at the beginning of the periods presented. The
pro forma information is presented for information purposes only and is not
necessarily indicative of what would have occurred if the acquisitions had been
made as of those dates.
<TABLE>
<CAPTION>
(UNAUDITED)
---------------------------
YEAR
ENDED SIX MONTHS
DECEMBER ENDED
31, JUNE 30,
1996 1997
----------- -----------
<S> <C> <C>
Net revenues...................................... $53,972,546 $25,415,687
Net income (loss)................................. 1,711,447 (285,625)
Net income (loss) per share....................... .42 (.07)
</TABLE>
On August 12, 1997, pursuant to the reincorporation merger of Rock of Ages
Corporation, a Vermont corporation and the immediate predecessor to the Company
("ROA Vermont") with and into a newly-formed Delaware corporation, with the
Company surviving as a Delaware corporation, (i) the Company authorized
30,000,000 shares of $.01 par value Class A Common Stock, 15,000,000 shares of
$.01 par value Class B Common Stock, and 2,500,000 shares of $.01 par value
Preferred Stock and (ii) each outstanding share of common stock of ROA Vermont
was converted into one half of a share of Class B Common Stock of the Company.
As of August 12, 1997, no shares of Class A Common or Preferred Stock had been
issued. The Common Stock outstanding and weighted average shares outstanding for
all periods presented have been adjusted for the new stock capitalization.
Prior to the closing of the offering, the Company will effect a
reorganization (the "Reorganization") as follows: (i) the merger of Swenson
Granite Company, Inc. ("Swenson Granite") with and into the Company, with the
Company as the surviving corporation (the "Swenson Merger"), in which Swenson
Granite's stockholders will receive 1,618,123 shares of Class B Common Stock for
each share of Swenson Granite common stock (currently a total of 2,163 shares of
Swenson Granite is outstanding); and (ii) immediately prior to the Swenson
Merger, Swenson Granite will distribute its curb and landscaping business
(essentially all of its operating assets and operating liabilities) to its
stockholders (the "Swenson Granite Distribution") through a pro rata
distribution of all of the member interests in a newly formed limited liability
company named Swenson Granite Company LLC ("Swenson LLC"). The Swenson Granite
stockholders will receive a total of 3,502,000 shares of Class B Common Stock
which will represent 93% of the Company's total shares outstanding prior to the
offering. The minority interest in the Company will be the same both before and
after the exchange of shares.
Following the Swenson Granite Distribution and prior to the Swenson Merger,
the sole asset of Swenson Granite will be its 93% stock interest in the Company
and its only liabilities will be a $3,340,000 intercompany payable to the
Company and a $310,000 note payable. Pursuant to the Swenson Merger, the shares
of Class B Common Stock held by Swenson Granite will be cancelled, the Company
will forgive the intercompany payable and the Company will assume the note
payable. The only effect on the Company's financial statements will be a
reduction in stockholders' equity of $3,650,000. This effect is due solely to
the forgiveness of the aforesaid intercompany payable and the assumption of the
aforesaid note payable.
F-23
<PAGE> 88
INDEPENDENT AUDITORS' REPORT
The Board of Directors,
Childs & Childs Granite Company, Inc.
and C & C Granite Company, Inc.:
We have audited the accompanying combined balance sheet of Childs & Childs
Granite Company, Inc., C & C Granite Company Inc., the Quarry Companies and
Southern Mausoleums, Inc. (SMI) as of May 31, 1997, and the related combined
statements of operations, stockholders' equity, and cash flows for the eleven-
month period ended May 31, 1997. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined financial statements based on our audit. We did not
audit the financial statements of the Quarry Companies (Caprice Blue Quarry,
Inc.; Autumn Rose Quarry, Inc.; and Pennsylvania Granite Corporation, including
its wholly-owned subsidiary, Carolina Quarries, Inc.) or SMI. The Company's
combined investment in and advances to the Quarry Companies and SMI at May 31,
1997 was $540,184 and its equity in the earnings of the Quarry Companies and SMI
was $128,839 for the eleven-month period ended May 31, 1997. The financial
statements of the Quarry Companies and SMI were audited by other auditors whose
reports have been furnished to us, and our opinion, insofar as it relates to the
amounts included for the Quarry Companies and SMI, is based solely on the
reports of the other auditors.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit and the reports of the other auditors provides a
reasonable basis for our opinion.
In our opinion, based on our audit and the reports of the other auditors,
the combined financial statements referred to above present fairly, in all
material respects, the financial position of Childs & Childs Granite Company,
Inc., C & C Granite Company, Inc., the Quarry Companies and SMI at May 31, 1997,
and the results of their operations and their cash flows for the eleven-month
period ended May 31, 1997 in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Atlanta, Georgia
July 18, 1997
F-24
<PAGE> 89
CHILDS & CHILDS GRANITE COMPANY, INC.,
C & C GRANITE COMPANY, INC., QUARRY COMPANIES AND SMI
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
1997 1997
---------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS (NOTE 5)
Current assets:
Cash.............................................................. $ 113,486 $ 181,222
Trade accounts receivable, less allowance for doubtful accounts of
$134,000 at May 31 and August 31, 1997......................... 1,055,833 665,150
Inventories (note 2).............................................. 1,136,298 871,806
Prepaids.......................................................... -- 35,411
---------- ----------
Total current assets........................................... 2,305,617 1,753,589
---------- ----------
Investments in and advances to affiliated companies (note 4)........ 540,184 591,249
Property, plant, and equipment:
Land.............................................................. 15,000 15,000
Buildings......................................................... 480,115 480,115
Machinery and equipment........................................... 1,050,767 1,057,298
Trucks, autos, and trailers....................................... 357,319 357,319
Furniture and fixture............................................. 45,310 45,310
---------- ----------
1,948,511 1,955,042
Less accumulated depreciation..................................... 945,953 979,492
---------- ----------
Net property, plant, and equipment............................. 1,002,558 975,550
---------- ----------
$3,848,359 $3,320,388
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (note 5)........................ $ 412,185 $ 312,185
Trade accounts payable............................................ 128,887 38,861
Trade accounts payable -- affiliates.............................. 170,290 3,346
Due to stockholders............................................... 23,909 23,909
Accrued wage related costs........................................ 37,318 21,213
---------- ----------
Total current liabilities...................................... 772,589 399,514
Long-term debt, less current portion (note 5)....................... 500,000 420,608
---------- ----------
Total liabilities.............................................. 1,272,589 820,122
---------- ----------
Stockholders' equity:
Common stock (note 6)............................................. 22,500 22,500
Quarry Companies' and SMI's capital............................... 348,184 399,249
Retained earnings................................................. 2,205,086 2,078,517
---------- ----------
Total stockholders' equity..................................... 2,575,770 2,500,266
---------- ----------
Commitment and contingency (notes 5 and 7)..........................
---------- ----------
$3,848,359 $3,320,388
========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-25
<PAGE> 90
CHILDS & CHILDS GRANITE COMPANY, INC.,
C & C GRANITE COMPANY, INC., QUARRY COMPANIES AND SMI
COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE-MONTH
ELEVEN-MONTH PERIOD ENDED
PERIOD ENDED AUGUST 31,
MAY 31, -------------------------
1997 1996 1997
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Net revenues.......................................... $5,606,364 $1,470,590 $1,407,729
Cost of goods sold (including purchases from the
Quarry Companies of $1,009,448 for the eleven-month
period ended May 31, 1997) -- (note 4).............. 4,592,884 1,201,186 1,147,332
---------- ---------- ----------
Gross profit................................ 1,013,480 269,404 260,397
Selling, general, and administrative expenses......... 701,325 192,127 221,726
---------- ---------- ----------
Operating income............................ 312,155 77,277 38,671
---------- ---------- ----------
Other income (expense):
Interest expense.................................... (58,758) (17,245) (18,787)
Finance charge income............................... 28,322 15,952 16,679
Miscellaneous income................................ 2,033 15,020 16,868
---------- ---------- ----------
Net other (expense) income.................. (28,403) 13,727 14,760
---------- ---------- ----------
Income before equity in earnings of
investees................................. 283,752 91,004 53,431
Equity in earnings of investees (note 4).............. 128,839 231,166 51,065
---------- ---------- ----------
Net income.................................. $ 412,591 $ 322,170 $ 104,496
========== ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-26
<PAGE> 91
CHILDS & CHILDS GRANITE COMPANY, INC.,
C & C GRANITE COMPANY, INC., QUARRY COMPANIES AND SMI
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE ELEVEN-MONTH PERIOD ENDED MAY 31, 1997
AND THE THREE-MONTH PERIOD ENDED AUGUST 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
QUARRY
COMPANIES' TOTAL
COMMON AND SMI'S RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------- --------- ---------- ------------
<S> <C> <C> <C> <C>
Balance at June 30, 1996...................... $22,500 $ 219,345 $2,269,711 $ 2,511,556
Distributions to stockholders............... -- -- (348,377) (348,377)
Net income.................................. -- 128,839 283,752 412,591
------- -------- ---------- ----------
Balance at May 31, 1997....................... 22,500 348,184 2,205,086 2,575,770
Distributions to stockholders............... -- -- (180,000) (180,000)
Net income.................................. -- 51,065 53,431 104,496
------- -------- ---------- ----------
Balance at August 31, 1997 (unaudited)........ $22,500 $ 399,249 $2,078,517 $ 2,500,266
======= ======== ========== ==========
</TABLE>
See accompanying notes to the combined financial statements.
F-27
<PAGE> 92
CHILDS & CHILDS GRANITE COMPANY, INC.,
C & C GRANITE COMPANY, INC., QUARRY COMPANIES AND SMI
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE-MONTH
ELEVEN-MONTH PERIOD ENDED
PERIOD ENDED AUGUST 31,
MAY 31, ---------------------
1997 1996 1997
------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................... $ 412,591 $ 322,170 $ 104,496
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation.......................................... 144,638 41,615 33,539
Equity in earnings of Quarry Companies and SMI........ (128,839) (231,166) (51,065)
Changes in operating assets and liabilities:
Trade accounts receivable........................... (213,089) 164,802 390,683
Inventories......................................... (57,466) 53,406 264,492
Prepaid expenses.................................... 57,561 (47,095) (35,411)
Trade accounts payable, trade accounts
payable-affiliates, and accrued costs............ 96,690 (67,663) (273,075)
--------- --------- ---------
Net cash provided by operating activities........ 312,086 236,069 433,659
--------- --------- ---------
Cash flows from investing activities:
Additions to property, plant, and equipment.............. (31,768) -- (6,531)
Increase in cash surrender value......................... (56,008) -- --
--------- --------- ---------
Net cash used in investing activities............ (87,776) -- (6,531)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from long-term debt............................. 912,185 -- --
Payments on long-term debt............................... (814,377) (181,299) (179,392)
Distributions to stockholders............................ (234,000) (73,000) (180,000)
--------- --------- ---------
Net cash used in financing activities............ (136,192) (254,299) (359,392)
--------- --------- ---------
Net change in cash............................... 88,118 (18,230) 67,736
Cash at beginning of period................................ 25,368 66,164 113,486
--------- --------- ---------
Cash at end of period...................................... $ 113,486 $ 47,934 $ 181,222
========= ========= =========
Supplemental disclosure of cash flow information -- cash
paid during the period for interest...................... $ 62,545 $ 17,245 $ 18,787
========= ========= =========
Supplemental disclosure of noncash investing and financing
activities -- the Company distributed the cash surrender
value of certain life insurance policies to the Company's
stockholders which amounted to........................... $ 114,377 $ -- $ --
========= ========= =========
</TABLE>
See accompanying notes to the combined financial statements.
F-28
<PAGE> 93
CHILDS & CHILDS GRANITE COMPANY, INC.,
C & C GRANITE COMPANY, INC., QUARRY COMPANIES AND SMI
NOTES TO COMBINED FINANCIAL STATEMENTS
MAY 31, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Childs & Childs Granite Company, Inc. is a manufacturer of granite
monuments and memorials in Elberton, Georgia. The three stockholders of Childs &
Childs Granite Company, Inc. collectively own C & C Granite Company, Inc., which
is a trucking company that primarily delivers products to Childs & Childs
Granite Company, Inc.'s customers. Additionally, the three stockholders of
Childs & Childs Granite Company, Inc. collectively own a 50% interest in the
Quarry Companies (Caprice Blue Quarry, Inc.; Autumn Rose Quarry, Inc.; and
Pennsylvania Granite Corporation, including its wholly owned subsidiary,
Carolina Quarries, Inc.) which operate six granite quarries in five states and
Southern Mausoleum, Inc. (SMI), a mausoleum manufacturing plant. Net revenues
are to various retail monument customers throughout the United States.
(b) Basis of Presentation
The combined financial statements include the financial statements of
Childs & Childs Granite Company, Inc.; C & C Granite Company, Inc.; and the 50%
ownership in the aforementioned three Quarry Companies and SMI owned by the
three stockholders of Childs & Childs Granite Company, Inc. (collectively, the
"Company"). Childs & Childs Granite Company, Inc., the Quarry Companies and SMI
have been combined using historical costs as a result of the common ownership.
The Quarry Companies and SMI are accounted for under the equity method.
In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for the fair presentation of the
unaudited condensed financial statements of the Company as of and for the three
months ended August 31, 1996 and 1997 have been included.
All significant intercompany balances and transactions have been eliminated
in combination.
(c) Cash Equivalents
For purposes of the combined statement of cash flows, the Company considers
all highly liquid debt instruments with original maturities of three months or
less to be cash equivalents. At May 31, 1997, the Company owned no cash
equivalents.
(d) Inventories
Inventories are stated at the lower of cost or market (net realizable
value). Cost is determined using the first-in, first-out (FIFO) method for all
inventories.
(e) Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Depreciation is provided
over the estimated useful lives of the assets on a straight-line basis.
Property, plant, and equipment are depreciated over the following estimated
useful lives:
<TABLE>
<CAPTION>
YEARS
<S> <C>
Buildings.................................................... 39
Machinery and equipment...................................... 12
Vehicles..................................................... 5
Office equipment............................................. 5 to 7
</TABLE>
(f) Income Taxes
The stockholders of the Company have elected to have the earnings of the
Company taxed under the S Corporation provisions of the Internal Revenue Code.
Under the S Corporation provisions, the income taxes of the Company are the
responsibility of the stockholders for Federal and state income tax purposes.
Accordingly, no income tax provision or income tax balances have been recorded
by the Company.
F-29
<PAGE> 94
CHILDS & CHILDS GRANITE COMPANY, INC.,
C & C GRANITE COMPANY, INC., QUARRY COMPANIES AND SMI
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
(g) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. Adoption of this statement did not have a material impact on the Company's
financial position, results of operations, or liquidity.
(h) Revenue Recognition
Revenue is recognized upon shipment of goods.
(i) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(2) INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
1997 1997
---------- -----------
(UNAUDITED)
<S> <C> <C>
Raw materials................................................. $ 896,816 $ 688,029
Work in process............................................... 56,629 43,416
Finished goods................................................ 182,853 140,361
---------- --------
Total inventories................................... $1,136,298 $ 871,806
========== ========
</TABLE>
(3) FAIR VALUE OF FINANCIAL INSTRUMENTS
For cash, trade accounts receivables, trade accounts payables, trade
accounts payable-affiliates, due to stockholders, and accrued wage related
costs, the carrying amounts approximate fair value because of the short maturity
of these instruments.
The carrying value of long-term debt approximates fair value due to the
variable interest of these instruments using a discounted cash flow analysis.
F-30
<PAGE> 95
CHILDS & CHILDS GRANITE COMPANY, INC.,
C & C GRANITE COMPANY, INC., QUARRY COMPANIES AND SMI
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(4) INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES
Investments in affiliated companies consist of the three stockholders' 50%
of the common stock of each of the Quarry Companies and SMI. Summary unaudited
financial information for the Quarry Companies and SMI is as follows:
<TABLE>
<CAPTION>
ELEVEN-MONTH PERIOD ENDED MAY 31, 1997
----------------------------------------------------------------
CAPRICE AUTUMN
BLUE ROSE PENNSYLVANIA
QUARRY SMI QUARRY GRANITE TOTAL
--------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Current assets.............. $ 25,169 $ 611,297 $ 85,413 $1,887,749 $ 2,609,628
Noncurrent assets........... 277,301 288,514 1,530,708 5,476,508 7,573,031
--------- ---------- ---------- ---------- -----------
Total assets...... $ 302,470 $ 899,811 $1,616,121 $7,364,257 $10,182,659
========= ========== ========== ========== ===========
Current liabilities......... $ 200,443 $ 587,554 $ 171,684 $5,097,809 $ 6,057,490
Noncurrent liabilities...... 797,511 590,242 1,511,181 529,868 3,428,802
Stockholders' equity
(deficit)................. (695,484) (277,985) (66,744) 1,736,580 696,367
--------- ---------- ---------- ---------- -----------
Total liabilities
and
stockholders'
equity
(deficit)....... $ 302,470 $ 899,811 $1,616,121 $7,364,257 $10,182,659
========= ========== ========== ========== ===========
Net revenues................ $ 183,569 $1,225,396 $ 325,533 $6,725,009 $ 8,459,507
Gross profit (loss)......... (234,920) 244,123 (29,267) 1,657,346 1,637,282
Net income (loss)........... $(254,707) $ 126,185 $ (78,525) $ 464,725 $ 257,678
========= ========== ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
THREE-MONTH PERIOD ENDED AUGUST 31, 1996
----------------------------------------------------------------
CAPRICE AUTUMN
BLUE ROSE PENNSYLVANIA
QUARRY SMI QUARRY GRANITE TOTAL
--------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Net revenues................ $ 38,954 $ 323,187 $ 70,805 $2,345,650 $ 2,778,596
Gross profit (loss)......... (16,607) 41,315 (25,805) 771,264 770,167
Net income (loss)........... $ (24,299) $ (29,770) $ (40,400) $ 556,800 $ 462,331
========= ========== ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
THREE-MONTH PERIOD ENDED AUGUST 31, 1997
----------------------------------------------------------------
CAPRICE AUTUMN
BLUE ROSE PENNSYLVANIA
QUARRY SMI QUARRY GRANITE TOTAL
--------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Net revenues................ $ 44,361 $ 440,998 $ 75,230 $1,749,105 $ 2,309,694
Gross profit (loss)......... (5,775) 130,423 22,772 242,905 390,325
Net income (loss)........... $ (11,617) $ 63,484 $ 11,334 $ 38,929 $ 102,130
========= ========== ========== ========== ===========
</TABLE>
In addition, the Company has advances to the Quarry Companies and SMI
totaling $192,000 at May 31, 1997.
Childs & Childs Granite Co., Inc. purchases a substantial portion of its
raw granite from the Quarry Companies. Such purchases amounted to $1,009,448 for
the eleven-month period ended May 31, 1997. Individually, the purchases from
each Quarry Company are as follows:
<TABLE>
<S> <C>
Caprice Blue Quarry...................................... $ 158,657
Autumn Rose Quarry....................................... 84,608
Pennsylvania Granite..................................... 766,183
----------
Total.......................................... $1,009,448
==========
</TABLE>
At May 31, 1997, the Company's 50% interest in the cumulative losses of the
Quarry Companies and SMI amounted to $(928,927).
F-31
<PAGE> 96
CHILDS & CHILDS GRANITE COMPANY, INC.,
C & C GRANITE COMPANY, INC., QUARRY COMPANIES AND SMI
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(5) LONG-TERM DEBT
Long-term debt at May 31, 1997 consists of the following:
<TABLE>
<S> <C>
Borrowings under line of credit, interest at 9.00%,
payable monthly, principal due November 1998............ $500,000
Borrowings under line of credit, interest at prime plus 1%
(9.5% at May 31, 1997) payable quarterly beginning
August 1997, principal due May 1998..................... 412,185
--------
Total long-term debt............................ 912,185
Less current portion...................................... 412,185
--------
Long-term debt, less current portion............ $500,000
========
</TABLE>
The aggregate maturities of long-term debt for each of the two years
subsequent to May 31, 1997 are as follows: 1998, $412,185 and 1999, $500,000.
Childs & Childs Granite Co., Inc. has two lines of credit with a bank for a
total of $1,000,000, of which $912,185 was outstanding at May 31, 1997. The
lines of credit are secured by substantially all of the assets of Childs and
Childs Granite Co., Inc. The lines of credit may be prepaid at any time without
penalty.
(6) COMMON STOCK
At May 31, 1997, the par value and the authorized shares of common stock of
Childs & Childs Granite Co., Inc. were $100 and 5,000, respectively. In
addition, 210 shares were issued and outstanding.
At May 31, 1997, the par value and the authorized shares of common stock of
C & C Granite Co., Inc. were $100 and 5,000, respectively. In addition, 15
shares were issued and outstanding.
(7) SUBSEQUENT EVENT
On June 28, 1997, Rock of Ages Corporation entered into a definitive
agreement with the shareholders of the Company to purchase all of the
outstanding stock of the Company.
F-32
<PAGE> 97
INDEPENDENT AUDITORS' REPORT
The Board of Directors,
Keystone Memorials, Inc.:
We have audited the accompanying combined balance sheet of Keystone
Memorials, Inc., the Quarry Companies and Southern Mausoleums, Inc. (SMI) as of
April 30, 1997, and the related combined statements of operations, stockholder's
deficit, and cash flows for the ten-month period ended April 30, 1997. These
combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audit. We did not audit the financial
statements of the Quarry Companies (Caprice Blue Quarry, Inc.; Autumn Rose
Quarry, Inc.; or Pennsylvania Granite Corporation and its subsidiary, Carolina
Quarries, Inc.) or SMI. The Company's combined investment in and advances to the
Quarry Companies and SMI at April 30, 1997 was $585,010 and its equity in the
earnings of the Quarry Companies and SMI was $55,787 for the ten-month period
ended April 30, 1997. The financial statements of the Quarry Companies and SMI
were audited by other auditors whose reports have been furnished to us, and our
opinion, insofar as it relates to the amounts included for the Quarry Companies
and SMI, is based solely on the reports of the other auditors.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit and the reports of the other auditors provides a
reasonable basis for our opinion.
In our opinion, based on our audit and the reports of the other auditors,
the combined financial statements referred to above present fairly, in all
material respects, the financial position of Keystone Memorials, Inc., the
Quarry Companies and SMI at April 30, 1997, and the results of their operations
and their cash flows for the ten-month period ended April 30, 1997 in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Atlanta, Georgia
July 25, 1997
F-33
<PAGE> 98
KEYSTONE MEMORIALS, INC., QUARRY COMPANIES AND SMI
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
APRIL 30, JULY 31,
1997 1997
---------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS (NOTE 6)
Current assets:
Cash equivalents.................................................. $ 35,883 $ 174,596
Trade accounts receivable, less allowance for doubtful accounts of
$1,282,000 at April 30 and July 31, 1997....................... 1,626,474 1,425,780
Due from employees................................................ 14,790 14,562
Prepaid expenses.................................................. 62,040 85,331
Inventories (note 2).............................................. 1,532,099 1,662,465
---------- ----------
Total current assets........................................... 3,271,286 3,362,734
---------- ----------
Investments in and advances to affiliated companies (note 4)........ 585,010 439,997
Property, plant, and equipment:
Land.............................................................. 272,977 272,977
Buildings......................................................... 906,882 906,882
Machinery and equipment........................................... 3,293,562 3,252,032
Trucks, autos, and trailers....................................... 718,778 738,096
Furniture and fixtures............................................ 195,452 195,452
---------- ----------
5,387,651 5,365,439
Less accumulated depreciation..................................... 2,682,924 2,747,234
---------- ----------
Net property, plant, and equipment............................. 2,704,727 2,618,205
---------- ----------
$6,561,023 $6,420,936
========== ==========
LIABILITIES AND STOCKHOLDER'S (DEFICIT) EQUITY
Current liabilities:
Current portion of long-term debt (note 6)........................ $ 844,419 $1,828,116
Bank overdraft.................................................... 70,921 --
Trade accounts payable............................................ 522,088 337,053
Trade accounts payable-affiliates................................. 3,689,509 411,103
Accrued expenses.................................................. 171,464 172,879
---------- ----------
Total current liabilities...................................... 5,298,401 2,749,151
Long-term debt, less current portion (note 6)....................... 1,745,649 775,974
---------- ----------
Total liabilities......................................... 7,044,050 3,525,125
---------- ----------
Stockholder's (deficit) equity:
Common stock, $100 par value. Authorized 100 shares; issued and
outstanding 100 shares......................................... 10,000 10,000
Additional paid-in capital (note 8)............................... -- 3,285,054
Quarry Companies and SMI's capital................................ 275,132 332,752
Accumulated deficit............................................... (768,159) (731,995)
---------- ----------
Total stockholder's (deficit) equity...................... (483,027) 2,895,811
Commitments and contingencies (notes 5 and 6).......................
---------- ----------
$6,561,023 $6,420,936
========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-34
<PAGE> 99
KEYSTONE MEMORIALS, INC., QUARRY COMPANIES AND SMI
COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE-MONTH
TEN-MONTH PERIOD ENDED
PERIOD ENDED JULY 31,
APRIL 30, -------------------------
1997 1996 1997
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Net revenues.......................................... $7,537,876 $2,321,977 $2,449,525
Cost of goods sold (including purchases from
affiliated companies of $761,923 and related parties
of $848,822 for the ten-month period ended April 30,
1997) -- (notes 4 and 8)............................ 6,723,718 2,169,643 2,170,555
---------- ---------- ----------
Gross profit................................ 814,158 152,334 278,970
Selling, general, and administrative expenses......... 1,093,782 369,038 260,449
---------- ---------- ----------
Operating (loss) income..................... (279,624) (216,704) 18,521
---------- ---------- ----------
Other income (expense):
Interest expense.................................... (186,401) (39,636) (27,580)
Finance charge income............................... 92,955 35,465 24,881
Gain on sales of property and equipment............. 40,207 -- 20,342
---------- ---------- ----------
Total other (expense) income................ (53,239) (4,171) 17,643
---------- ---------- ----------
(Loss) income before equity in earnings of
Quarry Companies and SMI and income
taxes..................................... (332,863) (220,875) 36,164
Equity in earnings of Quarry Companies and SMI (note
4).................................................. 55,787 182,215 57,620
---------- ---------- ----------
(Loss) income before income taxes........... (277,076) (38,660) 93,784
Income taxes (note 7)................................. -- -- --
---------- ---------- ----------
Net (loss) income........................... $ (277,076) $ (38,660) $ 93,784
========== ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-35
<PAGE> 100
KEYSTONE MEMORIALS, INC., QUARRY COMPANIES AND SMI
COMBINED STATEMENT OF STOCKHOLDER'S (DEFICIT) EQUITY
FOR THE TEN-MONTH PERIOD ENDED APRIL 30, 1997
AND THE THREE-MONTH PERIOD ENDED JULY 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
QUARRY TOTAL
ADDITIONAL COMPANIES' STOCKHOLDER'S
COMMON PAID-IN AND SMI'S ACCUMULATED (DEFICIT)
STOCK CAPITAL CAPITAL DEFICIT EQUITY
------- ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1996.................. $10,000 -- 219,345 (435,296) (205,951)
Net income (loss)....................... -- -- 55,787 (332,863) (277,076)
------- --------- ------- -------- ---------
Balance at April 30, 1997................. 10,000 -- 275,132 (768,159) (483,027)
Net income.............................. -- -- 57,620 36,164 93,784
Conversion to capital (note 8).......... -- 3,285,054 -- -- 3,285,054
------- --------- ------- -------- ---------
Balance at July 31, 1997 (unaudited)...... $10,000 3,285,054 332,752 (731,995) 2,895,811
======= ========= ======= ======== =========
</TABLE>
See accompanying notes to the combined financial statements.
F-36
<PAGE> 101
KEYSTONE MEMORIALS, INC., QUARRY COMPANIES AND SMI
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
TEN-MONTH
PERIOD THREE-MONTH PERIOD
ENDED ENDED JULY 31,
APRIL 30, -----------------------
1997 1996 1997
---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities (note 8):
Net (loss) income................................... $ (277,076) $ (38,660) $ 93,784
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Depreciation..................................... 297,023 93,740 84,652
Gain on sales of property, plant, and
equipment...................................... (40,207) -- (20,342)
Equity in earnings of Quarry Companies and SMI... (55,787) (182,215) (57,620)
Changes in operating assets and liabilities:
Trade accounts receivable and due from
employees................................... (190,647) 416,447 200,922
Inventories.................................... (59,243) 89,629 (130,366)
Prepaid expenses............................... 33,258 (9,218) (23,291)
Trade accounts payable, trade accounts payable-
affiliates, and accrued expenses............ 172,684 29,824 (116,972)
---------- --------- ---------
Net cash (used in) provided by operating
activities................................ (119,995) 399,547 30,767
---------- --------- ---------
Cash flows from investing activities (note 8):
Additions to property, plant, and equipment......... (172,670) (118,362) (37,788)
Proceeds from sales of property, plant, and
equipment........................................ 185,000 -- --
(Increase) decrease in advances to affiliated
companies........................................ (121,998) 39,422 202,633
---------- --------- ---------
Net cash (used in) provided by investing
activities................................ (109,668) (78,940) 164,845
---------- --------- ---------
Cash flows from financing activities (note 8):
Increase (decrease) in bank overdraft............... 70,921 -- (70,921)
Proceeds from long-term debt........................ 1,013,458 -- 51,946
Payments on long-term debt.......................... (979,972) (79,303) (37,924)
---------- --------- ---------
Net cash provided by (used in) financing
activities................................ 104,407 (79,303) (56,899)
---------- --------- ---------
Net change in cash equivalents.............. (125,256) 241,304 138,713
Cash equivalents at beginning of period............... 161,139 43,615 35,883
---------- --------- ---------
Cash equivalents at end of period..................... $ 35,883 $ 284,919 $ 174,596
========== ========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest......................................... $ 186,401 $ 39,636 $ 27,580
========== ========= =========
Income taxes..................................... $ -- $ -- $ --
========== ========= =========
</TABLE>
See accompanying notes to the combined financial statements.
F-37
<PAGE> 102
KEYSTONE MEMORIALS, INC., QUARRY COMPANIES AND SMI
NOTES TO COMBINED FINANCIAL STATEMENTS
APRIL 30, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Keystone Memorials, Inc. is a manufacturer of granite monuments and
memorials in Elberton, Georgia. Additionally, the sole stockholder of Keystone
Memorials, Inc. owns a 50% interest in three Quarry Companies (Caprice Blue
Quarry, Inc.; Autumn Rose Quarry, Inc.; and Pennsylvania Granite Corporation,
including its wholly owned subsidiary, Carolina Quarries, Inc.) which operate
six granite quarries in five states and Southern Mausoleum, Inc. (SMI), a
mausoleum manufacturing plant. Net revenues are to various retail monument
customers throughout the United States.
(b) Basis of Presentation
The combined financial statements include the financial statements of
Keystone Memorials, Inc., and its 50% ownership in three Quarry Companies and
SMI owned by the sole stockholder of Keystone Memorials, Inc. (collectively, the
"Company"). Keystone Memorials, Inc., Quarry Companies and SMI have been
combined using historical costs as a result of the common ownership. The Quarry
Companies and SMI are accounted for under the equity method.
In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for the fair presentation of the
unaudited condensed financial statements of the Company as of and for the three
months ended July 31, 1996 and 1997 have been included.
(c) Cash Equivalents
For purposes of the combined statement of cash flows, the Company considers
all highly liquid debt instruments with original maturities of three months or
less to be cash equivalents. At April 30, 1997, the cash equivalents consisted
of $35,883 invested in a money market account.
(d) Inventories
Inventories are stated at the lower of cost or market (net realizable
value). Cost is determined using the first-in, first-out (FIFO) method for all
inventories.
(e) Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Depreciation is provided
over the estimated useful lives of the assets on a straight-line basis.
Property, plant, and equipment are depreciated over the following estimated
useful lives:
<TABLE>
<CAPTION>
YEARS
------
<S> <C>
Buildings.................................................... 39
Machinery and equipment...................................... 12
Vehicles..................................................... 5
Office equipment............................................. 5 to 7
</TABLE>
(f) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(g) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell.
F-38
<PAGE> 103
KEYSTONE MEMORIALS, INC., QUARRY COMPANIES AND SMI
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Adoption of this statement did not have a material impact on the Company's
financial position, results of operations, or liquidity.
(h) Revenue Recognition
Revenue is recognized upon shipment of goods.
(i) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(2) INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
APRIL 30, JULY 31,
1997 1997
---------- -----------
(UNAUDITED)
<S> <C> <C>
Raw materials....................................... $ 791,570 $ 815,493
Work in process..................................... 154,017 156,825
Finished goods...................................... 586,512 690,147
---------- ----------
Total inventories......................... $1,532,099 $1,662,465
========== ==========
</TABLE>
(3) FAIR VALUE OF FINANCIAL INSTRUMENTS
For cash equivalents, trade accounts receivables, due from employees, bank
overdraft, trade accounts payables, trade accounts payable-affiliates, and
accrued expenses, the carrying amounts approximate fair value because of the
short maturity of these instruments.
The carrying value of long-term debt approximates fair value based on
discounted cash flow analyses.
(4) INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES
Investments in affiliated companies consists of the sole stockholder's 50%
of the common stock of each of the Quarry Companies and SMI. Summary unaudited
financial information for the Quarry Companies and SMI is as follows:
<TABLE>
<CAPTION>
TEN-MONTH PERIOD ENDED APRIL 30, 1997
-------------------------------------------------------------------
CAPRICE AUTUMN ROSE PENNSYLVANIA
BLUE QUARRY SMI QUARRY GRANITE TOTAL
----------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Current assets.............. $ 17,557 $ 610,406 $ 91,700 $1,774,381 $ 2,494,044
Noncurrent assets........... 279,247 292,488 1,534,118 5,454,693 7,560,546
--------- ---------- ---------- ---------- -----------
Total assets...... $ 296,804 $ 902,894 $1,625,818 $7,229,074 $10,054,590
========= ========== ========== ========== ===========
Current liabilities......... $ 231,976 $ 632,922 $ 178,070 $4,994,908 $ 6,037,876
Noncurrent liabilities...... 749,409 605,748 1,512,690 579,868 3,447,715
Stockholders' equity
(deficit)................. (684,581) (335,776) (64,942) 1,654,298 568,999
--------- ---------- ---------- ---------- -----------
Total liabilities
and
stockholders'
equity
(deficit)....... $ 296,804 $ 902,894 $1,625,818 $7,229,074 $10,054,590
========= ========== ========== ========== ===========
Net revenues................ $ 164,197 $1,073,646 $ 294,495 $6,076,004 $ 7,608,342
Gross profit (loss)......... (226,437) 174,251 (31,007) 1,401,663 1,318,470
Net income (loss)........... $(243,804) $ 68,394 $ (76,723) $ 382,443 $ 130,310
========= ========== ========== ========== ===========
</TABLE>
F-39
<PAGE> 104
KEYSTONE MEMORIALS, INC., QUARRY COMPANIES AND SMI
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(4) INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES -- (CONTINUED)
<TABLE>
<CAPTION>
THREE-MONTH PERIOD ENDED JULY 31, 1996
------------------------------------------------------------------
CAPRICE AUTUMN ROSE PENNSYLVANIA
BLUE QUARRY SMI QUARRY GRANITE TOTAL
----------- ---------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Net revenues................. $ 23,678 $319,195 $ 81,507 $ 2,290,528 $2,714,908
Gross profit (loss).......... (25,759) 46,115 (39,147) 675,829 657,038
Net income (loss)............ $(34,594) $ (5,476) $ (55,206) $ 459,706 $ 364,430
-------- -------- -------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
THREE-MONTH PERIOD ENDED JULY 31, 1997
------------------------------------------------------------------
CAPRICE AUTUMN ROSE PENNSYLVANIA
BLUE QUARRY SMI QUARRY GRANITE TOTAL
----------- ---------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Net revenues................. $ 45,075 $428,875 $ 71,263 $ 1,758,703 $2,303,916
Gross profit (loss).......... (7,732) 139,434 (1,902) 269,446 399,246
Net income (loss)............ $(14,808) $ 92,035 $ (12,300) $ 50,313 $ 115,240
-------- -------- -------- ---------- ----------
</TABLE>
In addition, the Company has advances to the Quarry Companies and SMI
totaling $300,510 at April 30, 1997.
Keystone Memorials, Inc. purchases a substantial portion of its raw granite
from the Quarry Companies and SMI. Such purchases amounted to $761,923 for the
ten-month period ended April 30, 1997. Intercompany profits of $9,368 have been
eliminated in combination. Individually, the purchases from each of the Quarry
Companies and SMI are as follows:
<TABLE>
<S> <C>
Caprice Blue Quarry....................................... $ 21,297
Southern Mausoleums....................................... 31,597
Autumn Rose Quarry........................................ 62,068
Pennsylvania Granite...................................... 646,961
--------
$761,923
========
</TABLE>
Keystone Memorials, Inc. sold various property and equipment to
Pennsylvania Granite for $109,000 for the ten-month period ended April 30, 1997.
At April 30, 1997, the Company's 50% interest in the cumulative losses of
the Quarry Companies and SMI amounted to $(992,611).
(5) LEASES
The Company has several noncancelable operating leases, primarily for
office equipment, that expire over the next three years. Rental expense for the
operating leases (except those with lease terms of a month or less that were not
renewed) during the ten-month period ending April 30, 1997 was $4,000.
Future minimum lease payments under noncancelable operating leases with
initial or remaining lease terms in excess of one year as of April 30, 1997 are
$13,000 over the next three years.
(6) LONG-TERM DEBT
Long-term debt at April 30, 1997 consists of the following:
<TABLE>
<S> <C>
9.75% note payable in monthly installments of $7,840,
including interest, with final payment of $484,708, due
June 1999.............................................. $ 568,688
9.75% note payable in monthly installments of $4,035,
including interest, with final payment of $249,962, due
June 1999.............................................. 293,083
Borrowings under line of credit, interest at prime plus
.25% (8.75% at April 30, 1997) payable monthly,
principal due May 1998................................. 945,243
Non-interest bearing note payable to former owner which
is the estate of the relative of the sole
stockholder............................................ 783,054
----------
Total long-term debt........................... 2,590,068
Less current portion..................................... 844,419
----------
Long-term debt, excluding current portion...... $1,745,649
==========
</TABLE>
F-40
<PAGE> 105
KEYSTONE MEMORIALS, INC., QUARRY COMPANIES AND SMI
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(6) LONG-TERM DEBT -- (CONTINUED)
The aggregate maturities of long-term debt for each of the three years
subsequent to April 30, 1997 are as follows: 1998, $844,419; 1999, $1,012,866;
and 2000, $732,783.
Keystone Memorials, Inc. has a line of credit with a bank for a total of
$1,000,000, of which $945,243, was outstanding at April 30, 1997. The line of
credit is secured by substantially all of the assets of Keystone Memorials, Inc.
The line of credit may be prepaid at any time without penalty.
Keystone Memorials, Inc. also has two financing notes used to finance
various equipment. These notes are paid on a monthly basis, with the final
payments due in June 1999. These notes are secured by the equipment they are
financing.
(7) INCOME TAXES
Income taxes for the ten-month period ended April 30, 1997 differed from
the amounts computed by applying the U.S. federal income tax rate of 34% to loss
before income taxes as a result of the following:
<TABLE>
<S> <C>
Computed "expected" tax benefit.......................... $ (94,206)
Increase (reduction) in income taxes resulting from:
Change in the beginning-of-the-year balance of the
valuation allowance for deferred tax assets
allocated to income taxes........................... 108,060
State and local income taxes, net of federal income tax
benefit............................................. (15,683)
Other, net............................................. 1,829
---------
$ --
=========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at April 30,
1997 are presented below.
<TABLE>
<S> <C>
Deferred tax assets:
Accounts receivable principally due to allowance for
doubtful accounts................................... $ 499,980
Inventories, principally due to additional costs
inventoried for tax purposes pursuant to the Tax
Reform Act of 1986.................................. 72,150
Accruals not deductible until paid..................... 21,648
Investments in affiliated companies, principally due to
undistributed losses of affiliated companies........ 387,118
Net operating loss carryforwards....................... 253,422
Other.................................................. 4,801
---------
Total gross deferred tax assets................ 1,239,119
Less valuation allowance............................... 821,555
---------
Net deferred tax assets........................ 417,564
---------
Deferred tax liability -- property, plant, and equipment,
principally due to differences in depreciation......... (417,564)
---------
Net deferred taxes............................. $ --
=========
</TABLE>
The change in the income tax valuation allowance for the ten-month period
ended April 30, 1997 was $108,060.
At April 30, 1997, the Company has net operating loss carryforwards for
federal income tax purposes of $649,800 which are available to offset future
federal taxable income, if any, through 2012. Such net operating loss
carryforwards may not be utilized subsequent to the acquisition (see note 9).
(8) RELATED PARTY TRANSACTIONS
The sole stockholder of the Company has an ownership interest in two
quarries that sell raw granite to the Company on a routine basis. Total
purchases from these related parties for the ten-month period ended April 30,
1997 was $848,822. Also, the Company sold various machinery and equipment to one
of the quarries for $76,000 for the ten-month period ended April 30, 1997 and
exchanged machinery for $60,000 of trade accounts payable-affiliates for the
three-month period ended July 31, 1997 (unaudited).
F-41
<PAGE> 106
KEYSTONE MEMORIALS, INC., QUARRY COMPANIES AND SMI
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(8) RELATED PARTY TRANSACTIONS -- (CONTINUED)
As part of the acquisition of the Company by Rock of Ages Corporation
("Rock of Ages") (see note 9), the two related quarries converted $3,285,054 of
trade accounts payable-affiliates and notes payable into additional paid-in
capital.
(9) SUBSEQUENT EVENT
On June 30, 1997, a successor to the Company was acquired by Rock of Ages
in exchange for 263,441 shares of common stock of Rock of Ages. A total of
$3,273,856, included in trade accounts payable-affiliates and $11,198 included
in notes payable, were not included in this transaction.
F-42
<PAGE> 107
INDEPENDENT AUDITORS' REPORT
The Boards of Directors
Keith Monument Companies:
We have audited the accompanying combined balance sheets of Keith Monument
Companies (the "Companies") as of June 30, 1997 and 1996, and the related
combined statements of operations, stockholders' equity, and cash flows for each
of the years in the three-year period ended June 30, 1997. These combined
financial statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Keith Monument
Companies as of June 30, 1997 and 1996, and the results of their operations and
their cash flows for each of the years in the three-year period ended June 30,
1997 in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Louisville, Kentucky
August 8, 1997
F-43
<PAGE> 108
KEITH MONUMENT COMPANIES
COMBINED BALANCE SHEETS
JUNE 30, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................... $1,866,496 $1,783,346
Accounts receivable, less allowance for doubtful accounts of
$124,500....................................................... 834,237 1,002,527
Current portion of notes receivable (note 4):
Related party.................................................. 63,145 89,876
Other.......................................................... 39,525 28,738
Inventories (note 2).............................................. 664,100 1,192,364
Prepaid expenses and other current assets......................... 77,474 98,210
Prepaid income taxes (note 7)..................................... 26,300 16,400
Deferred income taxes (note 7).................................... 9,900 10,300
---------- ----------
Total current assets........................................... 3,581,177 4,221,761
Property, plant and equipment, net (notes 3 and 5).................. 977,386 1,393,261
Notes receivable, excluding current portion (note 4):
Related party..................................................... 468,346 401,406
Other............................................................. 26,580 15,775
Due from related party.............................................. 48,870 48,870
Investments......................................................... 304,046 319,434
Cash surrender value of life insurance.............................. 148,956 164,329
Covenants not to compete, less accumulated amortization of $45,000
and $83,022, respectively (note 9)................................ 105,000 387,861
Goodwill, less accumulated amortization of $13,982 (note 9)......... -- 824,940
Other assets........................................................ 237,853 209,199
---------- ----------
$5,898,214 $7,986,836
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt (note 5)..................... $ -- $ 277,921
Trade accounts payable............................................ 31,818 96,964
Accrued expenses.................................................. 493,602 630,137
Dividends payable................................................. 141,303 85,825
Customer deposits................................................. 964,324 844,895
---------- ----------
Total current liabilities...................................... 1,631,047 1,935,742
Long-term debt, excluding current maturities (note 5)............... -- 1,840,562
Deferred income taxes (note 7)...................................... 27,200 --
---------- ----------
Total liabilities......................................... 1,658,247 3,776,304
---------- ----------
Commitments and contingencies (note 8)..............................
Stockholders' equity (note 6):
Common stock...................................................... 179,700 179,700
Retained earnings................................................. 4,066,267 4,036,832
Treasury stock.................................................... (6,000) (6,000)
---------- ----------
Total stockholders' equity................................ 4,239,967 4,210,532
---------- ----------
$5,898,214 $7,986,836
========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-44
<PAGE> 109
KEITH MONUMENT COMPANIES
COMBINED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net revenues........................................... $7,041,748 $6,781,005 $7,810,831
Cost of goods sold..................................... 2,133,608 2,048,600 2,531,797
---------- ---------- ----------
Gross profit................................. 4,908,140 4,732,405 5,279,034
Selling, general and administrative expenses........... 3,940,554 3,854,739 4,208,996
---------- ---------- ----------
Operating income............................. 967,586 877,666 1,070,038
Interest income........................................ 98,856 148,582 172,300
Other income........................................... 81,295 93,521 71,633
Other expense.......................................... (23,251) (23,502) (85,328)
---------- ---------- ----------
Income before income taxes................... 1,124,486 1,096,267 1,228,643
Income tax expense (benefit) (note 7).................. 11,000 2,600 (23,650)
---------- ---------- ----------
Net income................................... $1,113,486 $1,093,667 $1,252,293
========== ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-45
<PAGE> 110
KEITH MONUMENT COMPANIES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
COMMON RETAINED TREASURY
STOCK EARNINGS STOCK TOTAL
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Balance at June 30, 1994...................... $179,700 4,230,074 (6,000) 4,403,774
Net income.................................. -- 1,113,486 -- 1,113,486
Dividends................................... -- (1,207,237) -- (1,207,237)
-------- ---------- ------ ----------
Balance at June 30, 1995...................... 179,700 4,136,323 (6,000) 4,310,023
Net income.................................. -- 1,093,667 -- 1,093,667
Dividends................................... -- (1,163,723) -- (1,163,723)
-------- ---------- ------ ----------
Balance at June 30, 1996...................... 179,700 4,066,267 (6,000) 4,239,967
Net income.................................. -- 1,252,293 -- 1,252,293
Dividends................................... -- (1,281,728) -- (1,281,728)
-------- ---------- ------ ----------
Balance at June 30, 1997...................... $179,700 4,036,832 (6,000) 4,210,532
======== ========== ====== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-46
<PAGE> 111
KEITH MONUMENT COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................... $1,113,486 $1,093,667 $1,252,293
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation.......................................... 131,295 104,203 117,072
Amortization.......................................... 15,000 30,000 52,004
(Gain) loss on sale of property, plant and
equipment........................................... (4,044) 7,433 25,349
Deferred income taxes................................. (1,900) (1,800) (27,600)
(Increase) decrease in accounts receivable............ 27,061 306,879 (168,290)
(Increase) decrease in inventories.................... (37,649) 24,952 41,914
(Increase) decrease in prepaid expenses and other
current assets...................................... 24,768 104,627 (20,736)
(Increase) decrease in prepaid income taxes........... 14,400 (26,300) 9,900
(Increase) decrease in other assets................... (20,269) (161,091) 28,654
Increase (decrease) in trade accounts payable......... (85,882) (18,784) 65,146
Increase (decrease) in accrued expenses............... 5,524 (20,162) 136,535
Increase (decrease) in income taxes payable........... 12,709 (12,709) --
Increase (decrease) in customer deposits.............. (43,356) 254,593 (119,429)
---------- ---------- ----------
Net cash provided by operating activities........ 1,151,143 1,685,508 1,392,812
---------- ---------- ----------
Cash flows from investing activities:
Decrease in notes receivable............................. 75,579 91,223 61,801
Additions to property, plant and equipment............... (74,562) (142,857) (195,701)
Proceeds from sale of property, plant and equipment...... 11,400 28,105 25,905
(Increase) decrease in investments....................... (13,306) 92,635 (15,388)
Increase in cash surrender value of life insurance....... (11,172) (23,070) (15,373)
Cash paid for covenant not to compete.................... (150,000) -- --
---------- ---------- ----------
Net cash provided by (used in) investing
activities..................................... (162,061) 46,036 (138,756)
---------- ---------- ----------
Cash flows from financing activities --
Cash dividends paid...................................... (1,255,494) (1,192,264) (1,337,206)
---------- ---------- ----------
Net increase (decrease) in cash.................. (266,412) 539,280 (83,150)
Cash and cash equivalents at beginning of year............. 1,593,628 1,327,216 1,866,496
---------- ---------- ----------
Cash and cash equivalents at end of year................... $1,327,216 $1,866,496 $1,783,346
========== ========== ==========
Supplemental cash flow information --
Cash (paid) refunded for income taxes.................... $ 14,026 $ (23,517) $ --
========== ========== ==========
Supplemental schedule of noncash investing and financing
activities --
Note receivable for sale of building and land............ $ -- $ 36,000 $ --
========== ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-47
<PAGE> 112
KEITH MONUMENT COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Keith Monument Companies (the Companies) are engaged in a single line of
business of the engraving and selling of memorials, primarily to customers in
the Commonwealth of Kentucky.
(b) Principles of Combination
The combined financial statements include the following Kentucky
corporations, all affiliated through common ownership and control of
substantially all of the issued and outstanding shares of common stock of the
Companies by Messers. John E. Keith and Roy H. Keith, Jr., and their families:
Keith Monument Company, National Memorial Corporation, Riehm-Gerlack Monument
Company, Inc., Keith Lettering & Setting Corporation, Glasgow Monument Company,
Inc. and Snyder Corporation. Keith Monument Company is a wholly-owned subsidiary
of Keith National Corporation, a Kentucky corporation also controlled by
Messers. Keith. All significant intercompany balances and transactions have been
eliminated in the combined financial statements.
(c) Cash Equivalents
Cash equivalents of $415,283 and $321,572 at June 30, 1996 and 1997,
respectively, consist primarily of money market funds and certificates of
deposit with an initial term of less than three months. For purposes of the
statements of cash flows, the Companies consider all short-term highly liquid
investments with original maturities of three months or less to be cash
equivalents. Cash and certificates of deposit are insured by the Federal Deposit
Insurance Corporation (FDIC) up to $100,000. The Companies had bank balances
exceeding individual FDIC insurance limits by $1,184,665 at June 30, 1997.
(d) Accounts Receivable and Revenue Recognition
The Companies recognize revenue upon the setting of the memorial. In
certain instances, the Companies may enter into agreements with their customers
which provide for extended payment terms, generally up to two years from either
the date of setting of the memorial or, in certain instances, upon the
settlement of an estate. Customer deposits and prepayments are recorded as a
liability and recognized as revenue upon the setting of the memorial. Finance
charges are recognized when received.
The Companies do not require collateral or other security on accounts
receivable. The credit risk on accounts is controlled by requiring significant
deposits and monitoring procedures.
(e) Notes Receivable
Notes receivable are recorded at cost, less the related allowance for
impaired notes receivable, if necessary. Management, considering current
information and events regarding the borrowers' ability to repay their
obligations, considers a note to be impaired when it is probable that the
Companies will be unable to collect all amounts due according to the contractual
terms of the note agreement. When a loan is considered to be impaired, the
amount of the impairment is measured based on the present value of expected
future cash flows discounted at the notes effective interest rate. No impairment
losses are estimated to exist at June 30, 1996 and 1997.
(f) Inventories
Inventories consist primarily of memorials purchased for resale or for
display purposes, and are stated at the lower of cost or market. Cost is
determined using the last-in, first-out method (LIFO) for all inventories except
those acquired from Lexington Granite Company, Inc. (which were acquired March
31, 1997, see note 9) for which cost is determined using the first-in, first-out
method (FIFO).
F-48
<PAGE> 113
KEITH MONUMENT COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
(g) Property, Plant and Equipment and Depreciation
Property, plant and equipment are stated at cost. Depreciation on plant and
equipment is calculated on various accelerated methods over the estimated useful
lives of the assets as follows:
<TABLE>
<S> <C>
Buildings and improvements............................ 10 to 30 years
Machinery, equipment, furniture and fixtures.......... 5 to 10 years
Vehicles.............................................. 4 to 10 years
</TABLE>
(h) Investments
Investments consist of certificates of deposit with initial terms of six
years with maturities through 1999. Certificates of deposit are valued at cost
plus accrued interest, which approximates fair value. The Companies had
certificates of deposits exceeding individual FDIC insurance limits (see note
1(c)) by $224,118 at June 30, 1997.
(i) Covenants Not to Compete
Covenants not to compete are amortized on a straight-line basis over five
to ten years, the lives of the covenants.
(j) Goodwill
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over 15 years, the
expected periods to be benefited. The Companies assess the recoverability of
this intangible asset by determining whether the amortization of the goodwill
balance over its remaining life can be recovered through undiscounted future
operating cash flows of the acquired operation. The amount of goodwill
impairment, if any, is measured based on projected discounted future operating
cash flows using a discount rate reflecting the Companies' average cost of
funds. The assessment of the recoverability of goodwill will be impacted if
estimated future operating cash flows are not achieved.
(k) Income Taxes
National Memorial Corporation, Riehm-Gerlack Monument Company, Inc., Keith
Lettering & Setting Corporation, Glasgow Monument Company, Inc. and Snyder
Corporation have elected to be taxed as Small Business Corporations for Federal
and state income tax purposes. Therefore, no provision for Federal and state
income taxes has been made in the combined financial statements for those
companies since such taxes are the responsibility of the stockholders.
Keith Monument Company has elected to be taxed as a C Corporation.
Accordingly, income taxes are accounted for under the asset and liability method
for Keith Monument Company. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
(l) Use of Estimates
Management of the Companies has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from these estimates.
(m) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Companies adopted the provisions of Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, on July 1, 1996. This Statement requires
that long-lived assets and certain identifiable intangibles be reviewed for
F-49
<PAGE> 114
KEITH MONUMENT COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell. Adoption of this Statement did not have
a material impact on the Companies' financial position, results of operations,
or liquidity.
(n) Fair Value of Financial Instruments
Various methods and assumptions were used by the Companies in estimating
their fair value disclosures for significant financial instruments. Fair values
of cash equivalents, accounts and notes receivable, investments, trade accounts
payable, accrued expenses and customer deposits approximate their carrying
amount because of the short maturity of those instruments. The fair value of
long-term debt is based on the present value of the underlying cash flows
discounted at the current estimated borrowing rates available to the Companies.
The fair value of the Companies' long-term debt at June 30, 1997 approximates
the carrying value.
(2) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Memorials accounted for under the FIFO
method.................................... $ -- $ 577,672
Memorials accounted for under the LIFO
method.................................... 865,821 860,903
LIFO reserve................................ (201,721) (246,211)
---------- ----------
$ 664,100 $1,192,364
========== ==========
</TABLE>
During 1996 and 1997, LIFO inventory layers were reduced. The impact of
charging lower inventory costs prevailing in previous years to cost of goods
sold in 1996 and 1997 was not significant.
(3) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized as follows:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Land........................................ $ 297,557 $ 521,462
Buildings and improvements.................. 880,454 1,084,032
Machinery, equipment, furniture and
fixtures.................................. 336,122 364,005
Vehicles.................................... 499,125 478,537
---------- ----------
2,013,258 2,448,036
Less accumulated depreciation............... 1,035,872 1,054,775
---------- ----------
$ 977,386 $1,393,261
========== ==========
</TABLE>
F-50
<PAGE> 115
KEITH MONUMENT COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(4) NOTES RECEIVABLE
Notes receivable consist of the following:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
GMMC, Inc., an affiliated company, $200,000
dated April 26, 1993, receivable in
semi-annual installments of $13,443
commencing October 26, 1993 with a final
receipt due on April 26, 2003, at a 6%
rate of interest, secured by a first
mortgage on real estate................... $ 151,855 $ 133,814
GMMC, Inc., an affiliated company, $500,000
dated April 26, 1993, receivable in
semi-annual installments of $33,608
commencing October 26, 1993 with a final
receipt due on April 26, 2003, at a 6%
rate of interest, secured by a first
mortgage on real estate................... 379,636 357,468
Others...................................... 66,105 44,513
-------- --------
Total notes receivable............ 597,596 535,795
Less current portion........................ 102,670 118,614
-------- --------
Notes receivable, excluding
current portion................. $ 494,926 $ 417,181
======== ========
</TABLE>
(5) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1996 1997
--------- ----------
<S> <C> <C>
Lexington Granite Company, Inc., $1,797,600
dated March 31, 1997, payable in annual
installments of $256,800 plus interest
commencing March 31, 1998 with a final
payment due on March 31, 2004, at a 9%
rate of interest.......................... $ -- $1,797,600
David DeMarcus, $500,000 covenant not to
compete dated March 31, 1997, payable in
annual installments of $50,000 commencing
March 31, 1998 with a final payment due
March 31, 2007, with no interest stated,
imputed interest at 9%.................... -- 320,883
--------- ----------
Total long-term debt.............. -- 2,118,483
Less current maturities..................... -- 277,921
--------- ----------
Long-term debt, excluding current
maturities...................... -- $1,840,562
========= ==========
</TABLE>
The Lexington Granite Company, Inc. note and interest are secured by
certain assets of Keith & Keith Partnership, a related party, and National
Memorial Corporation.
Long-term debt matures as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30
---------------------------------------------------------
<S> <C>
1998..................................................... $ 277,921
1999..................................................... 279,821
2000..................................................... 281,893
2001..................................................... 284,152
2002..................................................... 286,613
Thereafter............................................... 708,083
----------
$ 2,118,483
==========
</TABLE>
F-51
<PAGE> 116
KEITH MONUMENT COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(6) STOCKHOLDERS EQUITY
Common stock at June 30, 1996 and 1997 is summarized as follows:
<TABLE>
<CAPTION>
SHARES
SHARES ISSUED AND
COMPANY PAR/STATED VALUE AUTHORIZED OUTSTANDING AMOUNT
- ------------------------------------------- --------------------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Keith Monument Company..................... Par value of $100 1,500 1,320 $132,000
National Memorial Corporation.............. Stated value of $10 1,000 1,000 10,000
Riehm-Gerlack Monument
Company, Inc. ........................... Par value of $100 1,000 95 9,500
Keith Lettering & Setting Corporation...... Par value of $100 500 60 6,000
Glasgow Monument Company, Inc. ............ Stated value of $150 160 60 9,000
Snyder Corporation......................... Stated value of $60 1,000 220 13,200
===== =====
--------
$179,700
========
</TABLE>
All of the above shares of stock are voting shares.
Treasury stock consists of the cost of shares purchased from shareholders
of Keith Lettering & Setting Corporation and Snyder Corporation in the amounts
of $4,000 (2 shares) and $2,000 (20 shares), respectively.
National Memorial Corporation also has authorized 1,000 shares of no par
value Class A Preferred Stock and 10,000 shares of no par value Class B
Preferred Stock. None of these shares were issued on June 30, 1996 or 1997.
The dividends represent distributions of Small Business Corporations.
(7) INCOME TAXES
Income tax expense (benefit) is attributable only to Keith Monument Company
and consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- --------
<S> <C> <C> <C>
Year ended June 30, 1995:
U.S. Federal...................... $10,400 $ (1,425) $ 8,975
State and local................... 2,500 (475) 2,025
------- -------- --------
$12,900 $ (1,900) $ 11,000
======= ======== ========
Year ended June 30, 1996:
U.S. Federal...................... $ 3,300 $ (1,350) $ 1,950
State and local................... 1,100 (450) 650
------- -------- --------
$ 4,400 $ (1,800) $ 2,600
------- -------- --------
Year ended June 30, 1997:
U.S. Federal...................... $ 2,700 $(20,700) $(18,000)
State and local................... 1,250 (6,900) (5,650)
------- -------- --------
$ 3,950 $(27,600) $(23,650)
------- -------- --------
</TABLE>
F-52
<PAGE> 117
KEITH MONUMENT COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(7) INCOME TAXES -- (CONTINUED)
Income tax expense (benefit) was $11,000, $2,600 and ($23,650) for the
years ended June 30, 1995, 1996 and 1997, respectively, and differed from the
amounts computed by applying the U.S. Federal income tax rate of 35% to Keith
Monument Company pretax income (loss) as a result of the following:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Computed "expected" tax expense
(benefit)........................ $ 19,593 $ 11,005 $(33,696)
Increase (reduction) in income
taxes resulting from:
State and local income taxes, net
of federal income tax
benefit....................... 2,911 1,635 (5,006)
Other, net....................... (11,504) (10,040) 15,052
-------- -------- --------
$ 11,000 $ 2,600 $(23,650)
======== ======== ========
</TABLE>
The tax effects of temporary differences that give rise to significant
portion of the deferred tax assets (liabilities) at June 30, 1996 and 1997 are
presented below.
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to
allowances for doubtful accounts.......... $ 5,800 $ 5,800
Compensated absences, principally due to
accrual for financial reporting
purposes.................................. 2,000 2,000
Other........................................ 2,100 2,500
-------- -------
Total gross deferred tax assets...... 9,900 10,300
Less valuation allowance..................... -- --
-------- -------
Net deferred tax assets.............. $ 9,900 $10,300
-------- -------
Deferred tax liabilities:
Deferred income from affiliated companies.... (27,200) --
-------- -------
Net deferred tax asset (liability)... $(17,300) $10,300
======== =======
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers
projected future taxable income and tax planning strategies in making this
assessment. Based upon the level of historical taxable income and projections
for future taxable income over the periods which the deferred tax assets are
deductible, management believes it is more likely than not Keith Monument
Company will realize the benefits of these deductible differences.
(8) COMMITMENTS AND CONTINGENT LIABILITIES
The Companies have entered into certain leases, all of which will expire by
1999. Certain of such leases are with related parties. Such leases are
classified as operating leases and will require cash outflows as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30
-------------------------------------------------------
<S> <C>
1998................................................... $66,500
1999................................................... 17,000
-------
$83,500
-------
</TABLE>
The Companies are in the process of negotiating with Keith and Keith
Partnership, an entity controlled by Messrs. John E. Keith and Roy H. Keith,
Jr., for a lease of land and buildings associated with the purchase
F-53
<PAGE> 118
KEITH MONUMENT COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(8) COMMITMENTS AND CONTINGENT LIABILITIES -- (CONTINUED)
of Lexington Granite Company, Inc. (see note 9). The monthly lease amount will
be $10,000. The lease term has not yet been finalized.
Rent expense was $75,635, $75,692 and $93,398 for 1995, 1996 and 1997,
respectively, of which $51,515, $50,772 and $80,772, respectively, was with
related parties.
The Companies sponsor two defined contribution profit sharing plans, which
cover substantially all employees. Contributions to the plans are based on a
percentage of employees' compensation. Such expenses amounted to $297,073,
$304,572 and $303,869 in 1995, 1996 and 1997, respectively.
In the ordinary course of business, the Companies are subject to
environmental matters. Management provides for such matters when they are
probable and can be reasonably estimated. Management is of the opinion there are
no existing matters which would have a material impact on the Companies'
financial condition or results of operations.
In the ordinary course of business, the Companies are subject to litigation
matters. Management provides for such matters when they are probable and can be
reasonably estimated. Management is of the opinion there are no existing matters
which would have a material impact on the Companies' financial condition or
results of operations.
The Companies participate in the Safety Association Fund (the Fund), a
workers' compensation self-insurance fund organized pursuant to the regulations
of the Commonwealth of Kentucky -- Department of Workers' Claims. The Companies
are charged premiums for workers' compensation based on rates determined by the
Fund. While significant judgmental factors are included in the determination of
these premiums, management of the Companies believes the amounts paid are
adequate to provide for all existing known and incurred but not reported cases,
and retroactive adjustments, if any, from the Fund would not have a material
impact on the Companies' financial condition or results of operations.
(9) ACQUISITION
On March 31, 1997, National Memorial Corporation acquired certain assets of
Lexington Granite Company, Inc. for a note payable in the amount of $1,797,600
(see note 5). The acquisition has been accounted for as a purchase, with the
results of operations of Lexington Granite Company, Inc. included in the
combined results of operations of the Companies since April 1, 1997. The
purchase price was allocated as follows:
<TABLE>
<S> <C>
Inventories.............................................. $ 570,178
Land..................................................... 300,000
Equipment and machinery.................................. 88,500
Goodwill................................................. 838,922
----------
$1,797,600
==========
</TABLE>
In addition, the previous owner of Lexington Granite Company, Inc. entered
into a ten-year covenant not to compete with National Memorial Corporation for
$500,000, payable $50,000 per year for ten years with no interest rate. The
covenant not to compete has been recorded at its net present value using a 9%
discount rate (see note 5).
Pro forma results, giving effect to interest, amortization, rent, salary
and commissions, as if the acquisition had occurred on July 1, 1995 are as
follows:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Net revenues................................ $8,273,000 $9,021,000
---------- ----------
Net income.................................. $1,009,000 $1,225,000
---------- ----------
</TABLE>
F-54
<PAGE> 119
KEITH MONUMENT COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(10) SUBSEQUENT EVENT
On July 30, 1997, Messrs. John E. Keith and Roy H. Keith, Jr. and the
Companies entered into a definitive agreement with Rock of Ages Corporation
("Rock of Ages"), whereby Rock of Ages will purchase substantially all of the
assets and assume substantially all of the liabilities of the Companies for
$16,375,000 in cash and shares of Class A common stock, the number of shares to
be determined pursuant to a formula defined in the agreement. The purchase price
includes an amount of $1,797,600 to be used to repay the Companies' long-term
debt to Lexington Granite Company, Inc. (see note 5) at the closing date of the
purchase. Rock of Ages is currently planning an initial public offering, and the
sale of the Companies is expected to occur concurrently with the consummation of
the offering.
F-55
<PAGE> 120
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS
To the Board of Directors
Pennsylvania Granite Corporation
St. Peters, Pennsylvania
We have audited the accompanying consolidated balance sheets of
Pennsylvania Granite Corporation and subsidiary as of May 31, 1997 and April 30,
1997, and the related consolidated statements of operations and accumulated
deficit, and cash flows for the eleven months and ten months then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to in the first paragraph
present fairly, in all material respects, the financial position of Pennsylvania
Granite Corporation and subsidiary as of May 31, 1997 and April 30, 1997, and
the results of their operations and their cash flows for the eleven months and
ten months then ended in conformity with generally accepted accounting
principles.
/s/ GREENE AND COMPANY, L.L.P.
--------------------------------------
GREENE AND COMPANY, L.L.P.
Anderson, South Carolina
July 22, 1997
F-56
<PAGE> 121
PENNSYLVANIA GRANITE CORPORATION
CONSOLIDATED BALANCE SHEETS
MAY 31, 1997 AND APRIL 30, 1997
<TABLE>
<CAPTION>
MAY 31, APRIL 30,
1997 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalent.......................................... $ 432,487 $ 402,432
Trade receivables, less allowance for doubtful accounts of
$13,495........................................................ 457,327 453,609
Trade receivables -- affiliates................................... 661,348 616,645
Employee receivables.............................................. 120 70
Inventory -- finished goods....................................... 244,751 220,347
Prepaid taxes..................................................... 2,109 4,040
Prepaid expenses.................................................. 86,107 73,738
Deposits.......................................................... 3,500 3,500
---------- ----------
Total current assets...................................... 1,887,749 1,774,381
---------- ----------
Property and equipment, net......................................... 2,273,052 2,297,914
---------- ----------
Other assets:
Advances to affiliates............................................ 941,489 873,989
Intangibles, net.................................................. 2,261,967 2,282,790
---------- ----------
Total other assets............................................. 3,203,456 3,156,779
---------- ----------
Total assets.............................................. $7,364,257 $7,229,074
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................. $ 503,185 $ 483,839
Accounts payable -- affiliates.................................... 196,529 192,058
Accrued interest.................................................. 20,794 10,877
Accrued expenses.................................................. 14,837 22,608
Income taxes payable.............................................. 155,720 82,000
Deferred income taxes............................................. 279,000 261,000
Notes payable..................................................... 3,927,744 3,942,526
---------- ----------
Total current liabilities................................. 5,097,809 4,994,908
---------- ----------
Long-term liabilities -- advances from affiliates................... 529,868 579,868
---------- ----------
Stockholders' equity:
Common stock, no par value. Authorized 1,950 shares; 1,740 shares
issued and outstanding......................................... 2,500,500 2,500,500
Accumulated deficit............................................... (763,920) (846,202)
---------- ----------
Total stockholders' equity..................................... 1,736,580 1,654,298
---------- ----------
Total liabilities and stockholders' equity................ $7,364,257 $7,229,074
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-57
<PAGE> 122
PENNSYLVANIA GRANITE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE ELEVEN MONTHS ENDED MAY 31, 1997
<TABLE>
<S> <C>
Net revenues (including revenues to affiliates of $1,526,022)................... $ 6,725,009
Cost of goods sold (including purchases from affiliates of $99,997)............. 5,067,663
-----------
Gross profit.................................................................... 1,657,346
Selling and administrative expenses (including fees paid to affiliates of
$55,278)...................................................................... 619,257
-----------
Operating income................................................................ 1,038,059
-----------
Other (income) expense:
Interest expense.............................................................. 343,601
Finance charges............................................................... (1,982)
Interest income............................................................... (10,350)
Rental income................................................................. (3,935)
-----------
Total other expense................................................... 327,334
-----------
Income before income taxes...................................................... 710,725
Income taxes.................................................................... 246,000
-----------
Net income...................................................................... 464,725
Accumulated deficit, July 1, 1996............................................... (1,228,645)
-----------
Accumulated deficit, May 31, 1997............................................... $ (763,920)
===========
</TABLE>
See accompanying notes to financial statements.
F-58
<PAGE> 123
PENNSYLVANIA GRANITE CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE TEN MONTHS ENDED APRIL 30, 1997
<TABLE>
<S> <C>
Net revenues (including revenues to affiliates of $1,323,006)................... $ 6,076,004
Cost of goods sold (including purchases from affiliates of $97,776)............. 4,674,341
-----------
Gross profit.................................................................... 1,401,663
Selling and administrative expenses (including fees paid to affiliates of
$49,767)...................................................................... 569,950
-----------
Operating income................................................................ 831,713
-----------
Other (income) expense:
Interest expense.............................................................. 312,223
Finance charges............................................................... (1,879)
Interest income............................................................... (10,139)
Rental income................................................................. (3,935)
-----------
Total other expense................................................... 296,270
-----------
Income before income taxes...................................................... 535,443
Income taxes.................................................................... 153,000
-----------
Net income...................................................................... 382,443
Accumulated deficit, July 1, 1996............................................... (1,228,645)
-----------
Accumulated deficit, April 30, 1997............................................. $ (846,202)
===========
</TABLE>
See accompanying notes to financial statements.
F-59
<PAGE> 124
PENNSYLVANIA GRANITE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE ELEVEN MONTHS ENDED MAY 31, 1997
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income..................................................................... $ 464,725
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization................................................................ 207,426
Depletion................................................................... 24,078
Depreciation................................................................ 296,646
Deferred income taxes....................................................... 61,000
(Increase) decrease in assets:
Trade receivables......................................................... (157,215)
Employee receivables...................................................... 1,083
Inventory................................................................. (114,021)
Prepaid taxes............................................................. 1,673
Prepaid expenses.......................................................... 36,682
Increase (decrease) in liabilities:
Accounts payable.......................................................... 215,322
Accrued interest.......................................................... 20,794
Accrued expenses.......................................................... (71,114)
Income taxes payable...................................................... 155,720
----------
Net cash provided by operating activities.............................. 1,142,799
----------
Cash flows used in investing activities -- purchase of property and equipment.... (230,572)
----------
Cash flows from financing activities:
Payments on notes payable...................................................... (318,908)
Advances to affiliates......................................................... (611,500)
----------
Net cash used in financing activities.................................. (930,408)
----------
Net decrease in cash and cash equivalents........................................ (18,181)
Cash and cash equivalents, July 1, 1996.......................................... 450,668
----------
Cash and cash equivalents, May 31, 1997.......................................... $ 432,487
==========
Supplemental disclosures of cash flows information -- cash paid for interest..... $ 343,601
==========
</TABLE>
See accompanying notes to financial statements.
F-60
<PAGE> 125
PENNSYLVANIA GRANITE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE TEN MONTHS ENDED APRIL 30, 1997
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income..................................................................... $ 382,443
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization................................................................ 188,569
Depletion................................................................... 22,112
Depreciation................................................................ 268,523
Deferred income taxes....................................................... 43,000
(Increase) decrease in assets:
Trade receivables......................................................... (108,795)
Employee receivables...................................................... 1,133
Inventory................................................................. (89,617)
Prepaid taxes............................................................. (258)
Prepaid expenses.......................................................... 49,052
Increase (decrease) in liabilities:
Accounts payable.......................................................... 191,506
Accrued interest.......................................................... 10,877
Accrued expenses.......................................................... (63,344)
Income taxes payable...................................................... 82,000
----------
Net cash provided by operating activities.............................. 977,201
----------
Cash flows used in investing activities -- purchase of property and equipment.... (227,311)
----------
Cash flows used in financing activities:
Payments on notes payable...................................................... (304,126)
Advances to affiliates......................................................... (494,000)
----------
Net cash used in financing activities.................................. (798,126)
----------
Net decrease in cash and cash equivalents........................................ (48,236)
Cash and cash equivalents, July 1, 1996.......................................... 450,668
----------
Cash and cash equivalents, April 30, 1997........................................ $ 402,432
==========
Supplemental disclosures of cash flows information -- cash paid for interest..... $ 312,223
==========
</TABLE>
See accompanying notes to financial statements.
F-61
<PAGE> 126
PENNSYLVANIA GRANITE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1997 AND APRIL 30, 1997
NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of the Company is presented
to assist in understanding the Company's financial statements. The financial
statements and notes are representations of the Company's management, who is
responsible for their integrity and objectivity. These accounting policies
conform to generally accepted accounting principles and have been consistently
applied in the preparation of the financial statements.
Nature of Business
The Company quarries granite dimensional blocks for monuments, industrial
surface plates and building materials in Pennsylvania and North and South
Carolina. These products are sold nationwide and in Europe.
Use of Estimates
The presentation 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 and
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.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents. The Company has a money market account in the amount of
$266,887 at May 31, 1997 and $66,703 at April 30, 1997.
Trade Receivables
The Company accounts for uncollectible trade receivables on the reserve
method.
Inventory
Inventory of quarry product is valued at the lower of average cost or
market. Average cost is the cost to quarry, which includes direct labor and
overhead.
Revenue Recognition
Revenue is recognized upon shipment of goods.
See accountants' report.
F-62
<PAGE> 127
PENNSYLVANIA GRANITE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Property and Equipment
Property and equipment are stated at acquisition cost as of October 12,
1988, and cost for additions thereafter. Depreciation is computed under the
straight-line method for financial reporting purposes over the following
estimated useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings............................................ 10-40
Trucks and automobiles............................... 3-7
Machinery and equipment.............................. 3-10
Office fixtures and equipment........................ 3-10
</TABLE>
Major renewals and betterments are added to the property accounts while
maintenance and repairs are charged against earnings as incurred.
Intangibles
Amortization is computed under the straight-line method for financial
reporting purposes over the following estimated useful lives:
<TABLE>
<S> <C>
Goodwill........................................... 18 1/2-40
Organization costs................................. 5
Loan costs......................................... 5
Overburden removal................................. 15
Covenant not to compete............................ 5
</TABLE>
Depletion of mineral deposits is computed using cost depletion for
financial reporting purposes.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or recognized in income in the period that includes the enactment
date.
Goodwill
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the expected
periods to be benefitted. The Company assesses the recoverability of this
intangible asset by determining whether the amortization of the goodwill balance
over its remaining life can be recovered through undiscounted future operating
cash flows of the acquired operation. The amount of goodwill impairment, if any,
is measured based on projected discounted future operating cash flows using a
discount rate reflecting the Company's average cost of funds. The assessment of
the recoverability of goodwill will be impacted if estimated future operating
cash flows are not achieved.
See accountants' report.
F-63
<PAGE> 128
PENNSYLVANIA GRANITE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. Adoption of this statement did not have a material impact on the Company's
financial position, results of operations, or liquidity.
NOTE B -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
MAY 31, APRIL 30,
1997 1997
----------- -----------
<S> <C> <C>
Land.............................................. $ 721,570 $ 721,570
Buildings......................................... 477,955 477,955
Trucks and automobiles............................ 181,331 181,331
Machinery and equipment........................... 4,719,544 4,716,283
Office fixtures and equipment..................... 61,819 61,819
----------- -----------
6,162,219 6,158,958
Accumulated depreciation.......................... (3,889,167) (3,861,044)
----------- -----------
$ 2,273,052 $ 2,297,914
=========== ===========
</TABLE>
Depreciation expense for the eleven months ended May 31, 1997 and the ten
months ended April 30, 1997 was $296,646 and $268,523, respectively.
NOTE C -- INTANGIBLES
Intangibles consist of the following:
<TABLE>
<CAPTION>
MAY 31, APRIL 30,
1997 1997
----------- -----------
<S> <C> <C>
Goodwill.......................................... $ 2,883,628 $ 2,884,511
Organization costs................................ 36,990 37,262
Mineral deposits.................................. 540,162 540,162
Loan costs........................................ 24,711 24,711
Overburden removal................................ 150,204 150,204
Covenant not to compete........................... 300,000 300,000
----------- -----------
3,935,695 3,936,850
Accumulated amortization and depletion............ (1,673,728) (1,654,060)
----------- -----------
$ 2,261,967 $ 2,282,790
=========== ===========
</TABLE>
See accountants' report.
F-64
<PAGE> 129
PENNSYLVANIA GRANITE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C -- INTANGIBLES -- (CONTINUED)
Amortization and depletion expense for the eleven months ended May 31, 1997
were $207,426 and $24,078, respectively.
Amortization and depletion expense for the ten months ended April 30, 1997
were $188,569 and $22,112, respectively.
NOTE D -- NOTES PAYABLE
Notes Payable are as follows:
<TABLE>
<CAPTION>
MAY 31, APRIL 30,
1997 1997
----------- -----------
<S> <C> <C>
Bank mortgage, payable $19,092 monthly (principal
and interest at 9 1/2%) with a maturity date of
October 1998; the mortgage balance is secured by
substantially all of the Company's assets and
guarantees by the stockholders. ................ $ 1,590,843 $ 1,597,291
Bank mortgage, payable $8,334 monthly plus
interest at prime plus 1 1/2% with a maturity
date of October 1998; secured by substantially
all of the Company's assets and guarantees by
the stockholders. .............................. 1,050,117 1,058,451
Bank mortgage, payable $25,000 monthly (principal
and interest at prime plus 0.45%) with a
maturity date of May 1997; the mortgage balance
is secured by substantially all of the
subsidiary's assets and guarantees by the
stockholders. Principal and accrued interest
were paid in full on July 2, 1997. ............. 1,286,784 1,286,784
---------- ----------
3,927,744 3,942,526
Current portion................................... (3,927,744) (3,942,526)
---------- ----------
$ -- $ --
========== ==========
</TABLE>
In regard to the term loans, the Company has agreed to maintain proper
financial records and statements and to maintain certain financial ratios
pertaining to its net worth, working capital, debt coverage, etc. The Company
has not met these requirements for the periods ended May 31, 1997 and April 30,
1997, and the bank has decided not to waive the requirements. Therefore, all
notes payable have been classified as current.
NOTE E -- RELATED-PARTY TRANSACTIONS
The Company is affiliated with numerous other companies through common
control and stock ownership. The stockholders and other joint venture companies
have made unsecured non-interest bearing advances to the Company for working
capital purposes.
See accountants' report.
F-65
<PAGE> 130
PENNSYLVANIA GRANITE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F -- INCOME TAX MATTERS
A summary of the provision for income taxes is as follows:
<TABLE>
<CAPTION>
MAY 31, APRIL 30,
1997 1997
-------- --------
<S> <C> <C>
Current................................................ $185,000 $110,000
Deferred............................................... 61,000 43,000
-------- --------
Provision for Income Taxes................... $246,000 $153,000
======== ========
</TABLE>
The net deferred tax liability on the balance sheet includes the following
components:
<TABLE>
<CAPTION>
MAY 31, APRIL 30,
1997 1997
-------- --------
<S> <C> <C>
Deferred tax liabilities arising from:
Accelerated methods of depreciation for tax.......... $136,000 $137,000
Tax depletion on quarry.............................. 26,000 26,000
Alternative minimum tax.............................. 129,000 129,000
Deferred tax assets arising from:
Allowance for bad debts.............................. (5,000) (5,000)
Inventory adjustments (Section 263(a))............... (7,000) (6,000)
Net operating loss carryovers........................ -- (8,000)
Investment tax credit carryovers..................... -- (12,000)
-------- --------
Net deferred tax liability................... $279,000 $261,000
======== ========
</TABLE>
The Company has unused net operating losses and investment tax credits
available for carryforward to offset future taxable income and tax liabilities
for income tax reporting purposes which expire as follows:
<TABLE>
<CAPTION>
NET
YEARS ENDING OPERATING TAX
SEPTEMBER 30, LOSS CREDITS
-------------------------------------------------------- --------- -------
<S> <C> <C>
1999.................................................. $ -- $ 6,992
2000.................................................. -- 12,483
2001.................................................. -- 9,831
2006.................................................. 10,375 --
2007.................................................. 6,302 --
2008.................................................. 3,964 --
------- -------
$20,641 $29,306
======= =======
</TABLE>
NOTE G -- CONCENTRATION OF CREDIT RISK
All of the Company's cash funds are located in financial institutions that
are insured by the FDIC for up to $100,000. The amounts in excess of this limit
at May 31, 1997 and April 30, 1997 are $166,887 and $187,949, respectively.
Sales to two major customers represented 56% of total revenues for both the
eleven and ten months ended May 31, 1997 and April 30, 1997. Trade accounts
receivable from major customers represented 40% and 62% of total trade accounts
receivable as of May 31, 1997 and April 30, 1997, respectively.
NOTE H -- SUBSEQUENT EVENTS
Subsequent to the date of these financial statements, the Company joined in
a merger with its affiliates and other unrelated granite companies.
See accountants' report.
F-66
<PAGE> 131
PENNSYLVANIA GRANITE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE I -- FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company has a number of financial instruments, none of which are held
for trading purposes. The Company estimates that the fair value of all financial
instruments at May 31, 1997 and April 30, 1997 does not differ materially from
the aggregate carrying values of its financial instruments recorded in the
accompanying balance sheets. The estimated fair value amounts have been
determined by the Company using available market information and appropriate
valuation methodologies. Considerable judgement is necessarily required in
interpreting market data to develop the estimates of fair value, and
accordingly, the estimates are not necessarily indicative of the amounts that
the Company could realize in a current market exchange.
See accountants' report.
F-67
<PAGE> 132
ACCOUNTANTS' REVIEW REPORT
To the Board of Directors
Pennsylvania Granite Corporation
St. Peters, Pennsylvania
We have reviewed the accompanying consolidated balance sheets of
Pennsylvania Granite Corporation as of August 31, 1997 and 1996, and the related
consolidated statements of income, accumulated deficit, and cash flows for the
three months then ended, in accordance with Statements on Standards for
Accounting and Review Services issued by the American Institute of Certified
Public Accountants. All information included in these financial statements is
the representation of the management of Pennsylvania Granite Corporation.
A review consists principally of inquiries of Company personnel and
analytical procedures applied to financial data. It is substantially less in
scope than an audit in accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements in order for them to be
in conformity with generally accepted accounting principles.
/s/ GREENE AND COMPANY, L.L.P.
--------------------------------------
GREENE AND COMPANY, L.L.P.
Anderson, South Carolina
September 18, 1997
F-68
<PAGE> 133
PENNSYLVANIA GRANITE CORPORATION
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1997 AND AUGUST 31, 1996
<TABLE>
<CAPTION>
AUGUST 31,
-------------------------
1997 1996
---------- ----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalent.......................................... $ 290,802 $ 556,525
Trade receivables, less allowance for doubtful accounts of
$13,495........................................................ 569,494 672,930
Trade receivables -- affiliates................................... 380,740 352,487
Employee receivables.............................................. 700 1,118
Inventory -- finished goods....................................... 278,610 230,766
Prepaid taxes..................................................... 13,124 9,471
Prepaid expenses.................................................. 91,496 112,075
Deposits.......................................................... 3,500 3,500
---------- ----------
Total current assets...................................... 1,628,466 1,938,872
---------- ----------
Property and equipment, net......................................... 2,252,781 2,295,129
---------- ----------
Other assets:
Advances to affiliates............................................ 1,019,489 586,989
Intangibles, net.................................................. 2,214,227 2,453,396
---------- ----------
Total other assets............................................. 3,233,716 3,040,385
---------- ----------
Total assets.............................................. $7,114,963 $7,274,386
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................. $ 469,477 $ 365,465
Accounts payable -- affiliates.................................... 23,849 84,978
Accrued expenses.................................................. 29,228 93,298
Income taxes payable.............................................. 165,900 -0-
Deferred income taxes............................................. 281,000 266,000
Current portion of long-term debt................................. 1,850,946 4,188,780
---------- ----------
Total current liabilities................................. 2,820,400 4,998,521
---------- ----------
Long-term liabilities:
Advances from affiliates.......................................... 2,060,831 -0-
Long-term debt, less current portion.............................. 458,223 659,868
---------- ----------
2,519,054 659,868
Stockholders' equity:
Common stock, no par value. Authorized 1,950 shares; 1,740 shares
issued and outstanding......................................... 2,500,500 2,500,500
Accumulated deficit............................................... (724,991) (884,503)
---------- ----------
Total stockholders' equity..................................... 1,775,509 1,615,997
---------- ----------
Total liabilities and stockholders' equity................ $7,114,963 $7,274,386
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-69
<PAGE> 134
PENNSYLVANIA GRANITE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE THREE MONTHS ENDED AUGUST 31, 1997
(UNAUDITED)
<TABLE>
<S> <C>
Net revenues (including revenues to affiliates of $365,326)..................... $ 1,749,105
Cost of goods sold (including purchases from affiliates of $165,318)............ 1,506,200
-----------
Gross profit.................................................................... 242,905
Selling and administrative expenses (including fees paid to affiliates of
$15,654)...................................................................... 84,883
-----------
Operating income................................................................ 158,022
-----------
Other (income) expense:
Interest expense.............................................................. 117,646
Finance charges............................................................... (1,602)
Interest income............................................................... (2,254)
Rental income................................................................. (15,597)
-----------
Total other expense................................................... 98,193
-----------
Income before income taxes...................................................... 59,829
Income taxes.................................................................... 20,900
-----------
Net income...................................................................... 38,929
Accumulated deficit, June 1, 1997............................................... (763,920)
-----------
Accumulated deficit, August 31, 1997............................................ $ (724,991)
===========
</TABLE>
See accompanying notes to financial statements.
F-70
<PAGE> 135
PENNSYLVANIA GRANITE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE THREE MONTHS ENDED AUGUST 31, 1996
(UNAUDITED)
<TABLE>
<S> <C>
Net revenues (including revenues to affiliates of $351,064)..................... $ 2,345,650
Cost of goods sold (including purchases from affiliates of $68,729)............. 1,574,386
-----------
Gross profit.................................................................... 771,264
Selling and administrative expenses (including fees paid to affiliates of
$13,567)...................................................................... 87,679
-----------
Operating income................................................................ 683,585
-----------
Other (income) expense:
Interest expense.............................................................. 83,252
Finance charges............................................................... (1,013)
Interest income............................................................... (2,704)
Rental income................................................................. (750)
-----------
Total other expense................................................... 78,785
-----------
Income before income taxes...................................................... 604,800
Income taxes.................................................................... 48,000
-----------
Net income...................................................................... 556,800
Accumulated deficit, June 1, 1996............................................... (1,441,303)
-----------
Accumulated deficit, August 31, 1996............................................ $ (884,503)
===========
</TABLE>
See accompanying notes to financial statements.
F-71
<PAGE> 136
PENNSYLVANIA GRANITE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED AUGUST 31, 1997
(UNAUDITED)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income.................................................................... $ 38,929
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization............................................................... 47,152
Depletion.................................................................. 6,893
Depreciation............................................................... 81,162
Deferred income taxes...................................................... 2,000
(Increase) decrease in assets:
Trade receivables........................................................ 168,441
Employee receivables..................................................... (580)
Inventory................................................................ (33,859)
Prepaid taxes............................................................ (11,015)
Prepaid expenses......................................................... (5,388)
Increase (decrease) in liabilities:
Accounts payable......................................................... (206,388)
Accrued interest......................................................... (20,794)
Accrued expenses......................................................... 14,391
Income taxes payable..................................................... 10,180
----------
Net cash provided by operating activities............................. 91,124
----------
Cash flows used in investing activities -- purchase of property and equipment... (60,891)
increase in intangible assets........ (6,306)
----------
net cash used in investing
activities.................................................................... (67,197)
----------
Cash flows from financing activities:
Payments on notes payable..................................................... (2,390,967)
Advances to affiliates........................................................ (149,645)
Loan proceeds................................................................. 2,375,000
----------
Net cash used in financing activities................................. (165,612)
----------
Net decrease in cash and cash equivalents....................................... (141,685)
Cash and cash equivalents, June 1, 1997......................................... 432,487
----------
Cash and cash equivalents, August 31, 1997...................................... $ 290,802
==========
Supplemental disclosures of cash flows information -- cash paid for interest.... $ 117,646
==========
Cash paid for income taxes...................................................... $ 14,545
==========
</TABLE>
See accompanying notes to financial statements.
F-72
<PAGE> 137
PENNSYLVANIA GRANITE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED AUGUST 31, 1996
(UNAUDITED)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income..................................................................... $ 556,800
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization................................................................ 56,571
Depletion................................................................... 8,208
Depreciation................................................................ 75,209
Deferred income taxes....................................................... 48,000
(Increase) decrease in assets:
Trade receivables......................................................... (53,891)
Employee receivables...................................................... 303
Inventory................................................................. (124,675)
Prepaid taxes............................................................. (5,050)
Prepaid expenses.......................................................... 14,405
Increase (decrease) in liabilities:
Accounts payable.......................................................... (14,440)
Accrued expenses.......................................................... 1,901
----------
Net cash provided by operating activities.............................. 563,341
----------
Cash flows used in investing activities -- purchase of property and equipment.... (29,449)
----------
Cash flows from financing activities:
Payments on notes payable...................................................... (72,498)
Advances to affiliates......................................................... (245,500)
----------
Net cash used in financing activities.................................. (317,998)
----------
Net increase in cash and cash equivalents........................................ 215,894
Cash and cash equivalents, June 1, 1996.......................................... 340,631
----------
Cash and cash equivalents, August 31, 1996....................................... $ 556,525
==========
Supplemental disclosures of cash flows information -- cash paid for interest..... $ 83,252
==========
Cash paid for income taxes....................................................... -0-
==========
</TABLE>
See accompanying notes to financial statements.
F-73
<PAGE> 138
PENNSYLVANIA GRANITE CORPORATION
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1997 AND 1996
NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of the Company is presented
to assist in understanding the Company's financial statements. The financial
statements and notes are representations of the Company's management, who is
responsible for their integrity and objectivity. These accounting policies
conform to generally accepted accounting principles and have been consistently
applied in the preparation of the financial statements.
NATURE OF BUSINESS
The Company quarries granite dimensional blocks for monuments, industrial
surface plates and building materials in Pennsylvania and North and South
Carolina. Thee products are sold nationwide and in Europe.
USE OF ESTIMATES
The presentation 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 and
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.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents. The Company has a money market account in the amount of
$269,063 at August 31, 1997 and $493,475 at August 31, 1996.
TRADE RECEIVABLES
The Company accounts for uncollectible trade receivables on the reserve
method.
INVENTORY
Inventory of quarry product is valued at the lower of average cost or
market. Average cost is the cost to quarry, which includes direct labor and
overhead.
PROPERTY AND EQUIPMENT
Property and equipment are stated at acquisition cost as of October 12,
1988, and cost for additions thereafter. Depreciation is computed under the
straight-line method for financial reporting purposes over the following
estimated useful lives:
<TABLE>
<CAPTION>
YEARS
------
<S> <C>
Buildings............................................................ 10-40
Trucks and automobiles............................................... 3-7
Machinery and equipment.............................................. 3-10
Office fixtures and equipment........................................ 3-10
</TABLE>
Major renewals and betterments are added to the property accounts while
maintenance and repairs are charged against earnings as incurred.
See accountants' report.
F-74
<PAGE> 139
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
INTANGIBLES
Amortization is computed under the straight-line method for financial
reporting purposes over the following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
-------
<S> <C>
Goodwill............................................................ 18 1/2-40
Organization costs.................................................. 5
Loan costs.......................................................... 5
Overburden removal.................................................. 15
Covenant not to compete............................................. 5
</TABLE>
Depletion of mineral deposits is computed using cost depletion for
financial reporting purposes.
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
recognized in income in the period that includes the enactment date.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount of fair value less costs to
sell. Adoption of this statement did not have a material impact on the Company's
financial position, results of operations, or liquidity.
NOTE B -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Land and land improvements................................ $ 741,185 $ 701,570
Buildings................................................. 477,955 433,955
Trucks and automobiles.................................... 181,331 181,331
Machinery and equipment................................... 4,760,820 4,567,816
Office fixtures and equipment............................. 61,819 53,118
----------- -----------
6,223,110 5,937,790
Accumulated depreciation.................................. (3,970,329) (3,642,661)
----------- -----------
$ 2,252,781 $ 2,295,129
=========== ===========
</TABLE>
See accountants' report.
F-75
<PAGE> 140
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE B -- PROPERTY AND EQUIPMENT -- (CONTINUED)
Depreciation expense for the three months ended August 31, 1997 and 1996
was $81,162 and $75,209, respectively.
NOTE C -- INTANGIBLES
Intangibles consist of the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Goodwill.......................................................... $ 2,880,978 $ 2,891,578
Organized costs................................................... 36,174 39,438
Mineral deposits.................................................. 540,162 540,162
Loan costs........................................................ 6,306 24,711
Overburden removal................................................ 150,204 150,204
Covenant not to compete........................................... 300,000 300,000
----------- -----------
3,913,824 3,946,093
Accumulated amortization and depletion............................ (1,699,597) (1,492,697)
----------- -----------
$ 2,214,227 $ 2,453,396
=========== ===========
</TABLE>
Amortization and depletion expense for the three months ended August 31,
1997 were $47,152 and $6,893, respectively.
Amortization and depletion expense for the three months ended August 31,
1996 were $56,571 and $8,208, respectively.
NOTE D -- NOTES PAYABLE
Notes Payable are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Bank mortgage, payable $19,092 monthly (principal and interest at
9 1/2%) with a maturity date of October 1998; the mortgage
balance is secured by substantially all of the Company's assets
and guarantees by the stockholders.............................. $ 1,579,443 $ 1,651,224
Bank mortgage, payable $8,334 monthly plus interest at prime plus
1 1/2% with a maturity date of October 1998; secured by
substantially all of the Company's assets and guarantees by the
stockholders.................................................... -0- 1,125,123
Bank mortgage, payable $25,000 monthly (principal and interest at
prime plus 0.45%) with a maturity date of May 1997; the mortgage
balance is secured by substantially all of the subsidiary's
assets and guarantees by the stockholders. Principal and accrued
interest were paid in full on August 2, 1997.................... -0- 1,412,433
Bank mortgage, payable $40,360 monthly (principal and interest at
9.63%) with a maturity date of June 1999; the mortgage balance
is secured by substantially all of the subsidiary's assets and
guarantees by the stockholders.................................. 2,332,334 -0-
----------- -----------
3,911,777 4,188,780
Current portion................................................... (1,850,946) (4,188,780)
----------- -----------
$ 2,060,831 $ -0-
=========== ===========
</TABLE>
See accountants' report.
F-76
<PAGE> 141
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D -- NOTES PAYABLE -- (CONTINUED)
In regard to the term loans, the Company has agreed to maintain proper
financial records and statements and to maintain certain financial ratios
pertaining to its net worth, working capital, debt coverage, etc. The Company
has not met these requirements for the periods ended August 31, 1997 and 1996,
and the bank has decided not to waive the requirements. The amounts classified
as current due to this condition are $1,579,443 for the period ended August 31,
1997, and all outstanding notes payable for the period ended August 31, 1996.
The following is a schedule of maturities of notes payable:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
1997................................................ $ -0- $4,188,780
1998................................................ 1,850,946 -0-
1999................................................ 2,060,831 -0-
---------- ----------
$3,911,777 $4,188,780
========== ==========
</TABLE>
NOTE E -- RELATED-PARTY TRANSACTIONS
The Company is affiliated with numerous other companies through common
control and stock ownership. The stockholders and other joint venture companies
have made unsecured non-interest bearing advances to the Company for working
capital purposes.
NOTE F -- INCOME TAX MATTERS
A summary of the provision for income taxes is as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Current............................................... $18,900 $ -0-
Deferred.............................................. 2,000 48,000
------- -------
Provision for Income Taxes............................ $20,900 $48,000
======= =======
</TABLE>
The net deferred tax liability on the balance sheet includes the following
components:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred tax liabilities arising from:
Accelerated methods of depreciation for tax
Tax depletion on quarry.............................................. $136,000 $149,000
Alternative minimum tax.............................................. 23,000 21,000
129,000 159,000
Deferred tax assets arising from:
Allowance for bad debts.............................................. (5,000) (5,000)
Inventory Adjustments (Section 263(a))............................... (2,000) (2,000)
Net operating loss carryovers........................................ -0- (45,000)
Investment tax credit carryovers..................................... -0- (11,000)
-------- --------
Net deferred tax liability........................................... $281,000 $266,000
======== ========
</TABLE>
See accountants' report.
F-77
<PAGE> 142
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE G -- CONCENTRATION OF CREDIT RISK
All of the Company's cash funds are located in financial institutions that
are insured by the FDIC for up to $100,000. The amounts in excess of this limit
at August 31, 1997 and 1996 are $119,063 and $393,475, respectively.
Sales to two major customers represented 55% and 56% of total revenues for
the three months ended August 31, 1997 and 1996, respectively. Trade accounts
receivable from major customers represented 73% and 57% of total trade accounts
receivable as of August 31, 1997 and 1996, respectively.
NOTE H -- MERGER
During June of 1997, the Company joined in a merger with its affiliates and
other unrelated granite companies.
NOTE I -- FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company has a number of financial instruments, none of which are held
for trading purposes. The Company estimates that the fair value of all financial
instruments at August 31, 1997 and 1996 does not differ materially from the
aggregate carrying values of its financial instruments recorded in the
accompanying balance sheets. The estimated fair value amounts have been
determined by the Company using available market information and appropriate
valuation methodologies. Considerable judgement is necessarily required in
interpreting market data to develop the estimates of fair value, and
accordingly, the estimates are not necessarily indicative of the amounts that
the Company could realize in a current market exchange.
See accountants' report.
F-78
<PAGE> 143
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS
To the Board of Directors
Pennsylvania Granite Corporation
St. Peters, Pennsylvania
We have audited the accompanying consolidated balance sheet of Pennsylvania
Granite Corporation and subsidiary as of June 30, 1996, and the related
consolidated statements of operations and accumulated deficit, and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to in the first paragraph
present fairly, in all material respects, the financial position of Pennsylvania
Granite Corporation and subsidiary as of June 30, 1996, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ GREENE AND COMPANY, L.L.P.
--------------------------------------
GREENE AND COMPANY, L.L.P.
Anderson, South Carolina
July 22, 1997
F-79
<PAGE> 144
PENNSYLVANIA GRANITE CORPORATION
CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 450,668
Trade receivables, less allowance for doubtful accounts of $13,495............ 634,240
Trade receivables -- affiliates............................................... 327,220
Employee receivables.......................................................... 1,203
Inventory -- finished goods................................................... 130,730
Prepaid taxes................................................................. 3,782
Prepaid expenses.............................................................. 122,789
Deposits...................................................................... 3,500
----------
Total current assets.................................................. 1,674,132
----------
Property and equipment, net..................................................... 2,339,126
----------
Other assets:
Advances to affiliates........................................................ 489,989
Intangibles, net.............................................................. 2,493,471
----------
Total other assets......................................................... 2,983,460
----------
Total assets.......................................................... $ 6,996,718
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................................. $ 393,970
Accounts payable -- affiliates................................................ 90,421
Accrued expenses.............................................................. 85,952
Deferred income taxes......................................................... 218,000
Notes payable................................................................. 4,246,652
----------
Total current liabilities............................................. 5,034,995
----------
Long-term liabilities -- advances from affiliates............................... 689,868
----------
Stockholders' equity:
Common stock, no par value, 1,950 shares authorized, 1,740 shares issued
and outstanding............................................................ 2,500,500
Accumulated deficit........................................................... (1,228,645)
----------
Total stockholders' equity................................................. 1,271,855
----------
Total liabilities and stockholders' equity............................ $ 6,996,718
==========
</TABLE>
See accompanying notes to financial statements.
F-80
<PAGE> 145
PENNSYLVANIA GRANITE CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE YEAR ENDED JUNE 30, 1996
<TABLE>
<S> <C>
Net revenues (including sales to affiliates of $1,772,844)...................... $ 7,528,511
Cost of goods sold (including purchases from affiliates of $57,029)............. 6,244,640
-----------
Gross profit.................................................................... 1,283,871
Selling and administrative expenses (including fees paid to affiliates of
$54,269)...................................................................... 589,172
-----------
Operating income................................................................ 694,699
-----------
Other (income) expense:
Interest expense.............................................................. 409,255
Loss from judgment............................................................ 62,104
Other income.................................................................. (32,591)
Interest income............................................................... (7,763)
Rental income................................................................. (3,000)
Gain on sale of equipment..................................................... (1,656)
Finance charges............................................................... (1,478)
-----------
Total other expense................................................... 424,871
-----------
Income before income tax........................................................ 269,828
Income tax...................................................................... (72,000)
-----------
Net income...................................................................... 341,828
Accumulated deficit, beginning of year.......................................... (1,002,250)
Distributions................................................................... (568,223)
-----------
Accumulated deficit, end of year................................................ $(1,228,645)
===========
</TABLE>
See accompanying notes to financial statements.
F-81
<PAGE> 146
PENNSYLVANIA GRANITE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1996
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income..................................................................... $ 341,828
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization................................................................ 226,283
Depreciation................................................................ 289,155
Depletion................................................................... 24,783
Deferred income taxes....................................................... (72,000)
Gain on sale of equipment................................................... (1,656)
(Increase) decrease in assets:
Trade receivables......................................................... (24,649)
Employee receivables...................................................... (756)
Inventory................................................................. 60,600
Prepaid taxes............................................................. 2,521
Prepaid expenses.......................................................... 61,631
Deposits.................................................................. 10,938
Increase (decrease) in liabilities:
Accounts payable.......................................................... (8,632)
Accrued expenses.......................................................... 61,135
--------
Net cash provided by operating activities.............................. 971,181
--------
Cash flows used in investing activities:
Purchase of fixed assets....................................................... (220,759)
Sale of equipment -- proceeds.................................................. 41,000
--------
Net cash used in investing activities.................................. (179,759)
--------
Cash flows used in financing activities:
Distributions to stockholders.................................................. (568,223)
Payments on notes payable...................................................... (384,480)
Advances from affiliates....................................................... 683,800
Advances to affiliates......................................................... (385,000)
--------
Net cash used in financing activities.................................. (653,903)
--------
Net increase in cash and cash equivalents........................................ 137,519
Cash and cash equivalents at beginning of year................................... 313,149
--------
Cash and cash equivalents at end of year......................................... $ 450,668
========
Supplemental disclosure of cash flow information -- cash paid for interest....... $ 409,255
========
</TABLE>
See accompanying notes to financial statements.
F-82
<PAGE> 147
PENNSYLVANIA GRANITE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of the Company is presented
to assist in understanding the Company's financial statements. The financial
statements and notes are representations of the Company's management, who is
responsible for their integrity and objectivity. These accounting policies
conform to generally accepted accounting principles and have been consistently
applied in the preparation of the financial statements.
Nature of Business
The Company quarries granite dimensional blocks for monuments, industrial
surface plates and building materials in Pennsylvania and North and South
Carolina. These products are sold nationwide and in Europe.
Use of Estimates
The presentation 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 and
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.
Intangibles
Amortization is computed under the straight-line method for financial
reporting purposes over the following estimated useful lives:
<TABLE>
<S> <C>
Goodwill........................................... 18 1/2-40
Organization costs................................. 20
Loan costs......................................... 5
Overburden removal................................. 15
Covenant not to compete............................ 5
</TABLE>
Depletion of mineral deposits is computed using cost depletion for
financial reporting purposes.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or recognized in income in the period that includes the enactment
date.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents. The Company has a money market account in the amount of
$352,014 at June 30, 1996.
See accountants' report.
F-83
<PAGE> 148
PENNSYLVANIA GRANITE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Trade Receivables
The Company accounts for uncollectible trade receivables on the reserve
method.
Inventory
Inventory of quarry product is valued at the lower of average cost or
market. Average cost is the cost to quarry, which includes direct labor and
overhead.
Revenue Recognition
Revenue is recognized upon shipment of goods.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. The estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies. The fair
value of the Company's assets approximates the carrying cost at the balance
sheet dates.
Property and Equipment
Property and equipment are stated at acquisition cost as of October 12,
1988, and cost for additions thereafter. Depreciation is computed under the
straight-line method for financial reporting purposes over the following
estimated useful lives:
<TABLE>
<S> <C>
Buildings........................................... 10-40
Trucks and automobiles.............................. 3-7
Machinery and equipment............................. 3-10
Office fixtures and equipment....................... 3-10
Overburden removal.................................. 15
</TABLE>
Major renewals and betterments are added to the property accounts while
maintenance and repairs are charged against earnings as incurred.
Goodwill
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the expected
periods to be benefitted. The Company assesses the recoverability of this
intangible asset by determining whether the amortization of the goodwill balance
over its remaining life can be recovered through undiscounted future operating
cash flows of the acquired operation. The amount of goodwill impairment, if any,
is measured based on projected discounted future operating cash
See accountants' report.
F-84
<PAGE> 149
PENNSYLVANIA GRANITE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
flows using a discount rate reflecting the Company's average cost of funds. The
assessment of the recoverability of goodwill will be impacted if estimated
future operating cash flows are not achieved.
NOTE B -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<S> <C>
Land........................................................... $ 701,570
Buildings...................................................... 433,955
Trucks and automobiles......................................... 181,331
Machinery and equipment........................................ 4,561,674
Office fixtures and equipment.................................. 53,117
-----------
5,931,647
Accumulated depreciation....................................... (3,592,521)
-----------
$2,339,126
===========
</TABLE>
Depreciation expense for the year ended June 30, 1996 was $289,155.
NOTE C -- INTANGIBLES
Intangibles consist of the following:
<TABLE>
<S> <C>
Goodwill........................................................ $ 2,893,345
Organization costs.............................................. 39,982
Mineral deposits................................................ 540,162
Loan costs...................................................... 24,711
Overburden removal.............................................. 150,204
Covenant not to compete......................................... 300,000
-----------
3,948,404
Accumulated amortization and depletion.......................... (1,454,933)
-----------
$ 2,493,471
===========
</TABLE>
Amortization and depletion expense for the year ended June 30, 1996 was
$226,283 and $24,783, respectively.
See accountants' report.
F-85
<PAGE> 150
PENNSYLVANIA GRANITE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D -- NOTES PAYABLE
Notes payable are as follows:
<TABLE>
<S> <C>
Bank mortgage, payable $25,000 monthly (principal and interest
at prime + 0.45%) with a maturity date of May, 1997; the
mortgage balance is secured by substantially all of the
subsidiary's assets and guarantees by the stockholders........ $ 1,440,571
Bank mortgage, payable $19,092 monthly (principal and interest
at 9 1/2%) with a maturity date of October 1998; the mortgage
balance is secured by substantially all of the Company's
assets and guarantees by the stockholders..................... $ 1,664,290
Bank mortgage, payable $8,334 monthly plus interest at prime
plus 1 1/2% with a maturity date of October 1998; secured by
substantially all of the Company's assets and guarantees by
the stockholders.............................................. 1,141,791
-----------
4,246,652
Current portion................................................. (4,246,652)
-----------
$ 0
===========
</TABLE>
In regard to the term loans, the Company has agreed to maintain proper
financial records and statements and to maintain certain financial ratios
pertaining to its net worth, working capital, debt coverage, etc. The Company
has not met these requirements for the year ended June 30, 1996 and the bank has
decided not to waive the requirements. Therefore, the entire notes payable
balance must be classified as current.
NOTE E -- RELATED-PARTY TRANSACTIONS
The Company is affiliated with numerous other companies through common
control and stock ownership. The stockholders and other joint venture companies
have made unsecured non-interest bearing advances to the Company for working
capital purposes.
NOTE F -- INCOME TAX MATTERS
A summary of the provision for income taxes is as follows:
<TABLE>
<S> <C>
Current........................................................... $ 0
Deferred.......................................................... (72,000)
--------
Provision (benefit) for income taxes.................... $(72,000)
========
</TABLE>
The net deferred tax liability on the balance sheet includes the following
components:
<TABLE>
<S> <C>
Deferred tax liabilities arising from:
Accelerated methods of depreciation for tax..................... $134,000
Tax depletion on quarry......................................... 32,000
Alternative minimum tax......................................... 121,000
Deferred tax assets arising from:
Allowance for bad debts......................................... (6,000)
Inventory adjustments (Section 263(a)).......................... (7,000)
Net operating loss carryovers................................... (45,000)
Investment tax credit carryovers................................ (11,000)
--------
Net deferred tax liability.............................. $218,000
========
</TABLE>
See accountants' report.
F-86
<PAGE> 151
PENNSYLVANIA GRANITE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F -- INCOME TAX MATTERS -- (CONTINUED)
The Company has unused net operating losses and investment tax credits
available for carryforward to offset future taxable income and tax liabilities
for income tax reporting purposes which expire in the following tax years:
<TABLE>
<CAPTION>
NET OPERATING LOSS TAX CREDITS
------------------ -----------
<S> <C> <C>
1999............................................ $ 0 $ 6,992
2000............................................ 0 12,483
2001............................................ 0 9,831
2006............................................ 104,786 0
2007............................................ 6,302 0
2008............................................ 3,964 0
-------- -------
$115,052 $29,306
======== =======
</TABLE>
NOTE G -- CONCENTRATION OF CREDIT RISK
Cash accounts are insured by the FDIC for up to $100,000. Amount in excess
of insured limits was approximately $252,014 at June 30, 1996.
Sales to two major customers represented 54% of total revenues for the year
ended June 30, 1996. Trade accounts receivable from major customers represented
72% of total trade accounts receivable as of June 30, 1996.
NOTE H -- SUBSEQUENT EVENTS
Subsequent to the date of these financial statements, the Company joined in
a merger with its affiliates and other unrelated granite companies.
NOTE I -- FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company has a number of financial instruments, none of which are held
for trading purposes. The Company estimates that the fair value of all financial
instruments at June 30, 1996 does not differ materially from the aggregate
carrying values of its financial instruments recorded in the accompanying
balance sheets. The estimated fair value amounts have been determined by the
Company using available market information and appropriate valuation
methodologies. Considerable judgement is necessarily required in interpreting
market data to develop the estimates of fair value, and accordingly, the
estimates are not necessarily indicative of the amounts that the Company could
realize in a current market exchange.
See accountants' report.
F-87
<PAGE> 152
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS
To the Board of Directors
Caprice Blue Quarry, Inc.
Elberton, Georgia
We have audited the accompanying balance sheets of Caprice Blue Quarry,
Inc. (an "S" corporation) as of May 31, 1997 and April 30, 1997, and the related
statements of operations and accumulated deficit, and cash flows for the eleven
months and ten months then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to in the first paragraph
present fairly, in all material respects, the financial position of Caprice Blue
Quarry, Inc. as of May 31, 1997 and April 30, 1997, and the results of its
operations and its cash flows for the eleven months and ten months then ended in
conformity with generally accepted accounting principles.
/s/ GREENE AND COMPANY, L.L.P.
--------------------------------------
GREENE AND COMPANY, L.L.P.
Anderson, South Carolina
July 22, 1997
F-88
<PAGE> 153
CAPRICE BLUE QUARRY, INC.
BALANCE SHEETS
MAY 31, 1997 AND APRIL 30, 1997
<TABLE>
<CAPTION>
MAY 31, APRIL 30,
1997 1997
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash............................................................... $ 1,525 $ 370
Trade receivables.................................................. 3,782 380
Trade receivables -- affiliates.................................... 4,112 2,794
Employee receivables............................................... 1,144 1,295
Inventory -- finished goods........................................ 13,550 10,022
Prepaid expenses................................................... 1,056 2,696
--------- ---------
Total current assets....................................... 25,169 17,557
--------- ---------
Property and equipment, net.......................................... 81,898 83,376
--------- ---------
Other assets:
Intangibles, net................................................... 168,103 169,166
Advances to affiliates............................................. 27,300 26,705
--------- ---------
Total other assets.............................................. 195,403 195,871
--------- ---------
Total assets............................................... $ 302,470 $ 296,804
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Bank overdraft..................................................... $ 0 $ 5,616
Accounts payable................................................... 18,470 9,493
Accounts payable -- affiliates..................................... 123,620 158,586
Accrued expenses................................................... 2,592 3,004
Current portion of long-term debt.................................. 55,761 55,277
--------- ---------
Total current liabilities.................................. 200,443 231,976
--------- ---------
Long-term liabilities:
Long-term debt, less current portion............................... 45,636 50,534
Advances from affiliates........................................... 483,000 430,000
Advances from stockholders......................................... 268,875 268,875
--------- ---------
Total long-term liabilities................................ 797,511 749,409
--------- ---------
Stockholders' deficit:
Common stock, $10 par value. Authorized 100,000 shares; 240 shares
issued and outstanding.......................................... 2,400 2,400
Additional paid-in capital......................................... 121 121
Accumulated deficit................................................ (698,005) (687,102)
--------- ---------
Total stockholders' deficit..................................... (695,484) (684,581)
--------- ---------
Total liabilities and stockholders' deficit................ $ 302,470 $ 296,804
========= =========
</TABLE>
See accompanying notes to financial statements.
F-89
<PAGE> 154
CAPRICE BLUE QUARRY, INC.
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE ELEVEN MONTHS ENDED MAY 31, 1997
<TABLE>
<S> <C>
Net revenues (including revenues to affiliates of $176,562)...................... $ 183,569
Cost of goods sold (including purchases from affiliates of $104,659)............. 418,489
---------
Gross loss....................................................................... (234,920)
Selling and administrative expenses (including fees paid to affiliates of
$4,601)........................................................................ 10,768
---------
Operating loss................................................................... (245,688)
---------
Other (income) expense:
Rent income.................................................................... (2,973)
Interest expense............................................................... 11,992
---------
Total other expense.................................................... 9,019
---------
Net loss......................................................................... (254,707)
Accumulated deficit, July 1, 1996................................................ (443,298)
---------
Accumulated deficit, May 31, 1997................................................ $(698,005)
=========
</TABLE>
See accompanying notes to financial statements.
F-90
<PAGE> 155
CAPRICE BLUE QUARRY, INC.
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE TEN MONTHS ENDED APRIL 30, 1997
<TABLE>
<S> <C>
Net revenues (including revenues to affiliates of $160,592)...................... $ 164,197
Cost of goods sold (including purchases from affiliates of $104,292)............. 390,634
---------
Gross loss....................................................................... (226,437)
Selling and administrative expenses (including fees paid to affiliates of
$4,234)........................................................................ 8,636
---------
Operating loss................................................................... (235,073)
---------
Other (income) expense:
Rental income.................................................................. (2,378)
Interest expense............................................................... 11,109
---------
Total other expense.................................................... 8,731
---------
Net loss......................................................................... (243,804)
Accumulated deficit, July 1, 1996................................................ (443,298)
---------
Accumulated deficit, April 30, 1997.............................................. $(687,102)
=========
</TABLE>
See accompanying notes to financial statements.
F-91
<PAGE> 156
CAPRICE BLUE QUARRY, INC.
STATEMENT OF CASH FLOWS
FOR THE ELEVEN MONTHS ENDED MAY 31, 1997
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss....................................................................... $(254,707)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation................................................................ 21,303
Depletion................................................................... 9,651
(Increase) decrease in assets:
Trade receivables......................................................... (7,126)
Employee receivables...................................................... (533)
Advances to affiliates.................................................... (2,973)
Inventory................................................................. (13,550)
Prepaid expenses.......................................................... 790
Increase (decrease) in liabilities:
Accounts payable.......................................................... 78,718
Accrued expenses.......................................................... 1,758
---------
Net cash used in operating activities.................................. (166,669)
---------
Cash flows used in investing activities -- purchases of machinery and
equipment...................................................................... (21,586)
---------
Cash flows from financing activities:
Payments on notes payable...................................................... (45,577)
Advances from affiliates....................................................... 234,000
---------
Net cash provided by financing activities.............................. 188,423
---------
Net increase in cash............................................................. 168
Cash, July 1, 1996............................................................... 1,357
---------
Cash, May 31, 1997............................................................... $ 1,525
=========
Supplemental disclosure of cash flow information -- cash paid for interest....... $ 11,992
=========
</TABLE>
See accompanying notes to financial statements.
F-92
<PAGE> 157
CAPRICE BLUE QUARRY, INC.
STATEMENT OF CASH FLOWS
FOR THE TEN MONTHS ENDED APRIL 30, 1997
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss....................................................................... $(243,804)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation................................................................ 19,824
Depletion................................................................... 8,588
(Increase) decrease in assets:
Trade receivables......................................................... (2,407)
Employee receivables...................................................... (683)
Advances to affiliates.................................................... (2,378)
Inventory................................................................. (10,022)
Prepaid expenses.......................................................... (850)
Increase (decrease) in liabilities:
Accounts payable.......................................................... 104,708
Accrued expenses.......................................................... 2,170
---------
Net cash used in operating activities.................................. (124,854)
---------
Cash flows from investing activities -- purchases of fixed assets................ (21,586)
---------
Cash flows from financing activities:
Increase in bank overdraft..................................................... 5,616
Payments on notes payable...................................................... (41,163)
Advances from affiliates....................................................... 181,000
---------
Net cash provided by financing activities.............................. 145,453
---------
Net decrease in cash............................................................. (987)
Cash, July 1, 1996............................................................... 1,357
---------
Cash, April 30, 1997............................................................. $ 370
=========
Supplemental disclosure of cash flow information -- cash paid for interest....... $ 11,109
=========
</TABLE>
See accompanying notes to financial statements.
F-93
<PAGE> 158
CAPRICE BLUE QUARRY, INC.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1997 AND APRIL 30, 1997
NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of the Company is presented
to assist in understanding the Company's financial statements. The financial
statements and notes are representations of the Company's management, who is
responsible for their integrity and objectivity. These accounting policies
conform to generally accepted accounting principles and have been consistently
applied in the preparation of the financial statements.
Nature of Business
The Company quarries granite blocks in northeast Georgia for sale to
customers nationwide.
Use of Estimates
The presentation 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 and
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.
Basis of Accounting
Assets, liabilities, revenues, and expenses are recognized on the accrual
method of accounting.
Inventory
Inventories are stated at lower of cost or market with cost being
determined using average cost.
Revenue Recognition
Revenue is recognized upon shipment of goods.
Property and Equipment
Property and equipment are stated at acquisition cost. Depreciation is
computed under the accelerated method for financial reporting purposes over the
following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Vehicles.............................................. 3-7
Machinery and equipment............................... 3-10
</TABLE>
Major renewals and betterments are added to the property accounts while
maintenance and repairs are charged against earnings as incurred.
Intangibles
Intangibles consist of mineral rights which are depleted using cost
depletion.
Income Taxes
The Company with the consent of its stockholders has elected to be an "S"
Corporation under the Internal Revenue Code. Instead of paying corporate income
taxes the stockholders of an "S" Corporation are
See accountants' report.
F-94
<PAGE> 159
CAPRICE BLUE QUARRY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
taxed individually on their proportionate share of the Company's taxable income.
Therefore, no provision or liability for federal income taxes has been included
in these financial statements.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. The estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies. The fair
value of the Company's assets approximates the carrying cost at the balance
sheet dates.
NOTE B -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
MAY 31, APRIL 30,
1997 1997
--------- ---------
<S> <C> <C>
Land................................................. $ 43,000 $ 43,000
Vehicles............................................. 18,635 18,635
Machinery and equipment.............................. 318,087 318,087
--------- ---------
379,722 379,722
Accumulated depreciation............................. (297,824) (296,346)
--------- ---------
$ 81,898 $ 83,376
========= =========
</TABLE>
Depreciation expense for the eleven months ended May 31, 1997 was $21,303.
Depreciation expense for the ten months ended April 30, 1997 was $19,825.
NOTE C -- INTANGIBLES
Intangibles consist of the following:
<TABLE>
<CAPTION>
MAY 31, APRIL 30,
1997 1997
-------- --------
<S> <C> <C>
Mineral rights......................................... $240,000 $240,000
Accumulated depletion.................................. (71,897) (70,834)
-------- --------
$168,103 $169,166
======== ========
</TABLE>
Depletion expense for the eleven months ended May 31, 1997 was $9,651.
Depletion expense for the ten months ended April 30, 1997 was $8,588.
See accountants' report.
F-95
<PAGE> 160
CAPRICE BLUE QUARRY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D -- NOTES PAYABLE
Notes payable are as follows:
<TABLE>
<CAPTION>
MAY 31, APRIL 30,
1997 1997
-------- --------
<S> <C> <C>
Bank loan, payable $5,297 monthly (principal and
interest at 10 1/2%) with a maturity date of February
1999; the loan is secured by the Company's
inventory............................................ $101,397 $105,811
Current portion........................................ (55,761) (55,277)
-------- --------
$ 45,636 $ 50,534
======== ========
</TABLE>
The following is a schedule of maturities of notes payable at May 31, 1997
and April 30, 1997:
<TABLE>
<CAPTION>
MAY 31, APRIL 30,
1997 1997
-------- --------
<S> <C> <C>
1998................................................... $ 55,761 $ 55,277
1999................................................... 45,636 50,534
-------- --------
$101,397 $105,811
======== ========
</TABLE>
NOTE E -- RELATED-PARTY TRANSACTIONS
The Company is affiliated with numerous other companies through common
control and stock ownership. The stockholders and other joint venture companies
have made unsecured non-interest bearing advances to the Company for working
capital purposes.
The Company classifies advances payable to affiliates as long-term based
upon the intent of the parties.
NOTE F -- CONCENTRATION OF CREDIT RISK
All of the Company's cash funds are located in financial institutions that
are insured by the FDIC for up to $100,000. There are no amounts in excess of
this limit at May 31, 1997 and April 30, 1997.
NOTE G -- SUBSEQUENT EVENT
Subsequent to the date of these financial statements, the Company joined in
a merger with its affiliates and other unrelated granite companies. As of the
effective date of the merger, the Company's election to be an "S" corporation
under the Internal Revenue Code will terminate.
NOTE H -- FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company has a number of financial instruments, none of which are held
for trading purposes. The Company estimates that the fair value of all financial
instruments at May 31, 1997 and April 30, 1997, does not differ materially from
the aggregate carrying values of its financial instruments recorded in the
accompanying balance sheets. The estimated fair value amounts have been
determined by the Company using available market information and appropriate
valuation methodologies. Considerable judgment is necessarily required in
interpreting market data to develop the estimates of fair value, and
accordingly, the estimates are not necessarily indicative of the amounts that
the Company could realize in a current market exchange.
See accountants' report.
F-96
<PAGE> 161
ACCOUNTANTS' REVIEW REPORT
To the Board of Directors
Caprice Blue Quarry, Inc.
Elberton, Georgia
We have reviewed the accompanying balance sheets of Caprice Blue Quarry,
Inc. as of August 31, 1997 and 1996, and the related statements of operations,
accumulated deficit, and cash flows for the three months then ended, in
accordance with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants. All
information included in these financial statements is the representation of the
management of Caprice Blue Quarry, Inc.
A review consists principally of inquiries of Company personnel and
analytical procedure applied to financial data. It is substantially less in
scope than an audit in accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements in order for them to be
in conformity with generally accepted accounting principles.
/s/ GREENE AND COMPANY, L.L.P.
--------------------------------------
GREENE AND COMPANY, L.L.P.
Anderson, South Carolina
September 18, 1997
F-97
<PAGE> 162
CAPRICE BLUE QUARRY, INC.
BALANCE SHEETS
AUGUST 31, 1997 AND AUGUST 31, 1996
<TABLE>
<CAPTION>
AUGUST 31,
-----------------------
1997 1996
--------- ---------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash............................................................... $ 6,814 $ 1,797
Trade receivables.................................................. 1,211 -0-
Trade receivables -- affiliates.................................... 16,546 18,411
Employee receivables............................................... 854 476
Inventory -- finished goods........................................ 6,325 11,921
Prepaid expenses................................................... 3,071 2,384
--------- ---------
Total current assets....................................... 34,821 34,989
--------- ---------
Property and equipment, net.......................................... 77,951 80,528
--------- ---------
Other assets:
Intangibles, net................................................... 166,605 176,361
Advances to affiliates............................................. 25,201 17,473
--------- ---------
Total other assets.............................................. 191,806 193,834
--------- ---------
Total assets............................................... $ 304,578 $ 309,351
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable................................................... $ -0- $ 10,239
Accounts payable -- affiliates..................................... 115,796 58,158
Accrued expenses................................................... -0- 99
Current portion of long-term debt.................................. 57,238 50,927
--------- ---------
Total current liabilities.................................. 173,034 119,423
--------- ---------
Long-term liabilities:
Long-term debt, less current portion............................... 30,770 88,008
Advances from affiliates........................................... 539,000 282,000
Advances from stockholders......................................... 268,875 268,875
--------- ---------
Total long-term liabilities................................ 838,645 638,883
--------- ---------
Stockholders' deficit:
Common stock, $10 par value. Authorized 100,000 shares; 240 shares
issued and outstanding.......................................... 2,400 2,400
Additional paid-in capital......................................... 121 121
Accumulated deficit................................................ (709,622) (451,476)
--------- ---------
Total stockholders' deficit..................................... (707,101) (448,955)
--------- ---------
Total liabilities and stockholders' deficit................ $ 304,578 $ 309,351
========= =========
</TABLE>
See accompanying notes to financial statements.
F-98
<PAGE> 163
CAPRICE BLUE QUARRY, INC.
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE THREE MONTHS ENDED AUGUST 31, 1997
(UNAUDITED)
<TABLE>
<S> <C>
Net revenues (including revenues to affiliates of $43,122)....................... $ 44,361
Cost of goods sold (including purchases from affiliates of $25,138).............. 50,136
---------
Gross loss....................................................................... (5,775)
Selling and administrative expenses (including fees paid to affiliates of
$1,044)........................................................................ 5,125
---------
Operating loss................................................................... (10,900)
---------
Other (income) expense:
Rent income.................................................................... (1,784)
Interest expense............................................................... 2,501
---------
Total other expense.................................................... 717
---------
Net loss......................................................................... (11,617)
Accumulated deficit, June 1, 1997................................................ (698,005)
---------
Accumulated deficit, August 31, 1997............................................. $(709,622)
=========
</TABLE>
See accompanying notes to financial statements.
F-99
<PAGE> 164
CAPRICE BLUE QUARRY, INC.
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE THREE MONTHS ENDED AUGUST 31, 1996
(UNAUDITED)
<TABLE>
<S> <C>
Net revenues (including revenues to affiliates of $40,674)....................... $ 38,954
Cost of goods sold (including purchases from affiliates of $964)................. 55,561
---------
Gross loss....................................................................... (16,607)
Selling and administrative expenses (including fees paid to affiliates of
$904).......................................................................... 5,931
---------
Operating loss................................................................... (22,538)
---------
Other (income) expense:
Rent income.................................................................... (1,784)
Interest expense............................................................... 3,545
---------
Total other expense.................................................... 1,761
---------
Net loss......................................................................... (24,299)
Accumulated deficit, June 1, 1996................................................ (427,177)
---------
Accumulated deficit, August 31, 1996............................................. $(451,476)
=========
</TABLE>
See accompanying notes to financial statements.
F-100
<PAGE> 165
CAPRICE BLUE QUARRY, INC.
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED AUGUST 31, 1997
(UNAUDITED)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss....................................................................... $ (11,617)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation................................................................ 3,946
Depletion................................................................... 1,498
(Increase) decrease in assets:
Trade receivables......................................................... (9,863)
Employee receivables...................................................... 291
Advances to affiliates.................................................... 2,099
Inventory................................................................. 7,225
Prepaid expenses.......................................................... (2,015)
Increase (decrease) in liabilities:
Accounts payable.......................................................... (26,294)
Accrued expenses.......................................................... (2,592)
---------
Net cash used in operating activities.................................. (37,322)
---------
Cash flows from financing activities:
Payments on notes payable...................................................... (13,389)
Advances from affiliates....................................................... 56,000
---------
Net cash provided by financing activities.............................. 42,611
---------
Net increase in cash............................................................. 5,289
Cash, June 1, 1997............................................................... 1,525
---------
Cash, August 31, 1997............................................................ $ 6,814
=========
Supplemental disclosure of cash flow information -- cash paid for interest....... $ 2,501
=========
</TABLE>
See accompanying notes to financial statements.
F-101
<PAGE> 166
CAPRICE BLUE QUARRY, INC.
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED AUGUST 31, 1996
(UNAUDITED)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss........................................................................ $(24,299)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation................................................................. 3,422
Depletion.................................................................... 1,584
(Increase) decrease in assets:
Trade receivables.......................................................... (14,904)
Employee receivables....................................................... 460
Advances to affiliates..................................................... (1,785)
Inventory.................................................................. (11,921)
Prepaid expenses........................................................... (1,194)
Increase (decrease) in liabilities:
Accounts payable........................................................... 3,302
Accrued expenses........................................................... (67)
---------
Net cash used in operating activities................................... (45,402)
---------
Cash flows used in investing activities -- purchases of machinery and equipment... (1,200)
---------
Cash flows from financing activities:
Payments on notes payable....................................................... (12,114)
Advances from affiliates........................................................ 59,500
---------
Net cash provided by financing activities............................... 47,386
---------
Net increase in cash.............................................................. 784
Cash, June 1, 1996................................................................ 1,013
---------
Cash, August 31, 1996............................................................. $ 1,797
=========
Supplemental disclosure of cash flow information -- cash paid for interest........ $ 3,545
=========
</TABLE>
See accompanying notes to financial statements.
F-102
<PAGE> 167
CAPRICE BLUE QUARRY, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1997 AND 1996
NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of the Company is presented
to assist in understanding the Company's financial statements. The financial
statements and notes are representations of the Company's management, who is
responsible for their integrity and objectivity. These accounting policies
conform to generally accepted accounting principles and have been consistently
applied in the preparation of the financial statements.
NATURE OF BUSINESS
The Company quarries granite blocks in northeast Georgia for sale to
customers nationwide.
USE OF ESTIMATES
The presentation 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 and
disclosure of continent 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.
BASIS OF ACCOUNTING
Assets, liabilities, revenues, and expenses are recognized on the accrual
method of accounting.
INVENTORY
Inventories are stated at lower of cost or market with cost being
determined using average cost.
PROPERTY AND EQUIPMENT
Property and equipment are stated at acquisition cost. Depreciation is
computed under the accelerated method for financial reporting purposes over the
following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Vehicles............................................................. 3-7
Machinery and equipment.............................................. 3-10
</TABLE>
Major renewals and betterments are added to the property accounts while
maintenance and repairs are charged against earnings as incurred.
INTANGIBLES
Intangibles consist of mineral rights which are depleted using cost
depletion.
INCOME TAXES
The Company's election to be an "S" Corporation under the Internal Revenue
Code was terminated in June of 1997. The Company experienced a loss of $1,168.00
for the two months of July and August 1997, therefore, no liability or expense
has been included. Also, no tax benefit has been reported in the accompanying
financial statements because the tax benefit of the net losses has been offset
by a valuation allowance of the same amount.
SEE ACCOUNTANTS' REPORT.
F-103
<PAGE> 168
CAPRICE BLUE QUARRY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 1997 AND 1996
NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. The estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies. The fair
value of the Company's assets approximates the carrying cost at the balance
sheet dates.
NOTE B -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Land......................................................... $ 43,000 $ 43,000
Vehicles..................................................... 18,635 12,135
Machinery and equipment...................................... 318,087 304,201
--------- ---------
379,722 359,336
Accumulated depreciation..................................... (301,771) (278,808)
--------- ---------
$ 77,951 $ 80,528
========= =========
</TABLE>
Depreciation expense for the three months ended August 31, 1997 was $3,422.
Depreciations expense for the three months ended August 31, 1996 was
$3,946.
NOTE C -- INTANGIBLES
Intangibles consist of the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Mineral rights....................................................... $240,000 $240,000
Accumulated depletion................................................ (73,395) (63,639)
-------- --------
$166,605 $176,361
======== ========
</TABLE>
Depletion expense for the three months ended August 31, 1997 was $1,498.
Depletion expense for the three months ended August 31, 1996 was $1,584.
SEE ACCOUNTANTS' REPORT.
F-104
<PAGE> 169
CAPRICE BLUE QUARRY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 1997 AND 1996
NOTE C -- INTANGIBLES -- (CONTINUED)
NOTE D -- NOTES PAYABLE
Notes payable are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Bank loan, payable $5,297 monthly (principal and interest at 10 1/2%
with a maturity date of February 1999; the loan is secured by the
Company's inventory................................................ $ 88,008 $138,935
Current portion...................................................... (57,238) (50,927)
-------- --------
$ 30,770 $ 88,008
======== ========
</TABLE>
The following is a schedule of maturities of notes payable:
<TABLE>
<S> <C>
1997.............................................................. $ 50,927
1998.............................................................. 57,238
1999.............................................................. 30,770
-------
$138,935
=======
</TABLE>
NOTE E -- RELATED-PARTY TRANSACTIONS
The Company is affiliated with numerous other companies through common
control and stock ownership. The stockholders and other joint venture companies
have made unsecured non-interest bearing advances to the Company for working
capital purposes.
The Company classifies advances payable to affiliates as long-term based
upon the intent of the parties.
NOTE F -- CONCENTRATION OF CREDIT RISK
All of the Company's cash funds are located in financial institutions that
are insured by the FDIC for up to $100,000. There are no amounts in excess of
this limit at August 31, 1997 and 1996.
NOTE G -- MERGER
During June of 1997, the Company joined in a merger with its affiliates and
other unrelated granite companies.
NOTE H -- FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company has a number of financial instruments, none of which are held
for trading purposes. The Company estimates that the fair value of all financial
instruments at August 31, 1997 and 1996, does not differ materially from the
aggregate carrying values of its financial instruments recorded in the
accompanying balance sheets. The estimated fair value amounts have been
determined by the Company using available market information and appropriate
valuation methodologies. Considerable judgment is necessarily required in
interpreting market data to develop the estimates of fair value, and
accordingly, the estimates are not necessarily indicative of the amounts that
the Company could realize in a current market exchange.
SEE ACCOUNTANTS' REPORT.
F-105
<PAGE> 170
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS
To the Board of Directors
Southern Mausoleums, Inc.
Elberton, Georgia
We have audited the accompanying balance sheets of Southern Mausoleums,
Inc. (an "S" corporation) as of May 31, 1997 and April 30, 1997, and the related
statements of operations and accumulated deficit, and cash flows for the eleven
months and ten months then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to in the first paragraph
present fairly, in all material respects, the financial position of Southern
Mausoleums, Inc. as of May 31, 1997 and April 30, 1997, and the results of its
operations and its cash flows for the eleven months and ten months then ended in
conformity with generally accepted accounting principles.
/s/ GREENE AND COMPANY, L.L.P.
--------------------------------------
GREENE AND COMPANY, L.L.P.
Anderson, South Carolina
July 22, 1997
F-106
<PAGE> 171
SOUTHERN MAUSOLEUMS, INC.
BALANCE SHEETS
MAY 31, 1997 AND APRIL 30, 1997
<TABLE>
<CAPTION>
MAY 31, APRIL 30,
1997 1997
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 223,242 $ 237,934
Cash -- restricted................................................. 7,115 6,265
Trade receivables (less allowance for doubtful accounts of $25,539
and $25,162).................................................... 26,443 32,529
Trade receivables -- affiliates.................................... 42,576 40,613
Inventory.......................................................... 302,272 280,759
Prepaid expenses................................................... 9,649 12,306
--------- ---------
Total current assets....................................... 611,297 610,406
--------- ---------
Property and equipment, net.......................................... 270,445 274,355
--------- ---------
Other assets:
Intangibles, net................................................... 2,088 2,152
Deposits........................................................... 3,885 3,885
Advances to affiliates............................................. 12,096 12,096
--------- ---------
Total other assets.............................................. 18,069 18,133
--------- ---------
Total assets............................................... $ 899,811 $ 902,894
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable................................................... $ 45,159 $ 49,234
Accrued expenses................................................... 19,478 25,084
Current portion of long-term debt.................................. 157,068 156,267
Customer deposits.................................................. 365,849 402,337
--------- ---------
Total current liabilities.................................. 587,554 632,922
--------- ---------
Long-term liabilities:
Long-term debt, less current portion............................... 271,588 280,472
Advances from affiliates........................................... 36,489 36,489
Accounts payable -- affiliates..................................... 252,154 258,776
Advances from stockholders......................................... 30,011 30,011
--------- ---------
Total long-term liabilities................................ 590,242 605,748
--------- ---------
Stockholders' deficit:
Common stock, $10 par value. Authorized 100,000 shares; 120 shares
issued and outstanding.......................................... 1,200 1,200
Accumulated deficit................................................ (279,185) (336,976)
--------- ---------
Total stockholders' deficit..................................... (277,985) (335,776)
--------- ---------
Total liabilities and stockholders' deficit................ $ 899,811 $ 902,894
========= =========
</TABLE>
See accompanying notes to financial statements.
F-107
<PAGE> 172
SOUTHERN MAUSOLEUMS, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE ELEVEN MONTHS ENDED MAY 31, 1997
<TABLE>
<S> <C>
Net revenues (including revenues to affiliates of $47,912)....................... $1,225,396
Cost of goods sold (including purchases from affiliates of $261,501)............. 981,273
----------
Gross profit..................................................................... 244,123
Selling and administrative expenses (reduced by fees charged to affiliates of
$63,565)....................................................................... 80,993
----------
Operating income................................................................. 163,130
----------
Other (income) expense:
Interest expense............................................................... 40,640
Finance charge income.......................................................... (1,482)
Interest income................................................................ (2,213)
----------
Total other expense.................................................... 36,945
----------
Net income....................................................................... 126,185
Accumulated deficit, July 1, 1996................................................ (405,370)
----------
Accumulated deficit, May 31, 1997................................................ $ (279,185)
==========
</TABLE>
See accompanying notes to financial statements.
F-108
<PAGE> 173
SOUTHERN MAUSOLEUMS, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE TEN MONTHS ENDED APRIL 30, 1997
<TABLE>
<S> <C>
Net revenues (including revenues to affiliates of $46,368)....................... $1,073,646
Cost of goods sold (including purchases from affiliates of $232,842)............. 899,395
----------
Gross profit..................................................................... 174,251
Selling and administrative expenses (reduced by fees charged to affiliates of
$57,319)....................................................................... 71,471
----------
Operating income................................................................. 102,780
----------
Other (income) expense:
Interest expense............................................................... 37,135
Finance charge income.......................................................... (760)
Interest income................................................................ (1,989)
----------
Total other expense.................................................... 34,386
----------
Net income....................................................................... 68,394
Accumulated deficit, July 1, 1996................................................ (405,370)
----------
Accumulated deficit, April 30, 1997.............................................. $ (336,976)
==========
</TABLE>
See accompanying notes to financial statements.
F-109
<PAGE> 174
SOUTHERN MAUSOLEUMS, INC.
STATEMENT OF CASH FLOWS
FOR THE ELEVEN MONTHS ENDED MAY 31, 1997
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income..................................................................... $ 126,185
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization................................................................ 696
Depreciation................................................................ 51,724
(Increase) decrease in assets:
Trade receivables......................................................... 7,304
Related party receivables................................................. (10,596)
Inventory................................................................. (102,264)
Prepaid expenses.......................................................... 1,744
Increase (decrease) in liabilities:
Accounts payable.......................................................... (42,662)
Accrued expenses.......................................................... 22,799
Customer deposits......................................................... 224,367
---------
Net cash provided by operating activities.............................. 279,297
---------
Cash flows used in investing activities -- purchase of property and equipment.... (1,628)
---------
Cash flows from financing activities:
Payments on notes payable...................................................... (78,282)
Loan proceeds.................................................................. 5,000
---------
Net cash used in financing activities.................................. (73,282)
---------
Net increase in cash and cash equivalents........................................ 204,387
Cash and cash equivalents, July 1, 1996.......................................... 25,970
---------
Cash and cash equivalents, May 31, 1997.......................................... $ 230,357
=========
Supplemental disclosure of cash flow information -- cash paid for interest....... $ 41,262
=========
</TABLE>
See accompanying notes to financial statements.
F-110
<PAGE> 175
SOUTHERN MAUSOLEUMS, INC.
STATEMENT OF CASH FLOWS
FOR THE TEN MONTHS ENDED APRIL 30, 1997
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income...................................................................... $ 68,394
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization................................................................. 633
Depreciation................................................................. 47,814
(Increase) decrease in assets:
Trade receivables.......................................................... 3,181
Related party receivables.................................................. (10,596)
Inventory.................................................................. (80,754)
Prepaid expenses........................................................... (913)
Increase (decrease) in liabilities:
Accounts payable........................................................... (46,347)
Accrued expenses........................................................... 42,789
Customer deposits.......................................................... 260,855
--------
Net cash provided by operating activities............................... 285,056
--------
Cash flows used in investing activities -- purchase of property and equipment..... (1,628)
--------
Cash flows from financing activities:
Payments on notes payable....................................................... (70,199)
Loan proceeds................................................................... 5,000
--------
Net cash used in financing activities................................... (65,199)
--------
Net increase in cash and cash equivalents......................................... 218,229
Cash and cash equivalents, July 1, 1996........................................... 25,970
--------
Cash and cash equivalents, April 30, 1997......................................... $244,199
========
Supplemental disclosure of cash flow information -- cash paid for interest........ $ 38,243
========
</TABLE>
See accompanying notes to financial statements.
F-111
<PAGE> 176
SOUTHERN MAUSOLEUMS, INC.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1997 AND APRIL 30, 1997
NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of the Company is presented
to assist in understanding the Company's financial statements. The financial
statements and notes are representations of the Company's management, who is
responsible for their integrity and objectivity. These accounting policies
conform to generally accepted accounting principles and have been consistently
applied in the preparation of the financial statements.
Nature of Business
The Company saws and polishes granite into dimensional blocks for mausoleum
assembly at a plant located in northeast Georgia. The completed mausoleums are
sold nationwide.
Use of Estimates
The presentation 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 and
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.
Basis of Accounting
Assets, liabilities, revenues, and expenses are recognized on the accrual
method of accounting.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents. The Company has a money market account in the amount of
$179,767 at May 31, 1997 and $104,543 at April 30, 1997.
Trade Receivables
The Company accounts for uncollectible trade receivables on the reserve
method.
Inventory
Inventories are stated at lower of cost or market, with cost determined as
follows:
<TABLE>
<S> <C>
Finished goods....................... First-in first-out (FIFO) method
Materials and work in process........ Average cost
</TABLE>
Revenue Recognition
Revenue is recognized upon shipment of goods.
See accountants' report.
F-112
<PAGE> 177
SOUTHERN MAUSOLEUMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Property and Equipment
Property and equipment are stated at acquisition cost. Depreciation is
computed under the straight-line method for financial reporting purposes over
the following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
-------
<S> <C>
Buildings........................................................... 31 1/2
Building improvements............................................... 31 1/2
Vehicles............................................................ 5
Machinery and equipment............................................. 2 1/2 - 7
Office fixtures and equipment....................................... 7
</TABLE>
Major renewals and betterments are added to the property accounts while
maintenance and repairs are charged against earnings as incurred.
Intangibles
Intangibles consist of start-up costs and loan costs. Amortization of the
intangibles is computed using the straight-line method over terms ranging from
five years for start-up costs to six years for loan costs.
Income Taxes
The Company with the consent of its stockholders has elected to be an "S"
Corporation under the Internal Revenue Code. Instead of paying corporate income
taxes the stockholders of an "S" Corporation are taxed individually on their
proportionate share of the Company's taxable income. Therefore, no provision or
liability for federal income taxes has been included in these financial
statements.
NOTE B -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
MAY 31, APRIL 30,
1997 1997
--------- ---------
<S> <C> <C>
Land................................................. $ 20,105 $ 20,105
Land improvements.................................... 7,180 7,180
Buildings............................................ 180,945 180,945
Building improvements................................ 11,904 11,904
Vehicles............................................. 3,208 3,208
Machinery and equipment.............................. 342,559 342,559
Office fixtures and equipment........................ 41,119 41,119
--------- ---------
607,020 607,020
Accumulated depreciation............................. (336,575) (332,665)
--------- ---------
$ 270,445 $ 274,355
========= =========
</TABLE>
Depreciation expense for the eleven months ended May 31, 1997 was $51,724.
Depreciation expense for the ten months ended April 30, 1997 was $47,814.
See accountants' report.
F-113
<PAGE> 178
SOUTHERN MAUSOLEUMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C -- NOTES PAYABLE
Notes payable are as follows:
<TABLE>
<CAPTION>
MAY 31, APRIL 30,
1997 1997
--------- ---------
<S> <C> <C>
Bank loan, payable $11,100 monthly (principal and
interest at prime + 1%) with a maturity date of
February 2000; the mortgage balance is secured by
substantially all of the Company's assets and
guarantees by the stockholders..................... $ 373,656 $ 381,739
Individual, payable on demand at 10% interest.
Principal and accrued interest were paid in full on
June 27, 1997. .................................... 55,000 55,000
--------- ---------
428,656 436,739
Current portion...................................... (157,068) (156,267)
--------- ---------
$ 271,588 $ 280,472
========= =========
</TABLE>
The following is a schedule of maturities of notes payable due as of:
<TABLE>
<CAPTION>
MAY 31, APRIL 30,
-------- ---------
<S> <C> <C>
1998........................................... $157,068 $ 156,267
1999........................................... 112,200 111,320
2000........................................... 159,388 169,152
-------- --------
$428,656 $ 436,739
======== ========
</TABLE>
NOTE D -- RELATED-PARTY TRANSACTIONS
The Company is affiliated with numerous other companies through common
control and stock ownership. The stockholders and other joint venture companies
have made unsecured non-interest bearing advances to the Company for working
capital purposes.
Accounts payable to affiliates are classified as long-term liabilities
based upon the intent of the related parties.
NOTE E -- CONCENTRATION OF CREDIT RISK
The Company's cash is located in a single financial institution. Cash
accounts are insured by the FDIC for up to $100,000. Amounts in excess of
insured limits were approximately $79,767 at May 31, 1997 and $57,391 at April
30, 1997.
Sales to a major customer represented 44% of total revenues for both the
eleven and ten months ended May 31, 1997 and April 30, 1997. There were no
outstanding trade accounts receivable from the Company's major customer at May
31, 1997 and April 30, 1997.
NOTE F -- SUBSEQUENT EVENTS
Subsequent to the date of these financial statements, the Company joined in
a merger with its affiliates and other unrelated granite companies. As of the
effective date of the merger, the Company's election to be an "S" corporation
under the Internal Revenue Code will terminate.
See accountants' report.
F-114
<PAGE> 179
SOUTHERN MAUSOLEUMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE G -- RESTRICTED CASH
Restricted cash balances at May 31, 1997 and April 30, 1997 were $7,115 and
$6,265, respectively. These cash balances are employee savings accounts and are
restricted for that purpose.
NOTE H -- INVENTORY
Inventory consisted of the following as of:
<TABLE>
<CAPTION>
MAY 31, APRIL 30,
1997 1997
-------- ---------
<S> <C> <C>
Materials.............................................. $165,858 $ 154,169
Work in process........................................ 76,836 71,303
Finished goods......................................... 59,578 55,287
-------- --------
$302,272 $ 280,759
======== ========
</TABLE>
NOTE I -- FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company has a number of financial instruments, none of which are held
for trading purposes. The Company estimates that the fair value of all financial
instruments at May 31, 1997 and April 30, 1997, does not differ materially from
the aggregate carrying values of its financial instruments recorded in the
accompanying balance sheets. The estimated fair value amounts have been
determined by the Company using available market information and appropriate
valuation methodologies. Considerable judgment is necessarily required in
interpreting market data to develop the estimates of fair value, and
accordingly, the estimates are not necessarily indicative of the amounts that
the Company could realize in a current market exchange.
See accountants' report.
F-115
<PAGE> 180
ACCOUNTANTS' REVIEW REPORT
To the Board of Directors
Southern Mausoleums, Inc.
Elberton, Georgia
We have reviewed the accompanying balance sheets of Southern Mausoleums,
Inc. as of August 31, 1997 and 1996, and the related statements of operations,
accumulated deficit, and cash flows for the three months then ended, in
accordance with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants. All
information included in these financial statements is the representation of the
management of Southern Mausoleums, Inc.
A review consists principally of inquiries of Company personnel and
analytical procedures applied to financial data. It is substantially less in
scope than an audit in accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements in order for them to be
in conformity with generally accepted accounting principles.
/s/ GREENE AND COMPANY, L.L.P.
--------------------------------------
GREENE AND COMPANY, L.L.P.
Anderson, South Carolina
September 18, 1997
F-116
<PAGE> 181
SOUTHERN MAUSOLEUMS, INC.
BALANCE SHEETS
AUGUST 31, 1997 AND AUGUST 31, 1996
<TABLE>
<CAPTION>
AUGUST 31,
-----------------------
1997 1996
--------- ---------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 167,622 $ 59,487
Cash -- restricted................................................. 9,525 6,825
Trade receivables (less allowance for doubtful accounts of $25,539
and -0-)........................................................ 43,188 35,059
Trade receivables -- affiliates.................................... 8,134 17,702
Inventory.......................................................... 378,184 239,953
Prepaid expenses................................................... 8,341 5,836
--------- ---------
Total current assets....................................... 614,994 364,862
--------- ---------
Property and equipment, net.......................................... 259,983 309,986
--------- ---------
Other assets:
Intangibles, net................................................... 1,899 2,658
Deposits........................................................... 3,885 3,885
Advances to affiliates............................................. 12,096 1,500
--------- ---------
Total other assets.............................................. 17,880 8,043
--------- ---------
Total assets............................................... $ 892,857 $ 682,891
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses.............................. $ 57,368 $ 61,690
Current portion of long-term debt.................................. 104,496 146,096
Customer deposits.................................................. 450,925 196,628
Customer deposits -- affiliates.................................... 4,170 -0-
Provision for income taxes......................................... 4,976 -0-
--------- ---------
Total current liabilities.................................. 621,935 404,414
--------- ---------
Long-term liabilities:
Long-term debt, less current portion............................... 244,725 348,340
Advances from affiliates........................................... 36,489 36,489
Accounts payable -- affiliates..................................... 210,198 296,797
Advances from stockholders......................................... 30,011 30,011
--------- ---------
Total long-term liabilities................................ 521,423 711,637
--------- ---------
Stockholders' deficit:
Common stock, $10 par value. Authorized 100,000 shares; 120 shares
issued and outstanding.......................................... 1,200 1,200
Accumulated deficit................................................ (251,701) (434,360)
--------- ---------
Total stockholders' deficit..................................... (250,501) (433,160)
--------- ---------
Total liabilities and stockholders' deficit................ $ 892,857 $ 682,891
========= =========
</TABLE>
See accompanying notes to financial statements.
F-117
<PAGE> 182
SOUTHERN MAUSOLEUMS, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE THREE MONTHS ENDED AUGUST 31, 1997
(UNAUDITED)
<TABLE>
<S> <C>
Net revenues (including revenues to affiliates of $18,587)....................... $ 440,998
Cost of goods sold (including purchases from affiliates of $114,131)............. 310,575
----------
Gross profit..................................................................... 130,423
Selling and administrative expenses (reduced by fees charged to affiliates of
$17,741)....................................................................... 56,754
----------
Operating income................................................................. 73,669
----------
Other (income) expense:
Interest expense............................................................... 9,129
Finance charge income.......................................................... (2,401)
Interest income................................................................ (1,519)
----------
Total other expense.................................................... 5,209
----------
Net income before taxes.......................................................... 68,460
Income taxes..................................................................... 4,976
----------
Net income....................................................................... 63,484
Accumulated deficit, June 1, 1997................................................ (279,185)
----------
Stockholder distributions........................................................ (36,000)
----------
Accumulated deficit, August 31, 1997............................................. $ (251,701)
==========
</TABLE>
See accompanying notes to financial statements.
F-118
<PAGE> 183
SOUTHERN MAUSOLEUMS, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE THREE MONTHS ENDED AUGUST 31, 1996
(UNAUDITED)
<TABLE>
<S> <C>
Net revenues (including revenues to affiliates of $13,650)....................... $ 323,187
Cost of goods sold (including purchases from affiliates of $67,613).............. 281,872
----------
Gross profit..................................................................... 41,315
Selling and administrative expenses (reduced by fees charged to affiliates of
$15,376)....................................................................... 59,353
----------
Operating loss................................................................... (18,038)
----------
Other (income) expense:
Interest expense............................................................... 11,930
Interest income................................................................ (198)
----------
Total other expense.................................................... 11,732
----------
Net loss......................................................................... (29,770)
Accumulated deficit, June 1, 1996................................................ (404,590)
----------
Accumulated deficit, August 31, 1996............................................. $ (434,360)
==========
</TABLE>
See accompanying notes to financial statements.
F-119
<PAGE> 184
SOUTHERN MAUSOLEUMS, INC.
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED AUGUST 31, 1997
(UNAUDITED)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income..................................................................... $ 63,484
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization................................................................ 190
Depreciation................................................................ 11,766
(Increase) decrease in assets:
Trade receivables......................................................... 17,697
Inventory................................................................. (75,912)
Prepaid expenses.......................................................... 1,308
Increase (decrease) in liabilities:
Accounts payable and accrued expenses..................................... (49,225)
Customer deposits......................................................... 89,246
---------
Net cash provided by operating activities.............................. 63,530
---------
Cash flows used in investing activities -- purchase of property and equipment.... (1,305)
---------
Cash flows used in financing activities:
Payments on notes payable...................................................... (79,435)
Stockholder distributions...................................................... (36,000)
---------
Net cash used in financing activities.................................. (115,435)
---------
Net decrease in cash and cash equivalents........................................ (53,210)
Cash and cash equivalents, June 1, 1997.......................................... 230,357
---------
Cash and cash equivalents, August 31, 1997....................................... $ 177,147
=========
Supplemental disclosure of cash flow information -- cash paid for interest....... $ 12,531
=========
</TABLE>
See accompanying notes to financial statements.
F-120
<PAGE> 185
SOUTHERN MAUSOLEUMS, INC.
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED AUGUST 31, 1996
(UNAUDITED)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss..................................................................... $(29,770)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Amortization.............................................................. 160
Depreciation.............................................................. 15,727
(Increase) decrease in assets:
Trade receivables....................................................... (48,681)
Inventory............................................................... 22,324
Prepaid expenses........................................................ 2,438
Increase (decrease) in liabilities:
Accounts payable and accrued expenses................................... 48,154
Customer deposits....................................................... 8,510
--------
Net cash provided by operating activities............................ 18,862
--------
Cash flows used in investing activities -- purchase of property and
equipment.................................................................... (12,000)
--------
Cash flows provided by financing activities:
Payments on notes payable.................................................... (15,060)
Advances from Affiliates..................................................... 20,000
--------
Net cash provided by financing activities............................ 4,940
--------
Net increase in cash and cash equivalents...................................... 11,802
Cash and cash equivalents, June 1, 1996........................................ 54,510
--------
Cash and cash equivalents, August 31, 1996..................................... 66,312
========
Supplemental disclosure of cash flow information -- cash paid for interest..... 7,140
========
</TABLE>
See accompanying notes to financial statements.
F-121
<PAGE> 186
SOUTHERN MAUSOLEUMS, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1997 AND 1996
NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of the Company is presented
to assist in understanding the Company's financial statements. The financial
statements and notes are representations of the Company's management, who is
responsible for their integrity and objectivity. These accounting policies
conform to generally accepted accounting principles and have been consistently
applied in the preparation of the financial statements.
Nature of Business
The Company saws and polishes granite into dimensional blocks for mausoleum
assembly at a plant located in northeast Georgia. The completed mausoleums are
sold nationwide.
Use of Estimates
The presentation 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 and
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.
Basis of Accounting
Assets, liabilities, revenues, and expenses are recognized on the accrual
method of accounting.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents. The Company has a money market account in the amount of
$140,908 at August 31, 1997 and $15,080 at August 31, 1996.
Trade Receivables
The Company accounts for uncollectible trade receivables on the reserve
method.
Inventory
Inventories are stated at lower of cost or market, with cost determined as
follows:
<TABLE>
<S> <C>
Finished goods....................... First-in first-out (FIFO) method
Materials and work in process........ Average cost
</TABLE>
See accountants' report.
F-122
<PAGE> 187
SOUTHERN MAUSOLEUMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 1997 AND 1996
NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Property and Equipment
Property and equipment are stated at acquisition cost. Depreciation is
computed under the straight-line method for financial reporting purposes over
the following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
-------
<S> <C>
Buildings........................................................... 31 1/2
Building improvements............................................... 31 1/2
Vehicles............................................................ 5
Machinery and equipment............................................. 2 1/2 - 7
Office fixtures and equipment....................................... 7
</TABLE>
Major renewals and betterments are added to the property accounts while
maintenance and repairs are charged against earnings as incurred.
Intangibles
Intangibles consist of start-up costs and loan costs. Amortization of the
intangibles is computed using the straight-line method over terms ranging from
five years for start-up costs to six years for loan costs.
Income Taxes
The Company's election to be an "S" Corporation under the Internal Revenue
Code was terminated in June of 1997. Therefore, a liability for federal income
taxes has been included for 1997 based on the Company's income for the two
months ended August 31, 1997.
NOTE B -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Land................................................. $ 20,105 $ 20,105
Land improvements.................................... 7,180 7,180
Buildings............................................ 180,945 180,945
Building improvements................................ 11,904 11,904
Vehicles............................................. 3,208 3,208
Machinery and equipment.............................. 343,864 341,562
Office fixtures and equipment........................ 41,119 40,488
--------- ---------
608,325 605,392
Accumulated depreciation............................. (348,342) (295,406)
--------- ---------
$ 259,983 $ 309,986
========= =========
</TABLE>
Depreciation expense for the three months ended August 31, 1997 was
$11,766.
Depreciation expense for the three months ended August 31, 1996 was
$15,727.
See accountants' report.
F-123
<PAGE> 188
SOUTHERN MAUSOLEUMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 1997 AND 1996
NOTE C -- NOTES PAYABLE
Notes payable are as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Bank loan, payable $11,100 monthly (principal and
interest at prime + 1%) with a maturity date of
February 2000; the mortgage balance is secured by
substantially all of the Company's assets and
guarantees by the stockholders. ................... $ 349,221 $ 444,436
Individual, payable on demand at 10% interest.
Principal and accrued interest were paid in full on
June 27, 1997. .................................... 0 50,000
--------- ---------
$ 349,221 $ 494,436
Current portion...................................... (104,496) (146,096)
--------- ---------
$ 244,725 $ 348,340
========= =========
</TABLE>
The following is a schedule of maturities of notes payable due as of:
<TABLE>
<S> <C>
1997.................................................... $146,096
1998.................................................... 104,496
1999.................................................... 114,867
2000.................................................... 128,977
--------
$494,436
========
</TABLE>
NOTE D -- RELATED-PARTY TRANSACTIONS
The Company is affiliated with numerous other companies through common
control and stock ownership. The stockholders and other joint venture companies
have made unsecured non-interest bearing advances to the Company for working
capital purposes.
Accounts payable to affiliates are classified as long-term liabilities
based upon the intent of the related parties.
NOTE E -- CONCENTRATION OF CREDIT RISK
The Company's cash is located in a single financial institution. Cash
accounts are insured by the FDIC for up to $100,000. Amounts in excess of
insured limits were approximately $40,908 at August 31, 1997. All of the
Company's cash accounts were covered by Federal Deposit Insurance at August 31,
1996.
Sales to a major customer represented 40% of total revenues for the three
months ended August 31, 1997 and 38% for the three months ended August 31, 1996.
Trade accounts receivable for the Company's major customer represented 0% of
total outstanding accounts receivable at August 31, 1997, and 34% at August 31,
1996.
NOTE F -- MERGER
During June of 1997, the Company joined in a merger with its affiliates and
other unrelated granite companies.
See accountants' report.
F-124
<PAGE> 189
SOUTHERN MAUSOLEUMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 1997 AND 1996
NOTE G -- RESTRICTED CASH
Restricted cash balances at August 31, 1997 and 1996 were $9,525 and
$6,825, respectively. These cash balances are employee savings accounts and are
restricted for that purpose.
NOTE H -- INVENTORY
Inventory consisted of the following as of:
<TABLE>
<CAPTION>
1997 1996
-------- ---------
<S> <C> <C>
Materials.............................................. $208,001 $ 131,974
Work in process........................................ 94,546 59,988
Finished goods......................................... 75,637 47,991
-------- --------
$378,184 $ 239,953
======== ========
</TABLE>
NOTE I -- FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company has a number of financial instruments, none of which are held
for trading purposes. The Company estimates that the fair value of all financial
instruments at August 31, 1997 and 1996, does not differ materially from the
aggregate carrying values of its financial instruments recorded in the
accompanying balance sheets. The estimated fair value amounts have been
determined by the Company using available market information and appropriate
valuation methodologies. Considerable judgment is necessarily required in
interpreting market data to develop the estimates of fair value, and
accordingly, the estimates are not necessarily indicative of the amounts that
the Company could realize in a current market exchange.
See accountants' report.
F-125
<PAGE> 190
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS
To the Board of Directors
Autumn Rose Quarry, Inc.
Ada, Oklahoma
We have audited the accompanying balance sheets of Autumn Rose Quarry, Inc.
as of May 31, 1997 and April 30, 1997, and the related statements of operations
and accumulated deficit, and cash flows for the eleven months and ten months
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to in the first paragraph
present fairly, in all material respects, the financial position of Autumn Rose
Quarry, Inc. as of May 31, 1997 and April 30, 1997, and the results of its
operations and its cash flows for the eleven months and ten months then ended in
conformity with generally accepted accounting principles.
/s/ GREENE AND COMPANY, L.L.P.
--------------------------------------
GREENE AND COMPANY, L.L.P.
Anderson, South Carolina
July 22, 1997
F-126
<PAGE> 191
AUTUMN ROSE QUARRY, INC.
BALANCE SHEETS
MAY 31, 1997 AND APRIL 30, 1997
<TABLE>
<CAPTION>
MAY 31, APRIL 30,
1997 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash.............................................................. $ 8,291 $ 4,864
Trade receivables................................................. 8,535 19,456
Trade receivables -- affiliates................................... 22,830 18,943
Employee receivables.............................................. 155 280
Inventory -- finished goods....................................... 45,602 45,094
Prepaid expenses.................................................. 0 3,063
---------- ----------
Total current assets...................................... 85,413 91,700
---------- ----------
Property and equipment, net......................................... 174,066 176,757
---------- ----------
Other assets:
Intangibles, net.................................................. 1,351,362 1,352,081
Deposits.......................................................... 5,280 5,280
---------- ----------
Total other assets............................................. 1,356,642 1,357,361
---------- ----------
Total assets.............................................. $1,616,121 $1,625,818
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.................................................. $ 207 $ 7,707
Accounts payable -- due to affiliates............................. 8,923 8,238
Accrued expenses.................................................. 5,525 5,096
Current portion of long-term debt................................. 157,029 157,029
---------- ----------
Total current liabilities................................. 171,684 178,070
---------- ----------
Long-term liabilities:
Long-term debt, less current portion.............................. 505,681 521,690
Advances from affiliates.......................................... 605,500 591,000
Advances from stockholders........................................ 400,000 400,000
---------- ----------
Total long-term liabilities............................... 1,511,181 1,512,690
---------- ----------
Stockholders' deficit:
Common stock, $100 par value. Authorized 1,000,000 shares; 60
shares issued and outstanding.................................. 6,000 6,000
Additional paid-in capital........................................ 44,000 44,000
Accumulated deficit............................................... (116,744) (114,942)
---------- ----------
Total stockholders' deficit.................................... (66,744) (64,942)
---------- ----------
Total liabilities and stockholders' deficit............... $1,616,121 $1,625,818
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-127
<PAGE> 192
AUTUMN ROSE QUARRY, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE ELEVEN MONTHS ENDED MAY 31, 1997
<TABLE>
<S> <C>
Net revenues (including revenues to affiliates of $168,059)...................... $ 325,533
Cost of goods sold............................................................... 354,800
---------
Gross loss....................................................................... (29,267)
Selling and administrative expenses (including fees paid to affiliates of
$3,685)........................................................................ 25,392
---------
Operating loss................................................................... (54,659)
---------
Other (income) expense:
Interest expense............................................................... 21,249
Loss on disposal of equipment.................................................. 2,930
Finance charge income.......................................................... (313)
---------
Total other expense.................................................... 23,866
---------
Net loss......................................................................... (78,525)
Accumulated deficit, July 1, 1996................................................ (38,219)
---------
Accumulated deficit, May 31, 1997................................................ $(116,744)
=========
</TABLE>
See accompanying notes to financial statements.
F-128
<PAGE> 193
AUTUMN ROSE QUARRY, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE TEN MONTHS ENDED APRIL 30, 1997
<TABLE>
<S> <C>
Net revenues (including revenues to affiliates of $149,426)...................... $ 294,495
Cost of goods sold............................................................... 325,502
---------
Gross loss....................................................................... (31,007)
Selling and administrative expenses (including fees paid to affiliates of
$3,318)........................................................................ 23,589
---------
Operating loss................................................................... (54,596)
---------
Other (income) expense:
Interest expense............................................................... 19,482
Loss on disposal of equipment.................................................. 2,930
Finance charge income.......................................................... (285)
---------
Total other expense.................................................... 22,127
---------
Net loss......................................................................... (76,723)
Accumulated deficit, July 1, 1996................................................ (38,219)
---------
Accumulated deficit, April 30, 1997.............................................. $(114,942)
=========
</TABLE>
See accompanying notes to financial statements.
F-129
<PAGE> 194
AUTUMN ROSE QUARRY, INC.
STATEMENT OF CASH FLOWS
FOR THE ELEVEN MONTHS ENDED MAY 31, 1997
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss....................................................................... $ (78,525)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization................................................................ 4,392
Depreciation................................................................ 29,503
Depletion................................................................... 3,360
Loss on disposal of equipment............................................... 2,930
(Increase) decrease in assets:
Trade receivables......................................................... (24,520)
Employee receivables...................................................... 1,175
Deposits.................................................................. 1,692
Inventory................................................................. 7,253
Prepaid expenses.......................................................... 10,903
Increase (decrease) in liabilities:
Accounts payable.......................................................... (28,356)
Accrued expenses.......................................................... 3,972
---------
Net cash used in operating activities.................................. (66,221)
---------
Cash flows from financing activities:
Payments on notes payable...................................................... (146,409)
Advances from affiliates....................................................... 217,500
---------
Net cash provided by financing activities.............................. 71,091
---------
Net increase in cash............................................................. 4,870
Cash, July 1, 1996............................................................... 3,421
---------
Cash, May 31, 1997............................................................... $ 8,291
=========
Supplemental disclosure of cash flow information -- cash paid for interest....... $ 21,249
=========
</TABLE>
See accompanying notes to financial statements.
F-130
<PAGE> 195
AUTUMN ROSE QUARRY, INC.
STATEMENT OF CASH FLOWS
FOR THE TEN MONTHS ENDED APRIL 30, 1997
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss....................................................................... $ (76,723)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization................................................................ 3,993
Depreciation................................................................ 26,814
Depletion................................................................... 3,039
Loss on disposal of equipment............................................... 2,930
(Increase) decrease in assets:
Trade receivables......................................................... (31,554)
Employee receivables...................................................... 1,050
Deposits.................................................................. 1,692
Inventory................................................................. 7,761
Prepaid expenses.......................................................... 7,840
Increase (decrease) in liabilities:
Accounts payable.......................................................... (21,542)
Accrued expenses.......................................................... 3,543
---------
Net cash used in operating activities.................................. (71,157)
---------
Cash flows from financing activities:
Payments on notes payable...................................................... (130,400)
Advances from affiliates....................................................... 203,000
---------
Net cash provided by financing activities.............................. 72,600
---------
Net increase in cash............................................................. 1,443
Cash, July 1, 1996............................................................... 3,421
---------
Cash, April 30, 1997............................................................. $ 4,864
=========
Supplemental disclosure of cash flow information -- cash paid for interest....... $ 19,482
=========
</TABLE>
See accompanying notes to financial statements.
F-131
<PAGE> 196
AUTUMN ROSE QUARRY, INC.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1997 AND APRIL 30, 1997
NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of the Company is presented
to assist in understanding the Company's financial statements. The financial
statements and notes are representations of the Company's management, who is
responsible for their integrity and objectivity. These accounting policies
conform to generally accepted accounting principles and have been consistently
applied in the preparation of the financial statements.
Nature of Business
The Company quarries granite blocks in northeast Oklahoma for sales to
customers nationwide.
Use of Estimates
The presentation 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 and
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.
Basis of Accounting
Assets, liabilities, revenues, and expenses are recognized on the accrual
method of accounting.
Inventory
Inventories are stated at lower of cost or market, with cost determined
using average cost.
Revenue Recognition
Revenue is recognized upon shipment of goods.
Property and Equipment
Property and equipment are stated at acquisition cost. Depreciation is
computed under the straight-line method for financial reporting purposes over
the following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings............................................. 7
Vehicles.............................................. 3-7
Machinery and equipment............................... 3-10
</TABLE>
Major renewals and betterments are added to the property accounts while
maintenance and repairs are charged against earnings as incurred.
Intangibles
Intangibles consist of loan costs, mineral rights, and overburden removal.
Amortization of the loan costs is computed using the straight-line method over
the term of the loan which is five years. Amortization of
See accountants' report.
F-132
<PAGE> 197
AUTUMN ROSE QUARRY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
overburden removal is computed using the straight-line method over ten years.
Depletion of mineral rights is computed using cost depletion.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. The estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies. The fair
value of the Company's assets approximates the carrying cost at the balance
sheet dates.
NOTE B -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
MAY 31, APRIL 30,
1997 1997
-------- ---------
<S> <C> <C>
Land................................................... $ 40,000 $ 40,000
Buildings.............................................. 5,536 5,536
Machinery and equipment................................ 196,773 196,773
Vehicles............................................... 2,613 2,613
-------- --------
244,922 244,922
Accumulated depreciation............................... (70,856) (68,165)
-------- --------
$174,066 $176,757
======== ========
</TABLE>
Depreciation expense for the eleven months ended May 31, 1997 was $29,503.
Depreciation expense for the ten months ended April 30, 1997 was $26,814.
NOTE C -- INTANGIBLES
Intangibles consist of the following:
<TABLE>
<CAPTION>
MAY 31, APRIL 30,
1997 1997
---------- ----------
<S> <C> <C>
Loan costs.......................................... $ 2,709 $ 2,709
Mineral rights...................................... 1,327,500 1,327,500
Overburden removal.................................. 42,500 42,500
---------- ----------
1,372,709 1,372,709
Accumulated amortization and depletion.............. (21,347) (20,628)
---------- ----------
$1,351,362 $1,352,081
========== ==========
</TABLE>
See accountants' report.
F-133
<PAGE> 198
AUTUMN ROSE QUARRY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C -- INTANGIBLES -- (CONTINUED)
Amortization and depletion expense for the eleven months ended May 31, 1997
were $4,392 and $3,360, respectively.
Amortization and depletion expense for the ten months ended April 30, 1997
were $3,993 and $3,039, respectively.
NOTE D -- NOTES PAYABLE
Notes payable are as follows:
<TABLE>
<CAPTION>
MAY 31, APRIL 30,
1997 1997
--------- ---------
<S> <C> <C>
Bank loan, payable $5,833 principal monthly plus
9 1/2% interest with a maturity date of June 2000;
the mortgage balance is secured by substantially
all of the Company's assets and guarantees by the
shareholders. ..................................... $ 210,000 $ 215,833
Note to corporation to be paid with granite
inventory. Sales price set at $14.50 per cubic foot
per agreement of purchase and sale. ............... 452,710 462,886
--------- ---------
662,710 678,719
Current portion...................................... (157,029) (157,029)
--------- ---------
$ 505,681 $ 521,690
========= =========
</TABLE>
The following is a schedule of maturities of notes payable:
<TABLE>
<CAPTION>
MAY 31, APRIL 30,
1997 1997
-------- ---------
<S> <C> <C>
1998................................................... $157,029 $157,029
1999................................................... 162,862 162,862
2000................................................... 162,862 162,862
2001................................................... 98,696 104,529
2002................................................... 81,261 91,437
-------- --------
$662,710 $678,719
======== ========
</TABLE>
NOTE E -- RELATED-PARTY TRANSACTIONS
The Company is affiliated with numerous other companies through common
control and stock ownership. The stockholders and other joint venture companies
have made unsecured non-interest bearing advances to the Company for working
capital purposes.
The Company classifies advances payable to affiliates as long-term based
upon the intent of the parties.
NOTE F -- CONCENTRATION OF CREDIT RISK
All of the Company's cash funds are located in financial institutions that
are insured by the FDIC for up to $100,000. There are no amounts in excess of
this limit at May 31, 1997 and April 30, 1997.
See accountants' report.
F-134
<PAGE> 199
AUTUMN ROSE QUARRY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE G -- SUBSEQUENT EVENTS
Subsequent to the date of these financial statements, the Company joined in
a merger with its affiliates and other unrelated granite companies.
NOTE H -- FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company has a number of financial instruments, none of which are held
for trading purposes. The Company estimates that the fair value of all financial
instruments at May 31, 1997 and April 30, 1997, does not differ materially from
the aggregate carrying values of its financial instruments recorded in the
accompanying balance sheets. The estimated fair value amounts have been
determined by the Company using available market information and appropriate
valuation methodologies. Considerable judgment is necessarily required in
interpreting market data to develop the estimates of fair value, and
accordingly, the estimates are not necessarily indicative of the amounts that
the Company could realize in a current market exchange.
NOTE I -- INCOME TAXES
The Company is taxed as a corporation under the Internal Revenue Code. For
federal income tax purposes, approximately $430,727 of net operating loss
carryforwards exist to offset future taxable income. These carryforwards begin
to expire in 2009. No tax benefit has been reported in the accompanying
financial statements, however, because the Company believes that the
carryforwards will expire unused. Accordingly, the $146,000 tax benefit of the
cumulative carryforwards has been offset by evaluation allowance of the same
amount.
See accountants' report.
F-135
<PAGE> 200
ACCOUNTANTS' REVIEW REPORT
To the Board of Directors
Autumn Rose Quarry, Inc.
Ada, Oklahoma
We have reviewed the accompanying balance sheets of Autumn Rose Quarry,
Inc. (a corporation) as of August 31, 1997 and 1996, and the related statements
of operations, accumulated deficit, and cash flows for the three months then
ended, in accordance with Statements on Standards for Accounting and Review
Services issued by the American Institute of Certified Public Accountants. All
information included in these financial statements is the representation of the
management of Autumn Rose Quarry, Inc.
A review consists principally of inquiries of Company personnel and
analytical procedures applied to financial data. It is substantially less in
scope than an audit in accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements in order for them to be
in conformity with generally accepted accounting principles.
/s/ GREENE AND COMPANY, L.L.P.
--------------------------------------
GREENE AND COMPANY, L.L.P.
Anderson, South Carolina
September 18, 1997
F-136
<PAGE> 201
AUTUMN ROSE QUARRY, INC.
BALANCE SHEETS
AUGUST 31, 1997 AND AUGUST 31, 1996
<TABLE>
<CAPTION>
AUGUST 31,
-------------------------
1997 1996
---------- ----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash.............................................................. $ 7,124 $ 1,640
Trade receivables................................................. 3,049 4,293
Trade receivables -- affiliates................................... 7,902 6,034
Employee receivables.............................................. -0- 1,555
Inventory -- finished goods....................................... 74,781 70,425
Prepaid expenses.................................................. 4,070 9,667
---------- ----------
Total current assets...................................... 96,926 93,614
---------- ----------
Property and equipment, net......................................... 165,821 201,120
---------- ----------
Other assets:
Intangibles, net.................................................. 1,349,410 1,357,766
Deposits.......................................................... 5,280 7,196
---------- ----------
Total other assets............................................. 1,354,690 1,364,962
---------- ----------
Total assets.............................................. $1,617,437 $1,659,696
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses............................. 13,088 21,537
Accounts payable -- due to affiliates............................. 371 322
Current portion of long-term debt................................. 162,862 162,862
---------- ----------
Total current liabilities................................. 176,321 184,721
---------- ----------
Long-term liabilities:
Long-term debt, less current portion.............................. 469,025 618,116
Advances from affiliates.......................................... 627,500 452,000
Advances from stockholders........................................ 400,000 400,000
---------- ----------
Total long-term liabilities............................... 1,496,525 1,470,116
---------- ----------
Stockholders' deficit:
Common stock, $100 par value. Authorized 1,000,000 shares; 60
shares issued and outstanding.................................. 6,000 6,000
Additional paid-in capital........................................ 44,000 44,000
Accumulated deficit............................................... (105,409) (45,141)
---------- ----------
Total stockholders' deficit.................................... (55,409) 4,859
---------- ----------
Total liabilities and stockholders' deficit............... 1,617,437 1,659,696
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-137
<PAGE> 202
AUTUMN ROSE QUARRY, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE THREE MONTHS ENDED AUGUST 31, 1997
(UNAUDITED)
<TABLE>
<S> <C>
Net revenues (including revenues to affiliates of $24,380)....................... 75,230
Cost of goods sold (including purchases from affiliates of $8,238)............... 52,458
---------
Gross profit..................................................................... 22,772
Selling and administrative expenses (including fees paid to affiliates of
$1,044)........................................................................ 6,595
---------
Operating income................................................................. 16,177
---------
Other (income) expense:
Interest expense............................................................... 4,971
Finance charge income.......................................................... (129)
---------
Total other expense.................................................... 4,842
---------
Net income....................................................................... 11,335
Accumulated deficit, June 1, 1997................................................ (116,744)
---------
Accumulated deficit, August 31, 1997............................................. (105,409)
=========
</TABLE>
See accompanying notes to financial statements.
F-138
<PAGE> 203
AUTUMN ROSE QUARRY, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE THREE MONTHS ENDED AUGUST 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
Net revenues (including revenues to affiliates of $22,828)....................... $ 70,805
Cost of goods sold............................................................... 96,610
---------
Gross loss....................................................................... (25,805)
Selling and administrative expenses (including fees paid to affiliates of
$904).......................................................................... 8,226
---------
Operating loss................................................................... (34,031)
---------
Other (income) expense:
Interest expense............................................................... 6,489
Finance charge income.......................................................... (120)
---------
Total other expense.................................................... 6,369
---------
Net loss......................................................................... (40,400)
Accumulated deficit, June 1, 1996................................................ (4,741)
---------
Accumulated deficit, August 31, 1996............................................. $ (45,141)
=========
</TABLE>
See accompanying notes to financial statements.
F-139
<PAGE> 204
AUTUMN ROSE QUARRY, INC.
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED AUGUST 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities:
Net income..................................................................... $ 11,335
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization................................................................ 1,197
Depreciation................................................................ 8,246
Depletion................................................................... 753
(Increase) decrease in assets:
Trade receivables......................................................... 20,414
Employee receivables...................................................... 155
Inventory................................................................. (29,179)
Prepaid expenses.......................................................... (4,070)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses..................................... (1,195)
--------
Net cash provided by operating activities.............................. 7,656
--------
Cash flows used in financing activities:
Payments on notes payable...................................................... (30,823)
Advances from affiliates....................................................... 22,000
--------
Net cash used in financing activities.................................. (8,823)
--------
Net decrease in cash............................................................. (1,167)
Cash, June 1, 1997............................................................... 8,291
--------
Cash, August 31, 1997............................................................ $ 7,124
========
Supplemental disclosure of cash flow information -- cash paid for interest....... $ 4,972
========
</TABLE>
See accompanying notes to financial statements.
F-140
<PAGE> 205
AUTUMN ROSE QUARRY, INC.
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED AUGUST 31, 1996
(UNAUDITED)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss....................................................................... $ (40,400)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization................................................................ 1,198
Depreciation................................................................ 8,069
Depletion................................................................... 712
(Increase) decrease in assets:
Trade receivables......................................................... 14,420
Employee receivables...................................................... (100)
Inventory................................................................. (27,165)
Prepaid expenses.......................................................... (9,667)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses..................................... (8,382)
---------
Net cash provided by operating activities.............................. (61,315)
---------
Cash flows used in investing activities -- purchase of fixed assets.............. (2,971)
Cash flows provided by financing activities:
Payments on notes payable...................................................... (41,314)
Advances from affiliates....................................................... 106,000
---------
Net cash provided by financing activities.............................. 64,686
---------
Net increase in cash............................................................. 400
Cash, June 1, 1996............................................................... 1,240
---------
Cash, August 31, 1996............................................................ $ 1,640
=========
Supplemental disclosure of cash flow information -- cash paid for interest....... $ 6,489
=========
</TABLE>
See accompanying notes to financial statements.
F-141
<PAGE> 206
AUTUMN ROSE QUARRY, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1997 AND 1996
NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of the Company is presented
to assist in understanding the Company's financial statements. The financial
statements and notes are representations of the Company's management, who is
responsible for their integrity and objectivity. These accounting policies
conform to generally accepted accounting principles and have been consistently
applied in the preparation of the financial statements.
Nature of Business
The Company quarries granite blocks in northeast Oklahoma for sales to
customers nationwide.
Use of Estimates
The presentation 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 and
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.
Basis of Accounting
Assets, liabilities, revenues, and expenses are recognized on the accrual
method of accounting.
Inventory
Inventories are stated at lower of cost or market, with cost determined
using average cost.
Property and Equipment
Property and equipment are stated at acquisition cost. Depreciation is
computed under the straight-line method for financial reporting purposes over
the following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings............................................. 7
Vehicles.............................................. 3-7
Machinery and equipment............................... 3-10
</TABLE>
Major renewals and betterments are added to the property accounts while
maintenance and repairs are charged against earnings as incurred.
Intangibles
Intangibles consist of loan costs, mineral rights, and overburden removal.
Amortization of the loan costs is computed using the straight-line method over
the term of the loan which is five years. Amortization of overburden removal is
computed using the straight-line method over ten years. Depletion of mineral
rights is computed using cost depletion.
See accountants' report.
F-142
<PAGE> 207
AUTUMN ROSE QUARRY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 1997 AND 1996
NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. The estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies. The fair
value of the Company's assets approximates the carrying cost at the balance
sheet dates.
NOTE B -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Land................................................... $ 40,000 $ 40,000
Buildings.............................................. 5,536 5,536
Machinery and equipment................................ 196,773 202,000
Vehicles............................................... 2,613 2,613
-------- --------
244,922 250,149
Accumulated depreciation............................... (79,101) (49,029)
-------- --------
$165,821 $201,120
======== ========
</TABLE>
Depreciation expense for the three months ended August 31, 1997 was $8,426.
Depreciation expense for the three months ended August 31, 1996 was $8,069.
NOTE C -- INTANGIBLES
Intangibles consist of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Loan costs.......................................... $ 2,709 $ 2,709
Mineral rights...................................... 1,327,500 1,327,500
Overburden removal.................................. 42,500 42,500
---------- ----------
1,372,709 1,372,709
Accumulated amortization and depletion.............. (23,299) (14,943)
---------- ----------
$1,349,410 $1,357,766
========== ==========
</TABLE>
Amortization and depletion expense for the three months ended August 31,
1997 were $1,198 and $752, respectively.
See accountants' report.
F-143
<PAGE> 208
AUTUMN ROSE QUARRY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 1997 AND 1996
NOTE C -- INTANGIBLES -- (CONTINUED)
Amortization and depletion expense for the three months ended August 31,
1996 were $1,198 and $712, respectively.
NOTE D -- NOTES PAYABLE
Notes payable are as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Bank loan, payable $5,833 principal monthly plus
9 1/2% interest with a maturity date of June 2000;
the mortgage balance is secured by substantially
all of the Company's assets and guarantees by the
shareholders. ..................................... $ 192,500 $ 262,500
Note to corporation to be paid with granite
inventory. Sales price set at $14.50 per cubic foot
per agreement of purchase and sale. ............... 439,387 518,478
--------- ---------
631,887 780,978
Current portion...................................... (162,862) (162,862)
--------- ---------
$ 469,025 $ 618,116
========= =========
</TABLE>
The following is a schedule of maturities of notes payable:
<TABLE>
<S> <C>
1997.............................................................. $162,862
1998.............................................................. 162,862
1999.............................................................. 162,862
2000.............................................................. 151,196
2001.............................................................. 92,862
2002.............................................................. 48,334
--------
$780,978
========
</TABLE>
NOTE E -- RELATED-PARTY TRANSACTIONS
The Company is affiliated with numerous other companies through common
control and stock ownership. The stockholders and other joint venture companies
have made unsecured non-interest bearing advances to the Company for working
capital purposes.
The Company classifies advances payable to affiliates as long-term based
upon the intent of the parties.
NOTE F -- CONCENTRATION OF CREDIT RISK
All of the Company's cash funds are located in financial institutions that
are insured by the FDIC for up to $100,000. There are no amounts in excess of
this limit at August 31, 1997 and 1996.
NOTE G -- MERGER
During June of 1997, the Company joined in a merger with its affiliates and
other unrelated granite companies.
See accountants' report.
F-144
<PAGE> 209
AUTUMN ROSE QUARRY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 1997 AND 1996
NOTE H -- FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company has a number of financial instruments, none of which are held
for trading purposes. The Company estimates that the fair value of all financial
instruments at August 31, 1997 and 1996, does not differ materially from the
aggregate carrying values of its financial instruments recorded in the
accompanying balance sheets. The estimated fair value amounts have been
determined by the Company using available market information and appropriate
valuation methodologies. Considerable judgment is necessarily required in
interpreting market data to develop the estimates of fair value, and
accordingly, the estimates are not necessarily indicative of the amounts that
the Company could realize in a current market exchange.
NOTE I -- INCOME TAXES
The Company is taxed as a corporation under the Internal Revenue Code. For
federal income tax purposes, approximately $430,727 of net operating loss
carryforwards exist to offset future taxable income. These carryforwards begin
to expire in 2009. No tax benefit has been reported in the accompanying
financial statements, however, because the Company believes that the
carryforwards will expire unused. Accordingly, the $146,000 tax benefit of the
cumulative carryforwards has been offset by a valuation allowance of the same
amount.
See accountants' report.
F-145
<PAGE> 210
DESCRIPTION OF ARTWORK ON INSIDE BACK COVER:
[Map showing locations of Independent Retailers of Rock of Ages products,
Manufacturing locations, Quarry locations and Corporate headquarters.]
<PAGE> 211
===============================================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OTHER THAN THOSE SPECIFICALLY OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary.................. 3
Risk Factors........................ 8
Use of Proceeds..................... 14
Dividend Policy..................... 14
Capitalization...................... 15
Dilution............................ 16
Selected Consolidated Financial
Data.............................. 17
Unaudited Pro Forma Combined and
Condensed Financial Data.......... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 24
The Death Care Industry and Granite
Memorialization................... 29
Business............................ 32
Management.......................... 42
Certain Relationships and Related
Transactions...................... 49
Principal and Selling
Stockholders...................... 52
Description of Capital Stock........ 54
Shares Eligible for Future Sale..... 57
Certain United States Tax
Consequences to Non-United States
Holders........................... 59
Underwriting........................ 61
Legal Matters....................... 62
Experts............................. 62
Available Information............... 63
Index to Financial Statements....... F-1
</TABLE>
UNTIL , 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS A
COMMON STOCK OFFERED HEREBY, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION,
MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION
OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
===============================================================================
===============================================================================
2,900,000 SHARES
[ROCK OF AGES LOGO]
ROCK OF AGES CORPORATION
COMMON STOCK
---------------------
PROSPECTUS
---------------------
RAYMOND JAMES &
ASSOCIATES, INC.
, 1997
===============================================================================
<PAGE> 212
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate (except for the Securities and Exchange
Commission Registration Fee) of the fees and expenses all of which are payable
by the Company, other than any underwriting discounts and commissions, in
connection with the registration and sale of the securities being registered:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee...................... $ 18,191
National Association of Securities Dealers, Inc. Filing Fee.............. 6,200
Nasdaq National Market Listing Fee....................................... 20,000
Transfer Agent and Registrar Fees and Expenses........................... 10,000
Blue Sky Fees and Expenses............................................... 5,000
Legal Fees and Expenses.................................................. 700,000
Accounting Fees and Expenses............................................. 550,000
Printing, Engraving and Mailing Expenses................................. 150,000
Miscellaneous............................................................ 40,609
----------
Total.......................................................... $1,500,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102 of the Delaware General Corporation Law, as amended, allows a
corporation to eliminate the personal liability of directors of a corporation to
the corporation or its stockholders for monetary damages for a breach of
fiduciary duty as a director, except where the director breached his duty of
loyalty, failed to act in good faith, engaged in intentional misconduct or
knowingly violated a law, authorized the payment of a dividend or approved a
stock repurchase in violation of Delaware corporate law or obtained an improper
personal benefit.
Section 145 of the Delaware General Corporation Law, as amended, provides
that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation), by reason of the
fact that he is or was a director, officer, employee or agent of the corporation
or is or was serving at its request in such capacity in another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful.
Article Ninth of the Registrant's Amended and Restated Certificate of
Incorporation provides for elimination of directors' personal liability and
indemnification as follows:
"(Nine) No director shall be personally liable to the Corporation or
any of its stockholders for monetary damages for breach of fiduciary duty
as a director, except to the extent such exemption from liability or
limitation thereto is not permitted under the DGCL as the same exists or
may hereafter be amended. If the DGCL is amended hereafter to authorize the
further elimination or limitation of the liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited
to the fullest extent authorized by the DGCL, as so amended. Any repeal or
modification of this Article NINTH shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such
repeal or modification with respect to acts or omissions occurring prior to
such repeal or modification."
II-1
<PAGE> 213
In addition, Article VIII of the By-Laws of the Registrant provides for
indemnification of officers and directors of the Company and certain other
persons against liabilities and expenses incurred by any of them in certain
stated proceedings and under certain stated conditions.
Section 9 of the Underwriting Agreement between the Company and the
Representative provides for indemnification by the Company of the
Representative, the Underwriters and each person, if any, who controls the
Representative or any Underwriter, against certain liabilities under the
Securities Act. The Underwriting Agreement also provides that the Representative
and the Underwriters shall similarly indemnify the Company, its directors,
officers, and controlling person, as set forth therein.
The Registrant has purchased directors' and officers' liability insurance
which would indemnify the directors and officers of the Company against damages
arising out of certain kinds of claims which might be made against them based on
their negligent acts or omissions while acting in their capacity as such.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following information is furnished with regard to all securities sold
by the Company within the past three years which were not registered under the
Securities Act.
1. As of June 27, 1997, Rock of Ages Quarries, Inc., a predecessor of the
Company ("ROAQ"), and Royalty Granite Corporation, a wholly owned subsidiary of
the Company, entered into an Agreement and Plan of Reorganization (the "Keystone
Agreement") with KSGM, Inc. ("KSGM") and Missouri Red Quarries, Inc. ("Missouri
Red") pursuant to which, effective June 28, 1997, KSGM was merged with and into
Rock of Ages Corporation, a Vermont corporation and the immediate predecessor of
the Company ("ROA Vermont"), and all outstanding shares of capital stock of KSGM
were converted into 526,882 shares (263,441 shares after giving effect to the
1-for-2 reverse stock pursuant to the merger of ROA Vermont with and into the
Company as described in 5. below) of common stock of ROA Vermont, which shares
were issued to Missouri Red, as the sole stockholder of KSGM (the "Keystone
Merger Shares"). The issuance of the Keystone Merger Shares was not registered
under the Securities Act in reliance on the exemption provided by Section 4(2)
thereof as a transaction by an issuer not involving any public offering in that
(i) the Keystone Merger Shares were issued to a single entity (Missouri Red)
that, at the time of entering into the Keystone Agreement, represented to the
Company that it was an "accredited investor" and that it was acquiring the
Keystone Merger Shares solely for investment for its own account and not with a
view toward the resale or distribution thereof, (ii) at that time the Company
provided written disclosure to Missouri Red stating, and Missouri Red
acknowledged, that the Keystone Merger Shares were not registered under the Act
and would be subject to certain restrictions on transfer, (iii) the Company
placed a restricted share legend to such effect on the certificates representing
the Keystone Merger Shares and (iv) the Company did not engage in any general
solicitation or advertising in connection with entering into the Keystone
Agreement.
2. As of June 27, 1997, ROAQ entered into a Stock Purchase Agreement with
Robert Otis Childs, Jr., Robert Otis Childs, III, and Timothy Carroll Childs
(the "C&C Agreement"), pursuant to which the Company will issue to Robert Otis
Childs, III, contemporaneously with the consummation of the offering, $200,000
in shares of Class A Common Stock (valued at the initial public offering price
per share) (the "Childs Shares") as a portion of the consideration payable in
connection with the C&C Acquisition. The issuance of the Childs Shares will not
be registered under the Securities Act in reliance on the exemption provided by
Section 4(2) thereof as a transaction by an issuer not involving any public
offering in that (i) the Childs Shares will be issued to a single investor who,
at the time of entering into the C&C Agreement, represented to the Company that
he was an "accredited investor" and that he would be acquiring the Childs Shares
solely for investment for his own account and not with a view toward the resale
or distribution thereof, (ii) at that time the Company provided written
disclosure to Robert Otis Childs, III stating, and Robert Otis Childs, III
acknowledged, that the Childs Shares will not be registered under the Act and
will be subject to certain restrictions on transfer, (iii) the Company will
place a restricted share legend to such effect on the certificate(s)
representing the Childs Shares and (iv) the Company did not engage in any
general solicitation or advertising in connection with entering into the C&C
Agreement.
II-2
<PAGE> 214
3. Effective June 27, 1997, ROA Vermont merged with and into ROAQ and ROAQ
changed its name to Rock of Ages Corporation. In connection therewith, each
outstanding share of Class A Common Stock of ROAQ was converted into 72.8347276
shares of Common Stock of ROAQ ("ROAQ Shares"). The ROAQ Shares were not
registered under the Securities Act in reliance on the exemption provided by
Section 3(a)(9) thereof with respect to securities exchanged by the issuer with
its existing security-holders exclusively in that only the shares of Class A
Common Stock held by existing shareholders of ROAQ were converted into and
exchanged for Common Stock and no commission or other remuneration was paid or
given directly or indirectly in connection with such exchange of shares.
4. As of July 30, 1997, ROA Vermont entered into an Asset Purchase
Agreement with Keith Monument (the "Keith Agreement"), pursuant to which the
Company will issue to Keith Monument, contemporaneously with the consummation of
the offering, $1.5 million in shares of Class A Common Stock (valued at the
initial public offering price per share) (the "Keith Monument Shares") as a
portion of the consideration payable in connection with the Keith Acquisition.
The issuance of the Keith Monument Shares will not be registered under the
Securities Act in reliance on the exemption provided by Section 4(2) thereof as
a transaction by an issuer not involving any public offering in that (i) the
Keith Monument Shares will be issued to a single entity (Keith Monument
Corporation) that at the time of entering into the Keith Agreement represented
to the Company that it was an "accredited investor" and that it would be
acquiring the Keith Monument Shares solely for investment for its own account
and not with a view toward the resale or distribution thereof, (ii) at that time
the Company provided written disclosure to Keith Monument Corporation stating,
and Keith Monument Corporation acknowledged, that the Keith Monument Shares will
not be registered under the Act and will be subject to certain restrictions on
transfer, (iii) the Company will place a restricted share legend to such effect
on the certificate(s) representing the Keith Monument Shares and (iv) the
Company did not engage in any general solicitation or advertising in connection
with entering into the Keith Agreement.
5. Effective August 12, 1997, ROA Vermont became a Delaware corporation
pursuant to a reincorporation merger (the "Reincorporation Merger"). In the
Reincorporation Merger, each outstanding share of ROA Vermont was converted into
one half of one share of Class B Common Stock of the Company. In connection
therewith, an aggregate of 3,763,441 shares of Class B Common Stock of the
Company were issued (the "Reincorporation Merger Shares"). The issuance of the
Reincorporation Merger Shares was not registered under the Securities Act in
reliance on the exemption provided by Section 4(2) thereof as a transaction by
an issuer not involving any public offering in that (i) the Reincorporation
Merger Shares were issued to two entities (Swenson Granite and Missouri Red)
that represented to the Company that they were "accredited investors" and were
acquiring the Reincorporation Merger Shares solely for investment for their own
accounts and not with a view toward the resale or distribution thereof, (ii) the
Company provided written disclosure to such entities stating, and such entities
acknowledged, that the Reincorporation Merger Shares would not be registered
under the Act and would be subject to certain restrictions on transfer, (iii)
the Company placed a restricted share legend to such effect on the certificates
representing the Reincorporation Merger Shares and (iv) the Company did not
engage in any general solicitation or advertising in connection with the
issuance of the Reincorporation Merger Shares pursuant to the Reincorporation
Merger.
6. On August 13, 1997, the Company entered into an Agreement and Plan of
Merger and Reorganization with Swenson Granite Company, Inc., Kurt M. Swenson
and Kevin C. Swenson (the "Swenson Merger Agreement"), pursuant to which,
immediately prior to consummation of the offering, each share of Swenson Granite
Company, Inc. will be converted into 1,618.23 shares of Class B Common Stock of
the Company (the "Reorganization Merger Shares"). The issuance of the
Reorganization Merger Shares will not be registered under the Securities Act in
reliance on the exemption provided by Section 4(2) thereof as a transaction by
an issuer not involving any public offering in that (i) the Reorganization
Merger Shares will be issued to less than thirty-five shareholders of Swenson
Granite Company, Inc. who, in order to receive such shares will be required by
the terms of the Swenson Merger Agreement to represent to the Company that (A)
they are an "accredited investor" or have engaged a "purchaser representative"
to act on their behalf, (B) they will be acquiring the Reorganization Merger
Shares for investment only and not with a view to any public distribution
thereof, (C) they understand that the Reorganization Merger Shares will not be
registered under the Act and
II-3
<PAGE> 215
will be subject to certain restrictions on transfer, and (D) if they are not an
"accredited investor," they, either alone or together with their purchaser
representative, have such knowledge and experience in financial and business
matters that they are capable of evaluating the merits and risks of an
investment in the Reorganization Merger Shares, (ii) the Company will place a
restricted share legend on the certificates representing the Reorganization
Merger Shares, (iii) the Company did not engage in any general solicitation or
advertising in connection with entering into the Swenson Merger Agreement and
(iv) the issuance of the Reorganization Merger Shares will otherwise comply with
Rule 506 under the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- ----------------------------------------------------------------------------------
<C> <S>
1.* Form of Underwriting Agreement by and between the Company and Raymond James &
Associates, Inc.
2.1* Agreement and Plan of Reorganization dated as of June 27, 1997 by and among Rock
of Ages Quarries, Inc., to be known as Rock of Ages Corporation, KSGM, Inc.,
Royalty Granite Corporation and Missouri Red Quarries, Inc.
2.2* Stock Purchase Agreement dated as of June 27, 1997 by and among Rock of Ages
Quarries, Inc., to be known as Rock of Ages Corporation, Robert Otis Childs, Jr.,
Robert Otis Childs, III and Timothy Carroll Childs
2.3* Asset Purchase Agreement dated as of July 30, 1997 by and among the Company, John
E. Keith, Roy H. Keith, Jr., Glasgow Monument Co., Inc., Keith Lettering and
Setting Corporation, Keith Monument Company, National Memorial Corporation,
Riehm-gerlack Monument Co., and the Snyder Corporation.
2.4* Agreement and Plan of Merger and Reorganization dated as of August 13, 1997 by and
among Rock of Ages Corporation, Swenson Granite Company, Inc., Kurt M. Swenson and
Kevin C. Swenson
3.1* Form of Amended and Restated Certificate of Incorporation of the Company
3.2* By-laws of the Company
4.* Specimen Certificate representing the Class A Common Stock
5. Opinion of Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to the
Company, regarding the legality of the shares of Class A Common Stock
10.1* Rock of Ages Corporation Amended and Restated 1994 Stock Plan
10.2* Employment Agreement of Kurt M. Swenson
10.3* Employment Agreement of Paula Plante
10.4* Employment Agreement of Peter Friberg
10.5* Employment Agreement of Albert Gherardi, Jr.
10.6* Employment Agreement of Mark Gherardi
10.7* Form of Acquisition Employment Agreement with G. Thomas Oglesby, Jr., George T.
Oglesby, III, Robert Otis Childs, III, John E. Keith and Roy H. Keith
10.8* Form of Officer Employment Agreement with each of Richard C. Kimball, George R.
Andersen, Jon M. Gregory and Edward E. Haydon
10.9*+ Supply and Distribution Agreement dated as of June 27, 1997 by and among Keystone
Granite Company, Inc., the Estate of George T. Oglesby, Sr., Rock of Ages
Corporation and Missouri Red Quarries, Inc.
10.10*+ Supply and Distribution Agreement dated as of June 27, 1997 by and among Missouri
Red Quarries, Inc., George T. Oglesby, Jr. and Rock of Ages Corporation.
10.11*+ Letter Agreement dated as of July 25, 1997 between Rock of Ages Corporation and
Dakota Granite Company
10.12* Stock Subscription Agreement and Continuity of Interest Agreement dated June 27,
1997 between Rock of Ages Corporation and Missouri Red Quarries, Inc.
10.13* Stock Subscription Agreement dated as of July 30, 1997 between Rock of Ages
Corporation and National Memorial Corporation
10.14* Stock Subscription Agreement dated as of June 27, 1997 between Rock of Ages
Corporation and Robert Otis Childs, III
</TABLE>
II-4
<PAGE> 216
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- ----------------------------------------------------------------------------------
<C> <S>
10.15* Form of Salary Continuation Agreement
10.16* Salary Continuation Agreement dated January 3, 1996 between Rock of Ages
Corporation and Mark Gherardi
10.17* Salary Continuation Agreement dated January 3, 1997 between Rock of Ages
Corporation and Melvin Friberg
10.18* Form of Custody Agreement and Power of Attorney
10.19* Financing Agreement dated as of August 25, 1994 between the CIT Group/Business
Credit, Inc. and Rock of Ages Corporation
10.20* Credit Facility dated as of June 25, 1997 between Royal Bank of Canada and Rock of
Ages Canada Inc., Rock of Ages Quarries Inc. and Rock of Ages Canada Inc.
10.21* Commitment Letter dated as of September 14, 1997, between CIT Group/Business
Credit, Inc. and Rock of Ages Corporation.
10.22* Letter Agreement dated as of September 19, 1997, by and among Rock of Ages
Corporation, Richard Campbell, Robert Otis Childs, III, Timothy Carrol Childs.
11.* Statement re: computation of per share earnings
21. Subsidiaries of the Company
23.1 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 5)
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of KPMG Peat Marwick LLP
23.4 Consent of KPMG Peat Marwick LLP
23.5 Consent of KPMG Peat Marwick LLP
23.6 Consent of Greene and Company, L.L.P.
23.7 Consent of Greene and Company, L.L.P.
23.8 Consent of Greene and Company, L.L.P.
23.9 Consent of Greene and Company, L.L.P.
23.10* Consent of Frederick E. Webster
23.11* Consent of John E. Keith
23.12* Consent of James L. Fox
23.13* Consent of CA Rich Consultants, Inc.
24.* Power of Attorney (set forth on the signature page of this Registration Statement)
27.* Financial Data Schedule
</TABLE>
- ---------------
* Previously filed
+ Confidential treatment requested as to certain portions of this exhibit.
Omitted portions have been filed separately with the Securities and Exchange
Commission.
(b) Financial Statement Schedules:
<TABLE>
<S> <C>
Schedule II -- Valuation and Qualifying Accounts and Reserves......... S-1
</TABLE>
All other schedules for which provision is made by the applicable
accounting regulation of the Commission are not required under the related
instructions or are inapplicable, and therefore have been omitted.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to its Restated Articles of Incorporation, By-Laws, by
agreement or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the
II-5
<PAGE> 217
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance on Rule 430A and contained in a
form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4)
or Rule 497(h) under the Securities Act shall be deemed to be part of the
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To provide to the Underwriters at the closing specified in the
Underwriting Agreement, certificates in such denominations and registered
in such names as required by the Underwriters to permit prompt delivery to
each purchaser.
II-6
<PAGE> 218
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this Amendment No. 2 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in Barre, Vermont on October 14, 1997.
ROCK OF AGES CORPORATION
By: /s/ KURT M. SWENSON
------------------------------------
Name: Kurt M. Swenson
Title: President, Chief Executive
Officer and
Chairman of the Board of Directors
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 14, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ---------------------------------------- ---------------------------------------------------
<C> <S>
KURT M. SWENSON President, Chief Executive Officer and Chairman of
- ---------------------------------------- the Board of Directors (Principal Executive
Kurt M. Swenson Officer)
* Senior Vice President, Chief Financial Officer,
- ---------------------------------------- Treasurer and Director (Principal Financial
George R. Anderson Officer)
* Vice Chairman and President, Memorials Division,
- ---------------------------------------- and Director
Richard C. Kimball
* President, Quarry Division and Director
- ----------------------------------------
Jon M. Gregory
* Senior Vice President, Barre and Canada
- ---------------------------------------- Manufacturing Operations and Director
Mark A. Gherardi
President, Keystone Memorials, Inc. and Director
- ----------------------------------------
G. Thomas Oglesby, Jr.
* Senior Vice President -- Memorial Sales, Director
- ----------------------------------------
Peter A. Friberg
* Director
- ----------------------------------------
Charles M. Waite
*By: /s/ KURT M. SWENSON
- ----------------------------------------
Kurt M. Swenson
Attorney-in-fact
</TABLE>
II-7
<PAGE> 219
ROCK OF AGES CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. E COL. F
- ------------------------------------------------------ ---------- ---------- ---------- ----------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
- ------------------------------------------------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1996
Allowances for possible losses on accounts
receivable....................................... $446 $181 $ 63 $564
Year ended December 31, 1995
Allowances for possible losses on accounts
receivable....................................... $464 $ 62 $ 80 $446
Year ended December 31, 1994
Allowances for possible losses on accounts
receivable....................................... $378 $216 $130 $464
</TABLE>
S-1
<PAGE> 220
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------------------------------------------------------------------------------
<S> <C>
1.* Form of Underwriting Agreement by and between the Company and Raymond James &
Associates, Inc.
2.1* Agreement of Merger and Plan of Reorganization dated as of June 27, 1997 by and
among Rock of Ages Quarries, Inc., to be known as Rock of Ages Corporation, KSGM,
Inc., Royalty Granite Corporation and Missouri Red Quarries, Inc.
2.2* Stock Purchase Agreement dated as of June 27, 1997 by and among Rock of Ages
Quarries, Inc., to be known as Rock of Ages Corporation, Robert Otis Childs, Jr.,
Robert Otis Childs, III and Timothy Carroll Childs
2.3* Asset Purchase Agreement dated as of July 30, 1997 by and among the Company, John
E. Keith, Roy H. Keith, Jr., Glasgow Monument Co., Inc., Keith Lettering and
Setting Corporation, Keith Monument Company, National Memorial Corporation,
Riehm-gerlack Monument Co., and the Snyder Corporation.
2.4* Agreement and Plan of Merger and Reorganization dated as of August 13, 1997 by and
among Rock of Ages Corporation, Swenson Granite Company, Inc., Kurt M. Swenson and
Kevin C. Swenson
3.1* Form of Amended and Restated Certificate of Incorporation of the Company
3.2* By-laws of the Company
4.* Specimen Certificate representing the Class A Common Stock
5. Opinion of Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to the
Company, regarding the legality of the shares of Class A Common Stock
10.1* Rock of Ages Corporation Amended and Restated 1994 Stock Plan
10.2* Employment Agreement of Kurt M. Swenson
10.3* Employment Agreement of Paula Plante
10.4* Employment Agreement of Peter Friberg
10.5* Employment Agreement of Albert Gherardi, Jr.
10.6* Employment Agreement of Mark Gherardi
10.7* Form of Acquisition Employment Agreement with G. Thomas Oglesby, Jr., George T.
Oglesby, III, Robert Otis Childs, III, John E. Keith and Roy H. Keith
10.8* Form of Officer Employment Agreement with each of Richard C. Kimball, George R.
Andersen, Jon M. Gregory and Edward E. Haydon
10.9*+ Supply and Distribution Agreement dated as of June 27, 1997 by and among Keystone
Granite Company, Inc., the Estate of George T. Oglesby, Sr., Rock of Ages
Corporation and Missouri Red Quarries, Inc.
10.10*+ Supply and Distribution Agreement dated as of June 27, 1997 by and among Missouri
Red Quarries, Inc., George T. Oglesby, Jr. and Rock of Ages Corporation.
10.11*+ Letter Agreement dated as of July 25, 1997 between Rock of Ages Corporation and
Dakota Granite Company
10.12* Stock Subscription Agreement and Continuity of Interest Agreement dated June 27,
1997 between Rock of Ages Corporation and Missouri Red Quarries, Inc.
10.13* Stock Subscription Agreement dated as of July 30, 1997 between Rock of Ages
Corporation and National Memorial Corporation
10.14* Stock Subscription Agreement dated as of June 27, 1997 between Rock of Ages
Corporation and Robert Otis Childs, III
</TABLE>
<PAGE> 221
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------------------------------------------------------------------------------
<S> <C>
10.15* Form of Salary Continuation Agreement
10.16* Salary Continuation Agreement dated January 3, 1996 between Rock of Ages
Corporation and Mark Gherardi
10.17* Salary Continuation Agreement dated January 3, 1997 between Rock of Ages
Corporation and Melvin Friberg
10.18* Form of Custody Agreement and Power of Attorney
10.19* Financing Agreement dated as of August 25, 1994 between the CIT Group/Business
Credit, Inc. and Rock of Ages Corporation
10.20* Credit Facility dated as of June 25, 1997 between Royal Bank of Canada and Rock of
Ages Canada Inc., Rock of Ages Quarries Inc. and Rock of Ages Canada Inc.
10.21* Commitment Letter dated as of September 14, 1997, between CIT Group/Business
Credit, Inc. and Rock of Ages Corporation.
10.22* Letter Agreement dated as of September 19, 1997, by and among Rock of Ages
Corporation, Richard Campbell, Robert Otis Childs, III, Timothy Carrol Childs.
11.* Statement re: computation of per share earnings
21. Subsidiaries of the Company
23.1 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 5)
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of KPMG Peat Marwick LLP
23.4 Consent of KPMG Peat Marwick LLP
23.5 Consent of KPMG Peat Marwick LLP
23.6 Consent of Greene and Company, L.L.P.
23.7 Consent of Greene and Company, L.L.P.
23.8 Consent of Greene and Company, L.L.P.
23.9 Consent of Greene and Company, L.L.P.
23.10* Consent of Frederick E. Webster
23.11* Consent of John E. Keith
23.12* Consent of James L. Fox
23.13* Consent of CA Rich Consultants, Inc.
24.* Power of Attorney (set forth on the signature page of this Registration Statement)
27.* Financial Data Schedule
</TABLE>
- ---------------
* Previously filed
+ Confidential treatment requested as to certain portions of this exhibit.
Omitted portions have been filed separately with the Securities and Exchange
Commission.
<PAGE> 1
Exhibit 5
October 14, 1997
ROCK OF AGES CORPORATION
772 Graniteville Road
Graniteville, Vermont 05654
Re: Rock of Ages Corporation
Registration Statement on Form S-1
----------------------------------
Ladies and Gentlemen:
We have acted as special counsel to Rock of Ages Corporation, a Delaware
corporation (the "Company"), in connection with the initial public offering by
the Company of an aggregate of up to 3,059,518 shares (including 435,000 shares
subject to an over-allotment option) (the "Company Shares") and the sale by
certain stockholders of the Company (the "Selling Stockholders") of up to
275,482 shares (the "Selling Stockholder Shares" and together with the Company
Shares, the "Shares") of the Company's common stock, par value $.01 per share
(the "Common Stock").
This opinion is being furnished in accordance with the requirements of Item
601(b)(5) of Regulation S-K under the Securities Act of 1933, as amended (the
"Securities Act").
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of (i) the Registration
Statement on Form S-1 (File No. 333-33685), relating to the Shares, as filed
with the Securities and Exchange Commission (the "Commission") under the
Securities Act on August 15, 1997, Amendment No. 1 thereto, filed with the
Commission on September 24, 1997 and Amendment No.2 thereto, filed with the
Securities and Exchange Commission on October 16, 1997 (such Registration
Statement, as so amended, being hereinafter referred to as the
<PAGE> 2
ROCK OF AGES CORPORATION
October 14, 1997
Page 2
"Registration Statement"); (ii) the form of the Underwriting Agreement (the
"Underwriting Agreement") proposed to be entered into among the Company, as
issuer, the Selling Stockholders and Raymond, James & Associates, Inc. (the
"Underwriter"), filed as an exhibit to the Registration Statement; (iii) the
form of a specimen certificate representing the Shares; (iv) the Amended and
Restated Certificate of Incorporation of the Company, as presently in effect;
(v) the By-Laws of the Company, as presently in effect; and (vi) certain
resolutions adopted by the Board of Directors of the Company and drafts of
certain resolutions (the "Draft Resolutions") proposed to be adopted by the
Offering Committee appointed by the Board of Directors of the Company (the
"Offering Committee") in each case relating to the issuance and sale of the
Shares and certain related matters. We have also examined originals and copies,
certified or otherwise identified to our satisfaction, of such other documents,
certificates and records as we have deemed necessary or appropriate as a basis
for the opinions set forth herein.
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies, and the
authenticity of the originals of such latter documents. In making our
examination of documents executed or to be executed by parties other than the
Company, we have assumed that such parties had or will have the power, corporate
and other, to enter into and perform all obligations thereunder and have also
assumed the due authorization by all requisite action, corporate and other, and
execution and delivery by such parties of such documents and the validity and
binding effect thereof on such parties. As to any facts material to the opinions
expressed herein which we have not independently established or verified, we
have relied upon oral or written statements and representations of officers and
other representatives of the Company and others.
<PAGE> 3
ROCK OF AGES CORPORATION
October 14, 1997
Page 3
The opinions expressed herein are limited to the laws of the State of
Delaware and to the federal laws of the United States of America to the extent
specifically referred to herein.
Based upon and subject to the foregoing, we are of the opinion that:
1. When (i) the Registration Statement becomes effective; (ii) the Draft
Resolutions have been adopted by the Offering Committee; (iii) the Underwriting
Agreement has been duly executed and delivered; and (v) certificates
representing the Shares in the form of the specimen certificate examined by us
have been duly executed by an authorized officer of the transfer agent and
registrar for the Common Stock and registered by such transfer agent and
registrar, and delivered to and paid for by the Underwriter as contemplated by
the Underwriting Agreement, the issuance and sale of the Company Shares will
have been duly authorized, validly issued, fully paid and nonassessable.
2. The Selling Stockholders Shares have been duly authorized and validly
issued, and are fully paid and nonassessable.
We hereby consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement. We also consent to the reference to our
firm under the caption "Legal Matters" in the Registration Statement. In giving
such consent, we do not thereby admit that we are included in the category of
persons whose consent is required under Section 7 of the Securities Act or the
rules and regulations of the Commission promulgated thereunder.
<PAGE> 4
ROCK OF AGES CORPORATION
October 14, 1997
Page 4
This opinion is furnished by us, as your special counsel, in connection
with the filing of the Registration Statement and, except as provided in the
immediately preceding paragraph, is not to be used, circulated, quoted or
otherwise referred to for any other purpose or relied upon by any other person
without our prior written permission.
Very truly yours,
/s/ Skadden, Arps, Slate, Meagher & Flom LLP
<PAGE> 1
Exhibit 21
<TABLE>
<CAPTION>
Subsidiaries of the Company State of Incorporation
- --------------------------- ----------------------
<S> <C>
Royalty Granite Corporation Georgia
Rock of Ages International, Ltd. U.S. Virgin Islands
Rock of Ages Canada Inc. Canada
Associated Memorials, Inc. Vermont
Kabushiki Kaisha Rock of Ages Asia Japan
Southern Mausoleums, Inc. Georgia
Autumn Rose Quarry, Inc. Georgia
Caprice Blue Quarry, Inc. Georgia
Pennsylvania Granite Corporation Pennsylvania
Carolina Quarries, Inc., a subsidiary Georgia
of Pennsylvania Granite Corporation
Pama Corporation Vermont
Rock of Ages Memorials LLC Delaware
</TABLE>
<PAGE> 1
Exhibit 23.2
The Board of Directors,
Rock of Ages Corporation:
The audits referred to in our report dated March 24, 1997, except as to Note 13
which is as of August 12, 1997, included the related financial statement
schedules as of December 31, 1996, and for each of the years in the three-year
period ended December 31, 1996, included in the registration statement (or
incorporated by reference in the registration statement). These financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement schedules
based on our audits. In our opinion, such financial statement schedules, when
considered in relation to the basic consolidated financial statements taken as
a whole, present fairly in all material respects the information set forth
therein.
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the registration statement.
/s/ KPMG Peat Marwick LLP
------------------------------
KPMG Peat Marwick LLP
Burlington, VT
October 13, 1997
<PAGE> 1
Exhibit 23.3
The Board of Directors,
Keystone Memorials, Inc.:
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the registration statement.
/s/ KPMG Peat Marwick LLP
------------------------------
KPMG Peat Marwick LLP
Atlanta, GA
October 13, 1997
<PAGE> 1
Exhibit 23.4
The Board of Directors,
Childs & Childs Granite Company, Inc.
and C&C Granite Company, Inc.:
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the registration statement.
/s/ KPMG Peat Marwick LLP
------------------------------
KPMG Peat Marwick LLP
Atlanta, GA
October 13, 1997
<PAGE> 1
Exhibit 23.5
The Boards of Directors
Keith Monument Companies:
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
------------------------------
KPMG Peat Marwick LLP
Louisville, KY
October 13, 1997
<PAGE> 1
Exhibit 23.6
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Southern Mausoleums, Inc.
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the registration statement - amendment #2.
/s/ Greene and Company, L.L.P.
-------------------------------------
Greene and Company, L.L.P.
Anderson, South Carolina
October 13, 1997
<PAGE> 1
Exhibit 23.7
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Autumn Rose Quarry, Inc.
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the registration statement - amendment
#2.
/s/ Greene and Company, L.L.P.
-------------------------------------
Greene and Company, L.L.P.
Anderson, South Carolina
October 13, 1997
<PAGE> 1
Exhibit 23.8
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Caprice Blue Quarry, Inc.
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the registration statement - amendment
#2.
/s/ Greene and Company, L.L.P.
-------------------------------------
Greene and Company, L.L.P.
Anderson, South Carolina
October 13, 1997
<PAGE> 1
================================================================================
Exhibit 23.9
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Pennsylvania Granite Corporation
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the registration statement - amendment
#2.
/s/ Greene and Company, L.L.P.
-------------------------------------
Greene and Company, L.L.P.
Anderson, South Carolina
October 13, 1997
