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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1998.
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from __________ to __________.
Commission File No. 000-29464
ROCK OF AGES CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware 030153200
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
772 Graniteville Road
Graniteville, Vermont 05654
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (802) 476-3121
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, par value $0.01
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
As of March 25, 1999, the aggregate market value of the registrant's
voting stock (including Class B Common Stock, par value $.01 per share ("Class B
Common Stock"), which is convertible on a share-for-share basis into Class A
Common Stock, par value $.01 per share ("Class A Common Stock" and, together
with Class B Common Stock, "Common Stock")), held by non-affiliates of the
registrant was $53,638,597. As of March 25, 1999, there were outstanding
4,202,575 shares of Class A Common Stock and 3,426,705 shares of Class B Common
Stock.
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TABLE OF CONTENTS PAGE
PART I
ITEM 1. BUSINESS.............................................................1
ITEM 2. PROPERTIES...........................................................6
ITEM 3. LEGAL PROCEEDINGS...................................................10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS.............10
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.................................................10
ITEM 6. SELECTED FINANCIAL DATA.............................................12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................................13
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..........17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA..........................17
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE............................................17
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS....................................18
ITEM 11. EXECUTIVE COMPENSATION..............................................20
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......23
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .....................25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.....25
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULE..................................................26
SIGNATURES..........................................................57
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PART I
ITEM 1. BUSINESS
General
Rock of Ages Corporation ("Rock of Ages" or the "Company") was founded in
1885 and is an integrated granite quarrier, manufacturer and retailer whose
principal product is granite memorials used primarily in cemeteries. The Company
believes that it is the largest quarrier, manufacturer and retailer 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 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 retail basis through 73 owned retail sales outlets as of March
22, 1999 (57 as of December 31, 1998) in the states indicated in Item 2 below.
The Company also sells memorials wholesale to approximately 2,100 independent
memorial retailers in the United States and Canada, including approximately 495
independent authorized Rock of Ages retailers that, in addition to the Company's
owned retail sales outlets, are the primary outlet for the Company's branded
memorials. 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 Company actively promotes the brand
name Rock of Ages and places a seal bearing the Rock of Ages name on its top of
the line branded memorials which are warranted by a full perpetual warranty
running both to the consumer and to the cemetery where it is located. The
Company also supplies other brands and generic memorials.
The Company estimates that 80% or more of all granite memorials
manufactured in North America are made in one of four regions: Barre, Vermont;
Beebe, Quebec; Elberton, Georgia, and an area encompassing Milbank, South
Dakota, Cold Spring, Minnesota, and Wausau, Wisconsin known in the industry as
the "Northwest". The Company has solidified its leading position in the granite
memorial business primarily through acquisitions of quarries with high quality
memorial grade granite and of major granite memorial manufacturers, principally
in three of these four regions.
In 1998, the Company continued its strategy to vertically integrate into
the retail channel by acquiring 13 memorial retailers in 13 separate and
independent transactions, thereby acquiring 43 retail sales outlets in the
states of Iowa, Illinois, Ohio, Georgia, Minnesota, South Dakota, Nebraska,
Pennsylvania and New Jersey (the "1998 Retail Acquisitions"). The Company paid a
total aggregate purchase price in the 1998 Retail Acquisitions of approximately
$17.8 million, comprised of $16.4 million in cash and assumed interest bearing
debt and 90,537 shares of Class A Common Stock having an aggregate market value
of $1.4 million as of the respective closings of these acquisitions.
In November, 1998, the Company also acquired the Gardenia White quarry and
related operating assets for approximately $4.6 million in cash; this quarry is
located in North Carolina in proximity to the Company's Salisbury Pink quarry.
The Company has operations in three business segments - Quarrying,
Manufacturing and Retailing. Included within the business segments are
operations that are unincorporated divisions of Rock of Ages and others that are
separately incorporated subsidiaries. Financial information by business segment
and geographic area is incorporated herein by reference to note 14 to the
Consolidated Financial Statements of the Company. Additional information
regarding each business segment and Rock of Ages in general is set forth below.
Growth Strategy
The Company seeks to expand the scope and profitability of its operations
through a growth strategy that focuses on forward vertical integration into
retailing, thereby enabling the Company to move closer to the ultimate customer.
The principal elements of the growth strategy include the following:
o Forward Vertical Integration into Retail. The Company anticipates that it
will continue to acquire independent granite memorial retailers in selected
markets in North America in order to develop an integrated network of owned
Rock of Ages retailers, thereby capturing the higher margins that have
historically existed at the retail level.
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o Increased Shipments at Wholesale. The Company will seek to increase sales to
independent retailers that are current or potential customers of the Company
by focusing its efforts on building an integrated retail network consisting
of owned and independent retail outlets. Since sales to owned retail outlets
are intracompany sales and are therefore eliminated from manufacturing
revenues, reported manufacturing revenues may decline over time even if
shipments actually increase.
o Brand Enhancement. The Company believes that the Rock of Ages brand is one
of the best known brand names in the memorial industry. The Company
anticipates that it will, as a part of building its integrated network of
owned retailers, significantly increase promotion and advertising
expenditures on the Rock of Ages brand and other proprietary brands sold at
its owned retail outlets.
o Pre-Need Selling Program. The Company intends to initiate an active pre-need
selling program for granite memorials at its owned retail locations and to
assist its independently owned Rock of Ages retailers in developing similar
programs. Currently, the best estimate of the Company is that less than 10%
of granite memorials are sold pre-need.
o Strategic Alliances with Funeral Homes and Cemeteries. The Company
anticipates that it will pursue strategic alliances with funeral home and
cemetery owners, including consolidators, to sell granite memorials in
cooperation with them, in order to increase both pre-need and at-need sales
of granite memorials.
o Selected Acquisitions of Quarriers and Manufacturers. While the Company owns
or controls many of the highest quality memorial grade granite quarries in
North America, the Company will continue to explore the possibility of
acquiring selected memorial grade granite quarriers and manufacturers in
North America and internationally to assure that it will continue to have
the colors and grades of granites sought by retail purchasers of granite
memorials in North America.
o Other Product Line Enhancements. The Company intends to continue to expand
and enhance its memorial product lines in color, design and style. The
Company's objective is to provide a full range of memorials encompassing all
price points.
Recent Acquisitions
In January 1999, the Company acquired, in separate and independent
transactions, three memorial retailers located in Wisconsin, Illinois and Ohio,
for a total aggregate purchase price of approximately $4.1 million, comprised of
approximately $3.7 million in cash and 32,045 shares of Class A Common Stock
having an aggregate market value of approximately $.4 million as of the
respective closings of these acquisitions.
Products
The Company's principal products may be classified into three general
product lines: granite quarry products, manufactured granite products and
non-granite memorials. The principal raw material for both granite product lines
is natural granite as it comes from the ground with the primary difference
between the product lines being the extent of the processing or manufacturing of
the granite.
Granite Quarry Products. The principal quarry product sold by the Company
is granite blocks, the raw material of the dimension granite industry. These
blocks are extracted from quarries in various sizes through a drilling, blasting
and wire sawing process in the quarry. The range of block sizes is large, but
most manufacturers of granite memorials and other products generally require
minimum dimensions of height, width and length to maximize the efficiency of
their block sawing equipment in meeting the required dimensions of the finished
product. Granite blocks are normally sold in heights from 2'6" to 5', widths of
3' to 5', and lengths from 7' to 10'. These blocks weigh from 20 to 30 tons.
Granite differs from deposit to deposit by color, grade and/or quality.
Rock of Ages owns, quarries and sells blocks of (i) gray granites from its
Barre, Vermont, Elberton, Georgia, and Stanstead, Quebec quarries, (ii) black
granite from its American Black quarry in Pennsylvania, (iii) pink granites from
its Laurentian Pink quarry in Quebec and its Salisbury Pink quarry in North
Carolina, (iv) white granite from its Bethel White quarry in Vermont and its
Gardenia
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White quarry in North Carolina, (v) brownish red granite from its Autumn Rose
quarry in Oklahoma, and (vi) grayish pink granites from its Kershaw and Coral
Gray quarries in South Carolina.
The Company sells granite blocks for memorial, building and other uses.
While each of the quarries owned by the Company sells granite for memorial use
and for building use, the output of the Bethel White quarry, the Gardenia White
quarry and the Salisbury Pink quarry are primarily sold and used for building
granite use outside North America and the output of the other quarries is
primarily used for memorial use in North America. The Company has an exclusive
supply agreement with Eurimex, a societe anonyme of Luxembourg ("Eurimex"),
whereby the Company appointed Eurimex as its exclusive distributor outside of
North America, as specified in the agreement, of Salisbury Pink granite, for a
term of six years. A similar exclusive supply agreement with Eurimex for Bethel
White granite expired in accordance with its terms on December 31, 1998, and the
Company and Eurimex did not reach an agreement on a renewal. The Company now
distributes Bethel White, Gardenia White and other owned granites outside North
America using its own sales personnel, commissioned agents, and stocking
distributors.
Granite blocks sold by the Company in North America are sold by a quarry
sales force. The Company markets and advertises granite blocks in various trade
publications and by attending various trade shows in North America. Outside of
North America, the Company generally sells to the user or independent
distributors who buy blocks from the Company and resell them. This includes Rock
of Ages Asia, a 50% Company owned corporation.
Other quarry products include waste pieces not of a shape or size suitable
for manufacturing which are sold for rip rap for embankments, bridges or piers,
and for other uses. In various quarries, the Company has arrangements with
crusher operators who operate on or near the Company's quarries and sell crushed
stone. The revenues and profits of these operations are not material. The
Company has no marketing and advertising programs for these other quarry
products.
Manufactured Products. The principal manufactured product of Rock of Ages
is granite memorials, which are sold to retailers of granite memorials,
including Company owned outlets, and substantially all of which are placed in
cemeteries in remembrance of the life of a person or persons. The memorials sold
by the Company encompass a wide range of granites, including granite blocks
purchased from others, as well as a wide range of sizes, styles, shapes and
price points ranging from small, inexpensive markers set flush to the ground to
very elaborate and expensive personal mausoleums of larger sizes. The broad
classifications of granite memorials used by the industry are generally markers,
hickeys, slants, standard uprights, estate uprights, pre-assembled mausoleums
and conventional mausoleums. From time to time memorial retailers or others
order granite products such as benches, steps and other products that may or may
not be for cemetery use. These are classified by the Company as memorial sales.
The Company is widely recognized for the personalized granite memorials it
produces and the very large memorials it can produce. It has made memorials as
large as thirty-five feet in length from one block of granite, including a full
size granite replica of a Mercedes Benz automobile.
The Company's granite memorials are sold to retailers by the Company's
memorial sales force which regularly speaks with customers by phone and makes
personal visits to customers. The Company provides various point of sale
materials to its authorized Rock of Ages dealers. The Company also advertises in
various trade publications.
The Company also manufactures certain precision granite products, which
are made along with memorials at one of the Company's Barre, Vermont plants.
These products include surface plates, machine bases, coordinate measuring
devices, and other products manufactured to exacting dimensions. These products
are sold to the manufacturers of precision measuring devices or end users.
Precision products are sold by a precision products sales force which phones or
visits customers. The Company does little or no advertising of its precision
products.
Retail Products. The Company's retail division markets and sells granite,
bronze and marble memorials primarily to consumers. The Company currently
operates 73 retail outlets in 12 states. The granite memorials sold at retail
also vary widely and are of the same types as those manufactured by the Company.
The Company's retail operations utilize a retail sales force which markets and
sells memorials through phone calls and direct meetings with customers in their
homes and at retail sales offices. The Company advertises and promotes retail
sales through direct mail material, yellow page listings and newspaper
advertising. The Company's retail sales outlets are positioned to sell branded
and unbranded memorials at all price points and qualities.
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Manufacturing and Raw Materials
The Company quarries and manufactures granite in the United States and
Canada at the locations detailed in Item 2 - "Properties." The Company is
continuing to consolidate its manufacturing operations in Elberton, Georgia
acquired in the latter part of 1997 with a view to improving their
profitability. In 1998, the Company acquired new equipment for certain of its
quarries and plants. There were no plants acquired or material additions to
plants in 1998. Management believes that the Company's manufacturing and
quarrying capacity is generally sufficient to meet anticipated production
requirements for the foreseeable future. However, the demand by manufacturers of
granite outside the Company for granite from the Company's Pennsylvania Black
and Salisbury Pink quarries has historically exceeded supply. While the Company
has invested in equipment for these quarries and increased output, the extent of
the actual demand beyond current output levels cannot be determined by the
Company at this time, and, accordingly the Company cannot predict whether it
will be able to meet future demand for granite from these quarries.
The most significant raw material used by the Company in its manufacturing
operations is granite blocks primarily from the Company's quarries. The Company
has an adequate supply from its quarries to supply its manufacturing operations.
The Company also purchases certain colors of granite, primarily red and black,
from other quarriers. The Company believes there is an adequate supply of
memorial granite available from its quarries and quarries owned by others for
the foreseeable future.
Other significant raw materials used by the Company include industrial
diamond segments for saw blades and wires, drill steel, drill bits and
abrasives. There are a number of sources for these raw materials at competitive
prices.
The Company had manufacturing backlogs of $16,152,000 as of December 31,
1998 and $15,322,000 as of December 31, 1997. These backlogs occurred in the
normal course of business. The Company does not have a material backlog in its
quarrying operations. The Company had retail backlogs evidenced by purchase
orders of $7,009,000 as of December 31, 1998 and no material retail backlogs as
of December 31, 1997.
The Company does not normally maintain a significant inventory of finished
manufactured products in anticipation of future orders in its manufacturing
operations. The Company does maintain a significant inventory of memorials for
display and delivery purposes at its retail operations. Approximately 75% of the
Company's manufactured product orders and retail orders are delivered within two
to twelve weeks, as is customary in the granite memorial industry. The delivery
time depends on the size and complexity of the memorial. The Company does
accumulate inventory of granite blocks from September through December in
preparation for the winter months when its northern quarries are inactive.
Because the Company's Barre quarries are closed from mid-December through
mid-March, in December each year the Company provides special 90 day payment
terms at these quarries for all blocks purchased in the month of December.
Customers' manufacturing plants generally remain open during most of this
period, and most customers prefer to assure they own blocks of a size and
quality selected by them prior to the closure. All blocks purchased from the
Company's Barre quarries in December on deferred payment terms are invoiced on
or about December 31 and removed from the Company's inventory with title passing
to the buyer. Payment terms are one-third of the invoice amount on January 15,
one-third on February 15, and one-third on March 15. This program provides
essentially the normal 30 day payment terms during the months when the Barre
quarries are closed, notwithstanding the customer's purchase of a three month
supply in December. Customers need not use these terms and may buy from
inventory during the closure period on a first come first served basis with
normal 30 day terms.
The Company has a Supply and Distribution Agreement with Missouri Red
Quarries, Inc. ("Missouri Red"), the owner of Keystone immediately prior to its
acquisition by the Company in 1997, 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 granite
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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. In 1998, a supply agreement
with Dakota Granite Company ("Dakota Granite") was terminated by the Company in
accordance with its terms, but Dakota Granite and the Company continue to supply
each other with various products without a formal written agreement.
Research and Development
The Company does not have a research and development department for any of
its products. The Company regularly conducts market research, as well as
research on new product designs and on equipment to improve the Company's
technology. These activities are not separately accounted for as research, and
the Company had no expenditures classified for financial reporting purposes as
research in 1996, 1997 or 1998.
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
that 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 also manufacture
and export finished granite memorials into North America.
The competition for retail sales of granite memorials faced by the
Company's retail outlets 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.
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 1913. The Company believes the loss of a single
patent, trademark or copyright, other than the "Rock of Ages" trademark, would
not have a material adverse effect on the Company's business, financial
condition or results of operations.
Employees
As of December 31, 1998, the Company had approximately 985 employees.
Seasonality
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. See Item
7. "Management's Discussion and Analysis of Financial Conditions and Results of
Operations - Seasonality."
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Regulation and Environmental Compliance
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 environment, including but not limited to
those relating to air and water quality, and 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 its operations. The
Company cannot predict the effect of such laws, regulations or regulatory
interpretations on its business, financial condition or results of operations.
The Company expects to be able to continue to comply, in all material respects,
with existing laws and regulations.
Forward-Looking Statements
Certain statements in this Annual Report on Form 10-K, and other oral and
written statements made by the Company from time to time, are "forward-looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended, including those that discuss strategies, goals, outlook or
other non-historical matters, or projected revenues, income, returns or other
financial measures. These forward-looking statements are subject to numerous
risks and uncertainties that may cause actual results to differ materially from
those contained in such statements. Among the most important of these risks and
uncertainties is the ability of the Company to continue to identify suitable
retail acquisition candidates, to consummate additional retail acquisitions on
acceptable terms and to successfully integrate the operations of such acquired
entities.
Other factors and assumptions that could generally cause the Company's
actual results to differ materially from those included in the forward-looking
statements made herein include, without limitation, the effects of general
economic conditions in the United States or abroad, changes in competitive
market conditions, changes in the Company's business strategy or an inability of
the Company to implement its growth strategy due to unanticipated changes in
general economic conditions, competitive market conditions or other factors, and
the sufficiency of the Company's production capacity to meet future demand for
its products. Other factors and assumptions not identified above were also
involved in the derivation of the forward-looking statements contained in this
Annual Report on Form 10-K, and the failure of such other assumptions to be
realized, as well as other factors, may also cause actual results to differ
materially from those projected. The Company assumes no obligation to update
these forward-looking statements to reflect actual results or changes in factors
or assumptions affecting such forward-looking statements.
ITEM 2. PROPERTIES
The Company owns 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 Finished product storage
Rock of Ages Manufacturing Plant Manufacturing of memorials
Press Roll Production Plant Manufacturing of granite press rolls
</TABLE>
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<TABLE>
<S> <C>
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 Quarrying of dimensional Royalty Blue and Berkeley Blue granite
Royalty/Berkeley Quarries blocks
Oglethorpe County
Caprice Quarry Quarrying of dimensional Caprice Blue blocks
Millstone Quarry Quarrying of dimensional Millstone Gray
Elberton
Manufacturing Properties
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
Rockwell
Quarry Properties
Gardenia White Quarry Quarrying of dimensional Gardenia White granite blocks
Oklahoma
Mill Creek
Quarry Properties
Autumn Rose Quarry Quarrying of dimensional Autumn Rose granite blocks
</TABLE>
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<TABLE>
<S> <C>
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, the Company owns 73 retail sales outlets and 15 associated
sand blasting facilities in the states of Georgia, Iowa, Illinois, Minnesota,
Nebraska, New Jersey, Pennsylvania, Ohio, South Dakota, Kentucky, Wisconsin and
Missouri. In certain cases, the Company leases under customary lease
arrangements the land or other real estate associated with these outlets and
facilities.
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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 39 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.
<TABLE>
<CAPTION>
Approximate
Date Total Net Saleable Net Saleable
of Means Original Cost Recoverable Recoverable
Commencement Prior Owner 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. (1948) Paved $ 7,562,676 2,460,000,000 4,920
road
Adam-Pirie 1880 J.K. Pirie Quarry (1955) Paved $ 4,211,363 985,000,000 6,560
road
Bethel 1900 Woodbury Granite Company, Dirt $ 174,024 76,665,000 383
Inc. (1957) road
Royalty/Berkeley 1923 Coggins Granite (1991) Paved $ 2,794,500 6,695,000 67
road
Millstone 1985 Coggins Granite (1991) Paved $ 1,195,900 5,663,000 56
road
Caprice 1968 Caprice Blue Quarry Paved $ 0 No estimate No estimate
Inc.(1997) road
Stanstead 1920 Brodies Limited and Stanstead Paved $ 505,453 32,670,000 217
Granite Company (1960) road
Laurentian Pink 1944 Brodies Limited (1960) Paved $ 860,115 3,920,000 52
road
American Black 1973 Pennsylvania Granite Inc. Paved $ 2,900,000 14,701,000 98
(1997) road
Salisbury 1918 Pennsylvania Granite Inc. Paved $ 3,886,592 19,602,000 87
(1997) road
Autumn Rose 1969 Autumn Rose Quarry Inc. Paved $ 200,000 735,000 21
(1997) road
Kershaw 1955 Pennsylvania Granite Inc. Paved $ 200,000 635,000 22
(1997) road
Coral Gray 1955 Pennsylvania Granite Inc. Paved $ 200,000 No estimate No estimate
(1997) road
Gardenia White 1995 J. Greg Faith Dirt $ 4,633,000 2,650,000 37
Thomas E. Ebans, Sr. road
David S. Hooker
William L. Comolli
(1998)
</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., and for the
Gardenia White quarry, which are based on an independent assessment by
Geomapping Associates.
(2) Based on internal Company estimates using current production levels.
9
<PAGE>
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 believes it has adequate acreage for expansions as and
when necessary. 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 such
as color of 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.
ITEM 3. LEGAL PROCEEDINGS
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders,
through the solicitation of proxies or otherwise, during the fourth quarter of
the fiscal year covered by this Annual Report on Form 10-K.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Class A Common Stock is traded on the Nasdaq(R) National Market under
the symbol "ROAC." There is currently no established public trading market for
the Class B Common Stock. The Class A Common Stock commenced public trading on
October 21, 1997. The table below sets forth the quarterly high and low sales
quotations for the Class A Common Stock for each full quarterly period during
the Company's 1998 fiscal year, compiled from information supplied by Nasdaq(R).
All prices represent inter dealer quotations without retail mark ups, mark downs
or commissions, and may not necessarily represent actual transactions.
High Low
---- ---
First Quarter . . . . . . . . . . . . . . 18 1/4 14 1/4
Second Quarter. . . . . . . . . . . . . . 18 1/4 15 1/8
Third Quarter . . . . . . . . . . . . . . 16 1/2 9 1/8
Fourth Quarter . . . . . . . . . . . . . . 16 10
As of March 25, 1999, based upon information provided by the Company's
transfer agent, there were 165 record holders of Class A Common Stock and 34
record holders of Class B Common Stock, which numbers do not include
stockholders who beneficially own shares held in street name by brokers.
The Company has not declared or paid, and 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, capital requirements,
contractual restrictions and such other factors as the Board of Directors deems
relevant.
10
<PAGE>
Recent Sales of Unregistered Securities
During fiscal 1998, in connection with the 1998 Retail Acquisitions, the
Company issued and sold to the respective individual owners of the acquired
retailers (the "Acquired Retail Owners"), as partial consideration for such
acquisitions, a total of 90,537 shares of Class A Common Stock (the "1998
Acquisition Shares"). The respective issuances and sales of the 1998 Acquisition
Shares were not registered under the Securities Act of 1933, as amended (the
"Securities Act"), in reliance on the exemption provided by Section 4(2) thereof
as transactions by an issuer not involving any public offering, in that (i) the
1998 Acquisition Shares were issued and sold to the respective Acquired Retail
Owners who, at the respective times of entering into the respective agreements
providing for the respective 1998 Retail Acquisitions, represented to the
Company that they were "accredited investors" as such term is defined in the
Securities Act and that they were acquiring the respective 1998 Acquisition
Shares solely for investment for their own account and not with a view toward
the resale or distribution thereof, (ii) at such respective times the Company
provided written disclosure to the respective Acquired Retail Owners stating,
and the respective Acquired Retail Owners acknowledged, that the respective 1998
Acquisition Shares were not registered under the Securities 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
respective 1998 Acquisition Shares and (iv) the Company did not engage in any
general solicitation or advertising in connection with entering into the
respective agreements providing for the 1998 Retail Acquisitions or the issuance
and sale of the respective 1998 Acquisition Shares.
11
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL 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, 1998
are derived from the consolidated financial statements of the Company, which
financial statements have been audited by KPMG LLP, independent certified public
accountants ("KPMG"). The following selected consolidated financial data should
be read in conjunction with Item 7 - "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and the Consolidated Financial
Statements of the Company, including the notes thereto, referred to in Item 8.
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
Statement of Operations Data: (U.S. $ in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net revenues:
Quarrying $16,889 $15,295 $12,083 $14,090 $19,225
Manufacturing 17,299 17,793 32,586 38,336 44,294
Retailing 1,781 18,597
Total net revenues 34,188 33,088 44,669 54,207 82,746
Gross Profit:
Quarrying 6,044 6,104 5,158 5,606 8,780
Manufacturing 4,050 4,345 8,248 9,302 10,842
Retailing 1,198 10,799
Total gross profit 10,094 10,449 13,406 16,106 30,421
Selling, general and administrative expenses 6,049 6,453 9,131 11,036 20,371
Income from operations 4,045 3,996 4,275 5,070 10,050
Interest expense 1,653 1,678 1,723 1,576 511
Other expenses 564
Income before provision for income taxes 2,392 1,754 2,552 3,494 9,539
Provision for income taxes 577 358 643 849 2,303
Net income $ 1,815 $ 1,396 $ 1,909 $ 2,645 $ 7,236
======= ======= ======= ======= =======
Net income per share $ 0.52 $ 0.40 $ 0.55 $ 0.62 $ 0.98
Net income per share assuming dilution $ 0.46 $ 0.35 $ 0.45 $ 0.53 $ 0.91
Weighted average number of shares outstanding 3,500 3,500 3,500 4,290 7,349
Weighted average number of shares outstanding
assuming dilution 3,908 4,027 4,208 4,997 7,984
<CAPTION>
As of December 31,
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents $ 394 $ 1,995 $ 763 $ 8,637 $ 4,701
Working capital 13,668 13,691 13,286 28,737 26,520
Total assets 42,529 48,101 47,995 93,137 121,893
Long-term debt, net of current maturities 16,655 14,657 13,054 975 12,880
Stockholders equity 10,686 15,479 17,371 77,844 85,837
</TABLE>
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
Rock of Ages is an integrated quarrier, manufacturer, distributor and
retailer of granite and products manufactured from granite. The quarry division
sells granite blocks 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 retail division primarily sells granite memorials directly to
consumers.
In June 1997, the Company acquired the successor to Keystone Memorials,
Inc. ("Keystone") and in October 1997, acquired Childs & Childs Granite Company
Inc. ("C&C"), both granite memorial manufacturers in Elberton, Georgia. In
connection with the Keystone and C&C acquisitions, the Company also acquired
Southern Mausoleums, Inc., (collectively referred to as the "Acquired
Manufacturing Operations"). Also in connection with the Keystone and C&C
acquisitions, the Company acquired three granite quarrying companies operating
quarries located in Georgia, Pennsylvania, North Carolina, South Carolina and
Oklahoma. In November 1998, the Company acquired another quarry company in North
Carolina which produces a white granite that will be a companion stone for the
Bethel White Quarry. These quarry companies are referred to as the "Acquired
Quarrying Operations". In October 1997, the Company acquired the Keith Monument
Company and related companies that are engaged in the retail sales of granite
memorials to consumers in the State of Kentucky. In addition, during the year
ended December 31, 1998, the Company made thirteen more acquisitions of retail
monument companies, thereby expanding its retail presence to locations in
Georgia, Iowa, Illinois, Minnesota, Nebraska, New Jersey, Pennsylvania, Ohio and
South Dakota. The aforementioned retailers acquired in 1997 and 1998 are
collectively referred to as the "Acquired Retailing Operations".
The Company records revenues from quarrying, manufacturing and retailing.
The granite quarried by the Company is sold both to outside customers and used
by the Company's manufacturing division. The Company records revenue and gross
profit related to the sale of granite sold to an outside customer either when
the granite is shipped or when the customer selects and identifies the blocks at
the quarry site. 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. Manufacturing revenues related to
outside customers are recorded when the finished product is shipped from Company
facilities. Manufacturing revenues related to internally transferred finished
products are recorded when ultimately sold at retail to an outside customer.
Retailing revenues are recorded when the finished monument is placed in the
cemetery.
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<PAGE>
The following table sets forth certain historical statement of operations
data as a percentage of net revenues with the exception of quarrying,
manufacturing and retailing gross profit, which are shown as a percentage of
quarrying, manufacturing and retailing revenues respectively.
Year Ended December 31,
1996 1997 1998
---- ---- ----
Statement of Operations Data:
Net Revenues:
Quarrying 27.1% 26.0% 23.2%
Manufacturing 72.9% 70.7% 54.3%
Retailing 0.0% 3.3% 22.5%
Total net revenues 100.0% 100.0% 100.0%
Gross Profit:
Quarrying 42.7% 39.8% 45.7%
Manufacturing 25.3% 24.3% 24.1%
Retailing 0.0% 67.3% 58.1%
Total gross profit 30.0% 29.7% 36.7%
Selling, general & administrative expenses 20.4% 20.3% 24.6%
Income from operations 9.6% 9.4% 12.1%
Interest expense 3.9% 2.9% 0.6%
Income before provision for income taxes 5.7% 6.5% 11.5%
Provision for income taxes 1.4% 1.6% 2.8%
Net income 4.3% 4.9% 8.7%
==== ==== ====
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997.
Revenues for the fiscal year ended December 31, 1998 increased 52.6% to
$82.7 million from $54.2 million for the year ended December 31, 1997. Quarrying
revenues increased $5.1 million, of which $.7 million was from existing quarry
operations and the remaining $4.4 million from Acquired Quarrying Operations,
primarily due to strong exports from the Salisbury quarry. Manufacturing
revenues increased $6.6 million primarily from the Acquired Manufacturing
Operations. Monument manufacturing revenue increases of $1.0 million from
existing operations were more than offset by a reduction of $2.7 million in
precision products revenues. The Company's Acquired Retailing Operations
accounted for the entire increase of $16.8 million in revenues for the retailing
segment.
Gross profit for the fiscal year ended December 31, 1998 increased 88.9%
to $30.4 million from $16.1 million for the fiscal year ended December 31, 1997.
Quarrying gross profit from existing operations increased $1.2 million
reflecting increased productivity at all major quarry locations. The Company's
Acquired Quarrying Operations reported an increase in gross profit of $2.0
million for a total increase of $3.2 million from quarrying operations. The
quarrying gross profit percentage increased to 45.7% in 1998 from 39.8% in 1997.
Manufacturing gross profit increased $1.5 million, which was attributable
to the Acquired Manufacturing Operations. Monumental manufacturing gross profit
increases of $2.2 million were offset by reductions in precision products gross
profit of $.7 million. The manufacturing gross profit percentage decreased from
24.3% in 1997 to 24.1% in 1998 due to a decrease in sales of higher margin
precision products.
The Company's Acquired Retailing Operations accounted for all of the 1998
gross profit of $10.8 million as prior to the Keith Monument acquisition in
October 1997 the Company had no retailing presence. The gross profit percentage
for these operations decreased to 58.1% in 1998 from 67.3% in 1997 principally
because 1997 results for these operations reflected the Company's highest margin
sales (by Keith Monument) and only for a partial year which did not include the
low seasonal first quarter.
Selling, general and administrative expenses for 1998 increased 84.6% to
$20.4 million from $11.0 million in 1997. Acquired operations accounted for all
of this increase as the existing operations reported a reduction in selling,
general and administrative expenses of $.6 million. As a percentage of net
sales, these expenses for 1998 increased to 24.6% from 20.3% in 1997. This
increase is attributable to the introduction of retailing activities, which have
a higher
14
<PAGE>
level of selling, general and administrative expenses, and the Company's
investment in people in anticipation of continued growth.
Interest expense for the fiscal year ended December 31, 1998 decreased to
$.5 million from $1.6 million for the fiscal year ended December 31, 1997. This
decrease is the result of the reduction of debt levels from the net proceeds of
the IPO. Debt levels did increase during the final two quarters of 1998 due to
the implementation of the retail acquisition strategy.
Income taxes as a percent of earnings before taxes decreased from 24.3% in
1997 to 24.1% in 1998. The Company's taxable income exceeded alternative minimum
tax ("AMT") levels in 1998; however, available AMT credits resulted in the
Company's effective tax rate remaining at historical levels.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996.
Revenues for the fiscal year ended December 31, 1997 increased 21.4% to
$54.2 million from $44.7 million for the year ended December 31, 1996. Quarrying
revenues increased $2.0 million, of which $1.3 million was from existing quarry
operations due to stronger monumental markets and increased exports to Japan.
The remaining $671,000 increase was generated by acquired quarrying operations.
Manufacturing revenues increased $5.7 million primarily from the acquired
manufacturing operations in Elberton, Georgia, with existing operations showing
a modest increase of $285,000. The Company's retail operations, consisting of
Keith Monument, which was acquired in October 1997, accounted for $1.8 million
in revenues.
Gross profit for 1997 increased 20.1% to $16.1 million from $13.4 million
in 1996. Quarrying gross profit increased $357,000 from existing operations and
$91,000 from acquired operations for a total of $448,000. The quarry gross
margin percentage fell from 42.7% in 1996 to 39.8% in 1997. This was the result
of increased sales volumes from lower margin products. In addition, the acquired
quarry operations reported a gross profit percentage of 13.6% for 1997. The
acquired operations were included for the months of November and December that
are normally periods of reduced operating margins.
Manufacturing gross profit increased by $1.1 million from 1996, resulting
from an increase of $386,000 from existing operations due to improved product
mix plus efficiencies achieved by consolidating manufacturing operations, and an
increase of $668,000 from acquired operations. The manufacturing gross profit
percentage decreased from 25.3% in 1996 to 24.3% in 1997. This decrease was the
result of a lower gross profit percentage from acquired operations, which offset
increases at existing operations. Price increases and work force adjustments
have been implemented in 1998 to improve operating margins at the acquired
operations.
Retailing gross profit was $1.2 million for 1997. Prior to October 1997,
the Company had no retailing presence. The gross profit percentage for this
segment was 67.3%.
Selling, general and administrative expenses for 1997 increased 20.9% to
$11.0 million from $9.1 million in 1996. Existing operations accounted for
$371,000 of the increase consisting of charges for previously deferred
organization and financing costs and settlement of a legal action, and an
increase to the provision for doubtful accounts. Acquired operations resulted in
an increase of another $1.5 million. As a percentage of net sales, selling,
general and administrative expenses for 1997 decreased to 20.3% from 20.4% in
1996.
Interest expense for 1997 decreased 8.5% to $1.6 million from $1.7 million
in 1996, as a result of the retirement of all existing bank debt, with the
exception of a revolving line of credit with the Royal Bank of Canada, from the
net proceeds of the IPO in October 1997.
Income taxes as a percent of earnings before taxes decreased from 25.2% in
1996 to 24.3% in 1997. The Company continues to be in an AMT position for
Federal income tax purposes. The decrease in the effective rate resulted from
Canadian income being applied against a tax-loss carry back.
Liquidity and Capital Resources
Liquidity. The Company considers its liquidity to be adequate 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 acquisitions
have increased its
15
<PAGE>
requirements for external sources of liquidity, and the Company anticipates that
this trend will continue as it further implements its growth strategy.
Year Ended December 31, 1998. For 1998, net cash provided by operating
activities was $3.7 million. This result was primarily attributable to net
income of $7.2 million and depreciation, depletion and amortization of $3.3
million, reduced by an increase in inventories of $4.0 million. Net cash used in
investing activities was $23.9 million primarily for net acquisitions of $20.5
million and the purchase of property, plant and equipment of $3.5 million. Net
cash provided by financing activities was $16.5 million. This result was
primarily attributable to proceeds from long-term debt of $12.0 million and net
borrowings under lines of credit of $5.4 million.
Capital Resources. The Company has a credit facility with the CIT
Group/Business Credit. The facility consists of an acquisition term loan line of
credit of up to $25.0 million and a revolving credit facility of up to another
$25.0 million based on eligible accounts receivable and inventory. As of
December 31, 1998, the Company had $12.0 million outstanding and $13.0 million
available under the term loan line of credit and $6.4 million outstanding and
$6.8 million available under the revolving credit facility. The interest rate
under the revolving credit facility as of such date was 7.25% based on a formula
of prime less .50%. The interest rate under the term loan as of such date was
6.97% based on a formula of LIBOR plus 1.75%. As of December 31, 1998, the
Company also had $.3 million outstanding and $2.0 million available under a
demand revolving line of credit with the Royal Bank of Canada. The interest rate
on this facility as of such date was 7.50% 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 approximately $3.0 million
budgeted for capital expenditures in 1999. The Company believes that the
combination of cash flow from operations and its existing credit facilities will
be sufficient to fund its operations for at least the next twelve months.
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. In
addition, the Company typically closes certain of its Vermont and Canadian
quarries during these months because of increased operating costs attributable
to adverse weather conditions. As a result, the Company has historically
incurred a net loss during the first three months of each calendar year.
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.
Year 2000
The Company has developed a plan to address the Year 2000 issue and is
currently in the process of implementing that plan.
Scope of Readiness. A large part of the Company's legacy IT systems
would require substantial resources to become Year 2000 compliant. Instead of
remediating those core systems, the Company decided to replace those systems
with a purchased package that is Year 2000 compliant in addition to software
written in house that is also Year 2000 compliant. This decision was based on
Year 2000 compliance requirements as well as the need to upgrade the software
to meet current and future business requirements. Installation of the
purchased software was complete in 1998 and implementation of those systems
is expected to be complete by mid-1999. In house programming and the
installation and implementation of purchased software packages is being
performed by three information technology employees as well as two external
programmer/analysts. Other IT infrastructure equipment is generally Year 2000
compliant, however, some hardware systems will be replaced by year end 1999.
Support software is being evaluated by in-house personnel and will be
remediated or replaced by mid-1999.
Non-IT systems (HVAC systems, machine controls, and other similar systems)
have been evaluated and are not materially affected by the Year 2000 compliance
issue. Suppliers to the Company have been evaluated and management believes that
critical suppliers do not have any Year 2000 compliance issues. The Company
believes that products sourced from a non-critical supplier facing a Year 2000
compliance issue could be sourced elsewhere.
16
<PAGE>
Products manufactured by the Company do not utilize programmable logic to
function and are not affected by Year 2000 compliance issues.
Costs to Address Year 2000 Issues. Expenditures for Year 2000 remediation
are not separable from the costs of software and hardware associated with the
normal course of business. Year 2000 remediation costs are not expected to be
material to the Company's financial position.
Risk of Year 2000 Issues. The timing of a Year 2000 related disruption
would coincide with a seasonal low in the Company's business cycle and thus have
less impact on the business than it otherwise would during other parts of the
cycle. The Company estimates the most likely worst case Year 2000 scenarios as
follows:
1. A portion of non-core IT systems experience temporary disruption. Such
disruption is not expected to have a material impact on the Company's
ability to function.
2. A portion of the manufacturing operations experience temporary disruption.
Such disruption is not expected to have a material impact on the Company's
ability to function.
3. A portion of the supplier base experiences disruption. Such disruption is
not expected to have a material impact on the Company's ability to
function.
Contingency Plans. Although the Company has not yet developed a
contingency plan for each of the scenarios above, the Company would respond to
those scenarios as follows:
1. A contingency plan will be developed if the perceived risk increases.
2. It is expected that normal safety block levels would cover such a
scenario. Appropriate levels will be determined by business conditions and
perceived risk.
3. The Company would source materials from alternative suppliers.
New Accounting Pronouncements
SOP 98-5, Reporting on the costs of start-up activities, will be effective
for periods beginning after December 15, 1998. Implementation of the SOP will
result in the remaining net book value of organization costs of $220,513 at
December 31, 1998 being expensed on January 1, 1999.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has financial instruments that are subject to interest rate
risk, principally debt obligations under its credit facilities. Historically,
the Company has not experienced material gains or losses due to interest rate
changes. Based on the Company's current variable rate debt obligations, the
Company believes its exposure to interest rate risk is not material.
The Company is subject to foreign currency exchange rate risk primarily
from the operations of its Canadian subsidiary. Based on the size of this
subsidiary and the Company's corresponding exposure to changes in the
Canadian/U.S. dollar exchange rate, the Company does not consider its market
exposure relating to currency exchange to be material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The information required for this item is included in this Annual Report
on Form 10-K on Pages 26 through 56, inclusive, and is incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company believes, and it has been advised by KPMG that KPMG concurs
with the Company's belief that during the period of its engagement, the Company
and KPMG did not have any disagreement on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedures, which
disagreement, if not resolved to the satisfaction of KPMG, would have caused it
to make reference in connection with its report on the Company's financial
statements to the subject matter of the disagreement.
17
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Certain information concerning directors and executive officers of the
Company is set forth below:
Names of Directors and Executive
Officers(1) Age Positions with the Company
- -------------------------------- --- ---------------------------------------
George R. Anderson (2) 59 Senior Vice President, Director
John L. Forney (3) 36 Chief Financial Officer, Treasurer
James L. Fox 47 Director
Mark A. Gherardi 40 Senior Vice President/
Manufacturing/Memorials Division
Jon M. Gregory 49 President and Chief Operating
Officer/Quarries Division, Director
John E. Keith 51 President/Memorials Division
Richard C. Kimball 58 Chief Operating Officer/Memorials
Division, Vice Chairman of the Board
of Directors
Kurt M. Swenson 54 President and Chief Executive Officer,
Chairman of the Board of Directors
Charles M. Waite 66 Director
Frederick E. Webster, Jr 61 Director
- ----------
(1) Each executive officer serves for a term of one year (and until his
successor is chosen and qualified).
(2) Mr. Anderson resigned as Chief Financial Officer and Treasurer, effective
February 1, 1999.
(3) Mr. Forney assumed the position of Chief Financial Officer and Treasurer,
effective February 1, 1999.
George R. Anderson has been a Senior Vice President and a director of the
Company since 1984. From 1984 until February 1999, Mr. Anderson was also Chief
Financial Officer and Treasurer. Mr. Anderson joined the Company in 1969 as
Chief Accountant and subsequently held the position of Controller. 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
current term as a director will expire in 1999.
John L. Forney has been Chief Financial Officer and Treasurer of the
Company since February 1999. Prior to assuming that position and since 1996, Mr.
Forney was Senior Vice President of Finance at Raymond James & Associates, Inc.
From 1994 to 1996, Mr. Forney was a Vice President at Morgan Stanley & Company.
James L. Fox has been Executive Vice President and General Manager of
First Data Investor Services Group, a division of First Data Corporation, since
1989. Mr. Fox has been a director of the Company since October 1997. Mr. Fox's
current term as a director of the Company will expire in 2001.
Mark A. Gherardi has been Senior Vice President/Manufacturing/Memorials
Division of the Company since March 1999. Prior to that time and since 1996, Mr.
Gherardi was Senior Vice President - Barre and Canada Manufacturing Operations
of the Company. Prior to 1996, Mr. Gherardi held various sales and production
positions over a 20-year period with Lawson Granite Company.
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<PAGE>
Jon M. Gregory has been President and Chief Operating Officer/Quarries
Division of the Company since 1993. Mr. Gregory was elected by the Board of
Directors to his current directorship in October 1998. Since joining the Company
in 1975, Mr. Gregory has served in various positions including Senior Vice
President - Memorials Division, Manager of Manufacturing and line production
supervisor. Mr. Gregory's current term as a director will expire in 2000.
John E. Keith has been President/Memorials Division of the Company since
October 1997. Prior to that time and since 1989, Mr. Keith was an owner and the
President of Keith Monument. From 1965 to 1989, Mr. Keith held various officer
positions with Keith Monument.
Richard C. Kimball has been Chief Operating Officer/Memorials Division of
the Company and Vice Chairman of the Company's 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 will expire in 2000.
Kurt M. Swenson has been President, Chief Executive Officer and Chairman
of the Board of Directors of the Company since 1984. Prior to the IPO, Mr.
Swenson had been the Chief Executive Officer and a director of Swenson Granite
Company, Inc. since 1974, and currently serves as non-officer Chairman of the
Board of Swenson Granite Company, LLC, a Delaware limited liability company
engaged in the granite curb and landscaping business. He is also a director of
the American Monument Association, the Funeral and Memorial Information Council,
the National Building Granite Quarries Association and Group Polycor
International. Mr. Swenson's current term as a director 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 2001.
Frederick 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 has
been a director of the Company since October 1997. Mr. Webster's current term as
a director will expire in 1999.
19
<PAGE>
ITEM 11. 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, 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation -------------- -----------------
- ---------------------------------------------------------------- ---------------------- Securities All Other
Name and Principal Position Year Salary Bonus Options(#) Compensation(1)
--------------------------- ------ ---------- --------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
Kurt M. Swenson 1998 $310,320 $36,000 -0- $1,150
President, Chief Executive Officer,
Chairman of the Board of Directors
Richard C. Kimball 1998 $210,360 $33,000 -0- $1,150
Chief Operating Officer/Memorials Division,
Vice Chairman of the Board of Directors
George R. Anderson 1998 $166,320 $15,000 -0- $1,150
Senior Vice President, Director (2)
Jon M. Gregory 1998 $171,920 $22,000 -0- $1,150
President and Chief Operating Officer/Quarries
Division, Director
John E. Keith 1998 $169,200 $17,500 -0- $1,150
President/Memorials Division
</TABLE>
- ----------
(1) In each case, represents a matching contribution under the Company's 401K
plan.
(2) Mr. Anderson resigned as Chief Financial Officer and Treasurer, effective
February 1, 1999.
20
<PAGE>
Stock Option Grants
No grants of stock options were made during the year ended December 31,
1998 by the Company to the Named Executive Officers.
The following table sets forth information concerning options to purchase
Class B Common Stock (except for John E. Keith who has options to purchase Class
A Common Stock) held by the Named Executive Officers. The Class B Common Stock
is convertible on a share-for-share basis into Class A Common Stock. During
1998, 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, 1998 at December 31, 1998(1)
----------------------------------- ----------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Kurt M. Swenson 107,500 5,000 $1,236,975 $ 50,650
Richard C. Kimball 82,500 5,000 988,200 52,550
George R. Anderson 65,000 10,000 750,150 105,100
Jon M. Gregory 55,000 20,000 611,550 210,200
John E. Keith 25,000 37,500 0 0
</TABLE>
(1) These values are calculated using the $14 1/4 per share closing price of the
Class A Common Stock on the Nasdaq(R) National Market on December 31, 1998.
Pension Plans
The Company maintains a qualified pension plan (the "Pension Plan"), and
has entered into non-qualified salary continuation agreements (the "Salary
Continuation Agreements") with certain officers of the Company, including the
Named Executive Officers listed in the table on the next succeeding page. 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 Pension Plan.
The annual pension benefits shown for the Pension Plan assume a participant
attains age 65 during 1999 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
- ------------ -------- -------- -------- -------- --------
<C> <C> <C> <C> <C> <C>
$125,000...................... $39,274 $52,365 $65,456 $78,547 $78,547
$150,000...................... $47,524 $63,365 $79,206 $95,047 $95,047
$175,000...................... $55,774 $74,365 $92,956 $111,547 $111,547
$200,000...................... $64,024 $85,365 $106,706 $128,047 $128,047
$225,000...................... $72,274 $96,365 $120,456 $144,547 $144,547
$250,000...................... $80,524 $107,365 $134,206 $161,047 $161,047
$275,000...................... $88,774 $118,365 $147,956 $177,547 $177,547
$300,000...................... $97,024 $129,365 $161,706 $194,047 $194,047
$325,000...................... $105,274 $140,365 $175,456 $210,547 $210,547
$350,000...................... $113,524 $151,365 $189,206 $227,047 $227,047
</TABLE>
21
<PAGE>
These calculations are based on the retirement formula in effect as of
December 31, 1998, 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, 1998 and rounded to the full year, are: Mr. Anderson, 30
years; Mr. Gregory, 23 years; Mr. Keith, 1 year; Mr. Kimball, 6 years; and Mr.
Swenson, 15 years.
In addition, the Company's Salary Continuation Agreements provide for
supplemental pension benefits to certain officers of the Company, including the
Named Executive Officers listed in the table below. The following table sets
forth the supplemental pension benefits for the specified Named Executive
Officers under their respective Salary Continuation Agreements.
Annual
Total Years Retirement
Annual Base of Service Benefit
Name Compensation at Age 65 at Age 65
- ---- ------------ --------- ---------
G. Anderson............... $166,320 35 35,925
R. Kimball................ $210,360 12 27,347
K. Swenson................ $310,320 26 92,165
J. Gregory................ $171,920 39 41,261
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.
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 Company's Amended and Restated 1994 Stock Plan.
Employment Agreements
The Company has 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
commenced on October 24, 1997, the date of consummation of the IPO (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 a termination
related to a Change in Control, 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
22
<PAGE>
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
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 also has employment agreements with each of the other Named
Executive Officers (such employment agreements being referred to collectively as
the "Other Employment Agreements") , each of which provides for an initial
five-year employment term commencing on October 24, 1997, the date of
consummation of the IPO. The Other 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 employee's
employment is terminated by the Company without Cause (as defined in the Other
Employment Agreements). The Other Employment Agreements or related undertakings
generally prohibit the employee 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. As noted above under Item
10, George R. Anderson resigned as the Company's Chief Financial Officer and
Treasurer, effective February 1, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 25, 1999, certain information
with respect to the beneficial ownership of the Common Stock by each (i)
director, (ii) executive officer and (iii) beneficial owner of more than 5% of
either class of the outstanding Common Stock known to the Company, based on
Securities and Exchange Commission filings and other available information, and
(iv) by all directors and executive officers of the Company as a group. The
Class B Common Stock is convertible on a share-for-share basis into Class A
Common Stock. The Class B Common Stock is entitled to ten votes per share and
the Class A Common Stock is entitled to one vote per share.
<TABLE>
<CAPTION>
Shares of Class B Shares of Class A
Common Stock Common Stock
Beneficially Owned Beneficially Owned
Name and Address of Beneficial Owner(1) Number Percent of Class Number (2) Percent of Class (2)
- --------------------------------------- ------ ---------------- ---------- --------------------
<S> <C> <C> <C> <C>
Goldman Sachs Group LP(3)
85 Broad Street
New York, NY 10004......................... - - 507,700 13.0
First Union Corporation (4)
One First Union Center
Charlotte, NC 28288-0137................... - - 383,700 9.9
Wellington Management Company(5)
75 State Street
Boston, MA 02109........................... - - 401,200 10.3
J.P. Morgan & Co., Incorporated(6)
60 Wall Street
New York, NY 10260......................... - - 211,000 5.4
G. Thomas Oglesby, Jr.(7).............................. 263,441 6.9 293,441 5.7
Kurt M. Swenson(8)+.................................... 1,023,489 26.8 1,130,989 20.5
Kevin C. Swenson(9).................................... 1,023,489 26.8 1,023,489 18.9
Mark A. Gherardi(10)+.................................. 307,573 8.0 307,573 6.5
Robert L. Pope(11)..................................... 231,375 6.1 231,375 5.0
Peter A. Friberg (12).................................. 236,375 6.2 236,375 5.1
Richard C. Kimball +................................... 29,126 0.8 111,926 2.5
John E. Keith (13)+.................................... - - 65,540 1.5
George R. Anderson(14)+................................ 65,000 1.7 65,000 1.5
Jon M. Gregory(15)+.................................... 30,000 * 84,126 1.9
John L. Forney(16)+.................................... - * 15,000 *
Charles M. Waite+...................................... 29,126 * 30,000 *
James L. Fox(17)+...................................... - - 12,650 *
Frederick E. Webster, Jr.(18)+......................... - - 11,650 *
All directors and executive officers as a group
(10 persons)........................................ 1,484,314 38.8 1,834,454 29.4
</TABLE>
- ----------
+ Executive Officer and/or Director
* Less than 1%
23
<PAGE>
(1) The business address of each director and executive officer of the Company
is c/o Rock of Ages Corporation, 772 Graniteville Road, Graniteville,
Vermont 05654.
(2) For each beneficial owner (and directors and executive officers as a
group), (i) the number of shares of Class A Common Stock listed includes
(or is comprised solely of) a number of shares equal to the number of
shares of Class B Common Stock, if any, listed as beneficially owned by
such beneficial owner(s) and (ii) the percentage of Class A Common Stock
listed assumes the conversion on March 25, 1999 of all shares of Class B
Common Stock, if any, listed as beneficially owned by such beneficial
owner(s) into Class A Common Stock and also that no other shares of Class
B Common Stock beneficially owned by others are so converted.
(3) According to an Amendment No. 1 to Schedule 13G dated February 14, 1999,
the shares listed are owned by Goldman Sachs Performance Partners, L.P.
and Goldman Sachs Performance Partners (Offshore), L.P., or are owned or
may deem to be beneficially owned by Goldman Sachs & Co., a registered
broker or dealer and investment advisor.
(4) According to a Schedule 13G dated February 11, 1999, the shares listed are
owned by certain subsidiaries of First Union Corporation which are either
investment advisors or hold the securities in a fiduciary capacity for
their respective customers.
(5) According to an Amendment No. 1 to Schedule 13G dated February 26, 1999,
Wellington Management Company LLP, in its capacity as an investment
advisor, may be deemed to be the beneficial owner of the listed shares
which are held of record its clients.
(6) According to a Schedule 13G dated February 23, 1999, the shares listed are
owned by certain bank and investment advisor subsidiaries of J.P. Morgan &
Co. Incorporated.
(7) The 263,441 shares of Class B Common Stock listed are owned of record by
Missouri Red Quarries, Inc. Missouri Red Quarries, Inc. is 100% owned by
G. Thomas Oglesby, Jr. who is its President and sole director. Includes
30,000 shares of Class A Common Stock subject to currently exercisable
stock options.
(8) Kurt M. Swenson is the brother of Kevin C. Swenson.
(9) Kevin C. Swenson is the brother of Kurt M. Swenson.
(10) Includes 60,000 shares of Class B Common Stock subject to currently
exercisable stock options.
(11) Includes 60,000 shares of Class B Common Stock subject to currently
exercisable stock options.
(12) Includes 60,000 shares of Class B Common Stock subject to currently
exercisable stock options.
(13) Includes 25,000 shares of Class A Common Stock subject to currently
exercisable stock options.
(14) All 65,000 shares of Class B Common Stock listed are subject to currently
exercisable stock options.
(15) All 30,000 shares of Class B Common Stock listed are subject to currently
exercisable stock options.
(16) All 15,000 shares of Class A Common Stock listed are subject to currently
exercisable stock options.
(17) Includes 11,650 shares of Class A Common Stock subject to currently
exercisable stock options.
(18) All 11,650 shares of Class A Common Stock listed are subject to currently
exercisable stock options.
24
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with and prior to the IPO, the Company effected a
reorganization whereby, among other things, the Company's then parent
corporation Swenson Granite Company, Inc. ("Swenson Granite") was merged with
and into the Company, with the Company as the surviving corporation, and,
immediately prior to such merger, Swenson Granite distributed its curb and
landscaping business to its stockholders 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"). Kurt M. Swenson, the Company's
Chairman, President and Chief Executive Officer, and his brother Kevin C.
Swenson, each own approximately 30.3% of Swenson Granite LLC. Certain other
executive officers and directors of the Company collectively own approximately
9% of Swenson LLC. Kurt M. Swenson serves as a non-officer Chairman of the Board
of Swenson LLC, but has no involvement with its day-to-day operations. Robert
Pope, a holder of more than five percent of the Class B Common Stock, is the
President and Chief Executive Officer, and owns approximately 5% of Swenson LLC.
Neither Kurt M. Swenson nor any other officer of the Company, receives salary,
bonus, expenses or other compensation from Swenson LLC, except for any pro rata
share of earnings attributable to their ownership interest in Swenson LLC.
Swenson LLC owns two granite quarries, one in Concord, New Hampshire and
another in Woodbury, Vermont. Both have been owned by Swenson LLC (or its
predecessor Swenson Granite) for more than 40 years. The Company purchases
Woodbury granite from Swenson LLC at the same price Swenson LLC charges its
landscape manufacturing operations. Because of the proximity of the Woodbury
quarry to Barre, Vermont, the Company provides, and may continue to provide,
certain maintenance services and equipment to the Woodbury quarry. Both the
Company and Swenson LLC have the right to terminate these services at any time
and the Company has no obligation to purchase or continue to purchase Woodbury
granite from Swenson LLC. The Company also purchases Concord blocks from Swenson
LLC at market prices. The Company's purchases of granite provided by Swenson LLC
in 1998 were approximately $579,000. The Company believes these arrangements
with Swenson LLC are as favorable, or more favorable, to the Company than would
be available from an unrelated party for comparable granite blocks.
In connection with the Keystone acquisition in 1997, the Company entered
into the Supply Agreements with Missouri Red and its subsidiary KGCI. 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 to the Company as would be available
from unrelated suppliers. In 1998, the Company's purchases from Missouri Red
were approximately $790,000.
In connection with the acquisition of Keith Monument in 1997, the Company
entered into a five year triple net lease agreement with John E. Keith, who is
an executive officer of the Company, and Mr. Keith's nephew, for office
buildings and retail locations. The lease provides for, and in 1998 the Company
paid, annual rental payments of $120,000.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of or are included
in this Annual Report on Form 10-K and are incorporated
herein by reference:
1. The financial statements listed in the Index to
Consolidated Financial Statements and Financial
Statement Schedule, filed as part of this Annual Report
on Form 10-K.
2. The financial statement schedule listed in the Index to
Consolidated Financial Statements and Financial
Statement Schedule, filed as part of this Annual Report
on Form 10-K.
3. The exhibits listed in the Exhibit Index filed as part
of this Annual Report on Form 10- K.
(b) Reports on Form 8-K: No reports on Form 8-K were filed by the
Company during the last quarter of the fiscal year ended
December 31, 1998.
25
<PAGE>
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Table of Contents
Page
Independent Auditors' Report 27
Consolidated Balance Sheets 28
Consolidated Statements of Operations 30
Consolidated Statements of Stockholders' Equity and Comprehensive Income 31
Consolidated Statements of Cash Flows 32
Notes to Consolidated Financial Statements 34
Supplementary Information:
Independent Auditors' Report on Supplementary Information 55
Schedule II - Valuation and Qualifying Accounts and Reserves 56
26
<PAGE>
Independent Auditors' Report
The Board of Directors
Rock of Ages Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Rock of Ages
Corporation and Subsidiaries as of December 31, 1998 and 1997 and the related
consolidated statements of operations, stockholders' equity and comprehensive
income and cash flows for each of the years in the three-year period ended
December 31, 1998. 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, 1998 and 1997, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
KPMG LLP
March 12, 1999
Burlington, Vermont
27
<PAGE>
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1998 and 1997
<TABLE>
<CAPTION>
Assets 1998 1997
-------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,701,168 8,636,860
Trade receivables, less allowance for doubtful accounts
of $2,123,702 in 1998 and $2,231,283 in 1997 (note 3) 14,003,954 12,857,282
Inventories (notes 2 and 3) 24,074,622 16,103,857
Income taxes receivable 585,765 --
Deferred tax assets (note 6) 352,201 352,201
Other current assets 1,548,658 1,050,565
-------------- --------------
Total current assets 45,266,368 39,000,765
-------------- --------------
Property, plant and equipment:
Granite reserves and development costs 16,461,219 14,445,660
Land 6,736,003 3,559,210
Buildings and land improvements 15,302,318 13,147,697
Machinery and equipment 36,328,432 31,758,198
Furniture and fixtures 960,994 502,263
Construction-in-process 418,823 802,684
-------------- --------------
76,207,789 64,215,712
Less accumulated depreciation, depletion and amortization 31,732,945 27,779,698
-------------- --------------
Net property, plant and equipment 44,474,844 36,436,014
-------------- --------------
Other assets:
Cash surrender value of life insurance, net of loans
of $95,412 in 1998 and 1997 1,426,476 1,175,741
Names and reputations, less accumulated amortization
of $771,428 in 1998 and $141,489 in 1997 29,070,802 15,249,822
Debt issuance costs, less accumulated amortization
of $42,436 in 1998 and $7,753 in 1997 195,495 82,691
Organization costs, less accumulated amortization of
$77,634 in 1998 and $40,930 in 1997 220,513 263,809
Deferred tax assets (note 6) 110,321 375,904
Intangible pension asset (note 8) 218,888 194,036
Investment in affiliated company (note 5) 130,627 130,627
Other investments 342,551 330,127
Other 436,241 91,764
-------------- --------------
Total other assets 32,151,914 17,894,521
-------------- --------------
Total assets (note 4) $ 121,893,126 93,331,300
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE>
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity 1998 1997
------------- ------------
<S> <C> <C>
Current liabilities:
Borrowings under lines of credit (note 3) $ 6,686,656 1,328,480
Current installments of long-term debt (note 4) 802,685 383,676
Trade payables 2,674,139 2,100,946
Accrued expenses 3,478,280 3,012,322
Due to related parties (note 10) 4,412 55,442
Income taxes payable -- 275,171
Deferred income -- 400,000
Customer deposits 5,099,963 2,707,970
------------- ------------
Total current liabilities 18,746,135 10,264,007
Long-term debt, excluding current installments (note 4) 12,879,661 974,570
Deferred compensation (note 8) 3,691,899 3,721,297
Accrued pension cost (note 8) 34,092 --
Accrued postretirement benefit cost (note 8) 569,645 527,514
Other 135,000 --
------------- ------------
Total liabilities 36,056,432 15,487,388
------------- ------------
Commitments (note 7)
Stockholders' equity (note 9):
Preferred stock - $.01 par value;
2,500,000 shares authorized
No shares issued and outstanding
Common stock - Class A, $.01 par value;
30,000,000 shares authorized
3,896,178 shares issued and outstanding in 1998
and 3,800,641 shares in 1997 38,962 38,007
Common stock - Class B, $.01 par value;
15,000,000 shares authorized
3,484,957 shares issued and outstanding in 1998
and 3,487,957 shares in 1997, convertible into
equivalent shares of Class A common stock 34,849 34,879
Additional paid-in capital 69,350,225 68,277,394
Retained earnings 16,897,906 9,661,879
Accumulated other comprehensive income (485,248) (168,247)
------------- ------------
Total stockholders' equity 85,836,694 77,843,912
------------- ------------
Total liabilities and stockholders' equity $ 121,893,126 93,331,300
============= ============
</TABLE>
29
<PAGE>
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Net revenues $ 82,745,780 54,207,117 44,668,851
Cost of revenues 52,324,812 38,100,903 31,262,530
------------- ------------- -------------
Gross profit 30,420,968 16,106,214 13,406,321
Selling, general and administrative expenses 20,371,776 11,035,768 9,131,459
------------- ------------- -------------
Income from operations 10,049,192 5,070,446 4,274,862
Interest expense 510,341 1,576,477 1,723,355
------------- ------------- -------------
Income before provision for income taxes 9,538,851 3,493,969 2,551,507
Provision for income taxes (note 6) 2,302,824 849,036 643,343
------------- ------------- -------------
Net income $ 7,236,027 2,644,933 1,908,164
============= ============= =============
Net income per share - basic $ .98 .62 .55
Net income per share - diluted $ .91 .53 .45
Weighted average number of common shares
outstanding - basic 7,349,371 4,289,858 3,499,998
Weighted average number of common shares
outstanding - diluted 7,984,094 4,997,229 4,207,825
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE>
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity and Comprehensive Income
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Number of Shares
Issued and Outstanding
-------------------------
Class A Class B
Common Common Class A Class B Additional
Stock Stock Common Common Paid-In Retained
(shares) (shares) Stock Stock Capital Earnings
---------- ---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance
at December 31, 1995 -- 3,499,998 $ -- $ 35,000 $ 5,593,843 $ 9,827,918
Comprehensive income:
Net income -- -- -- -- -- 1,908,164
Cumulative
translation
adjustment -- -- -- -- -- --
Total comprehensive
income
---------- ---------- ------------ ------------ ------------ ------------
Balance
at December 31, 1996 -- 3,499,998 -- 35,000 5,593,843 11,736,082
Comprehensive income:
Net income -- -- -- -- -- 2,644,933
Cumulative
translation
adjustment -- -- -- -- -- --
Total comprehensive
income
Dividends -- -- -- -- -- (1,069,136)
Swenson merger
(note 17) -- -- -- -- -- (3,650,000)
Issuance of stock
(note 15) 3,708,750 (275,482) 37,088 (2,755) 57,088,177 --
Acquisitions (note 16) 91,891 263,441 919 2,634 5,595,374 --
---------- ---------- ------------ ------------ ------------ ------------
Balance
at December 31, 1997 3,800,641 3,487,957 38,007 34,879 68,277,394 9,661,879
Comprehensive income:
Net income -- -- -- -- -- 7,236,027
Cumulative
translation
adjustment -- -- -- -- -- --
Minimum liability
adjustment -- -- -- -- -- --
Total comprehensive
income
Conversion of
common stock 5,000 (5,000) 50 (50) -- --
Exercise of options -- 2,000 -- 20 7,460 --
Purchase of options -- -- -- -- (381,200) --
Acquisitions (note 16) 90,537 -- 905 -- 1,446,571 --
---------- ---------- ------------ ------------ ------------ ------------
Balance
at December 31, 1998 3,896,178 3,484,957 $ 38,962 $ 34,849 $ 69,350,225 $ 16,897,906
========== ========== ============ ============ ============ ============
</TABLE>
Accumulated
Other Total
Comprehensive Stockholders'
Income Equity
------------ ------------
Balance
at December 31, 1995 $ 22,445 $ 15,479,206
Comprehensive income:
Net income -- 1,908,164
Cumulative
translation
adjustment (15,884) (15,884)
Total comprehensive
income 1,892,280
------------ ------------
Balance
at December 31, 1996 6,561 17,371,486
Comprehensive income:
Net income -- 2,644,933
Cumulative
translation
adjustment (174,808) (174,808)
Total comprehensive
income 2,470,125
Dividends -- (1,069,136)
Swenson merger
(note 17) -- (3,650,000)
Issuance of stock
(note 15) -- 57,122,510
Acquisitions (note 16) -- 5,598,927
------------ ------------
Balance
at December 31, 1997 (168,247) 77,843,912
Comprehensive income:
Net income -- 7,236,027
Cumulative
translation
adjustment (286,259) (286,259)
Minimum liability
adjustment (30,742) (30,742)
Total comprehensive
income 6,919,026
Conversion of
common stock -- --
Exercise of options -- 7,480
Purchase of options -- (381,200)
Acquisitions (note 16) -- 1,447,476
------------ ------------
Balance
at December 31, 1998 $ (485,248) $ 85,836,694
============ ============
See accompanying notes to consolidated financial statements.
31
<PAGE>
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 7,236,027 2,644,933 1,908,164
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation, depletion and amortization 3,308,377 2,106,642 1,846,298
Increase in cash surrender value of life insurance (149,685) (105,713) (165,130)
Loss (gain) on sale of property, plant and equipment 34,078 (40,612) (5,500)
Loss in income of affiliated company -- 130,341 160,661
Deferred taxes 207,044 (79,658) 16,486
Changes in operating assets and liabilities:
Decrease (increase) in trade receivables 538,321 (152,923) 2,231,586
Decrease (increase) in due to/from related parties (31,030) 38,872 (1,291,967)
Increase in inventories (3,996,110) (1,034,738) (1,081,430)
Decrease (increase) in other current assets 241,015 (376,363) (131,461)
Increase in intangible pension asset (24,852) (100,618) (93,418)
Decrease (increase) in other assets 26,462 (59,108) (193,401)
Decrease in trade payables (716,437) (996,628) (236,244)
Increase (decrease) in accrued expenses (607,247) (309,864) 301,154
Increase (decrease) in income taxes payable/receivable (941,723) (199,708) 69,302
Increase (decrease) in customer deposits (1,090,054) (238,225) 689,929
Increase (decrease) in deferred compensation (29,398) 217,207 271,996
Decrease in deferred income (400,000) (400,000) (400,000)
Increase (decrease) in accrued pension cost 34,092 (1,504,512) 2,188
Increase in accrued postretirement benefit cost 42,131 20,576 --
---------------- ---------------- ----------------
Net cash provided by (used in) operating activities 3,681,011 (440,099) 3,899,213
---------------- ---------------- ----------------
Cash flows from investing activities:
Purchases of property, plant and equipment (3,462,286) (4,100,519) (1,648,505)
Proceeds from sale of property, plant and equipment 40,725 136,959 14,476
Decrease (increase) in other investments (12,424) 56,340 49,753
Acquisitions, net of cash acquired (20,451,341) (19,124,100) (238,310)
---------------- ---------------- ----------------
Net cash used in investing activities (23,885,326) (23,031,320) (1,822,586)
---------------- ---------------- ----------------
Cash flows from financing activities:
Net borrowings (repayments) under lines of credit 5,358,176 (2,171,957) 920,578
Increase in debt issuance costs (147,398) (66,215) (36,415)
Increase in organization costs (9,717) (234,765) (172,689)
Proceeds from long-term debt 12,000,000 -- 122,082
Principal payments on long-term debt (327,016) (23,181,796) (4,126,635)
Net stock option transactions (373,720) -- --
Proceeds from issuance of common stock, net of fees -- 57,122,510 --
---------------- ---------------- ----------------
Net cash provided by (used in) financing activities 16,500,325 31,467,777 (3,293,079)
---------------- ---------------- ----------------
Effect of exchange rate changes on cash (231,702) (122,554) (15,026)
---------------- ---------------- ----------------
Net increase (decrease) in cash and cash equivalents (3,935,692) 7,873,804 (1,231,478)
Cash and cash equivalents, beginning of year 8,636,860 763,056 1,994,534
---------------- ---------------- ----------------
Cash and cash equivalents, end of year $ 4,701,168 8,636,860 763,056
================ ================ ================
Supplemental cash flow information:
Cash paid during the year for:
Interest $ 432,257 1,576,477 1,520,420
Income taxes 3,203,313 982,262 742,626
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE>
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Supplemental non-cash investing and financing activities: See Note 16 for
non-cash activities relating to the acquisitions.
During 1998, the Company adjusted goodwill and income tax payable for the
1997 acquisitions in the amount of $163,439 upon filing of final tax
returns.
During 1997, the Company dividended certain assets of $1,069,136 to a
related party, converted 275,482 shares of Class B common stock into Class A
common stock, and incurred a capital lease obligation of $555,687 in
exchange for property, plant and equipment.
See Note 17 for non-cash activities relating to the Swenson merger.
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Acquisitions:
Assets acquired $ 29,187,584 40,345,902 625,416
Liabilities assumed and issued (6,664,933) (13,271,975) (387,106)
Common stock issued (1,447,476) (5,598,927) --
---------------- ---------------- ----------------
Cash paid 21,075,175 21,475,000 238,310
Less cash acquired (623,834) (2,350,900) --
---------------- ---------------- ----------------
Net cash paid for acquisitions $ 20,451,341 19,124,100 238,310
================ ================ ================
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE>
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(1) Summary of Significant Accounting Policies
Rock of Ages Corporation and Subsidiaries (the "Company") is an integrated
quarrier, manufacturer, wholesaler and retailer of granite and products
manufactured from granite.
(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:
Buildings and land improvements 5 to 40 years
Machinery and equipment 3 to 20 years
Furniture and fixtures 5 to 12 years
Depreciation expense amounted to $2,547,300, $1,720,810 and $1,659,160
in 1998, 1997 and 1996, respectively, which includes depreciation
related to equipment under capital leases.
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 $58,080, $66,906 and
$54,013 in 1998, 1997 and 1996, respectively.
(e) Foreign Currency Translation
The Company translates the accounts of its foreign subsidiary in
accordance with Statement of Financial Accounting Standards (SFAS) No.
52, Foreign Currency Translation, 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 accumulated other comprehensive
income which is included in stockholders' equity in the accompanying
consolidated balance sheets.
34 (Continued)
<PAGE>
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(f) Income Taxes
The Company files its U.S. Federal income tax returns on a consolidated
basis. Rock of Ages Canada, Inc., a wholly-owned subsidiary, 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.
The Company is allowed to claim percentage depletion, under IRS Code
Section 613, for tax purposes based upon income derived from quarrying
operations.
The Company intends to reinvest the unremitted earnings of its
non-U.S. subsidiaries and postpone their remittance indefinitely.
Accordingly, no provision for U.S. income taxes was required on such
earnings during the three years ended December 31, 1998.
(g) Names and Reputations
Names and reputations, essentially goodwill, was recorded as a result
of acquisitions and is being amortized over 40 years using the
straight-line method. Amortization expense amounted to $615,389 in
1998, $111,039 in 1997 and $30,450 in 1996. The Company assesses the
recoverability of this intangible asset by determining whether the
amortization over its remaining life can be recovered through
undiscounted future operating cash flows of the acquired operations.
The amount of 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 names and reputations 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
$34,595, $131,046 and $70,141 in 1998, 1997 and 1996, respectively.
(i) Organization Costs
Organization costs are amortized using the straight-line method over 60
months. Amortization expense amounted to $53,013, $76,841 and $32,534
in 1998, 1997 and 1996, respectively.
(j) 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.
35 (Continued)
<PAGE>
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(k) 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.
(l) 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.
(m) 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. Neither the Class A common stock nor the Class B common
stock has cumulative voting rights.
Conversion - Class A common stock has no conversion rights. Class B
common stock is 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, as
defined in the Company's Amended and Restated Certificate of
Incorporation.
(n) Revenue Recognition
The manufacturing division recognizes revenue upon shipment of finished
orders. The retailing division recognizes revenue upon the setting of
the memorial. In certain instances, the Company may enter into an
agreement with a customer which provides 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.
36 (Continued)
<PAGE>
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
The quarry division recognizes revenue from sales of granite blocks
when the customer is invoiced for the block. At that time, the block is
removed from the Company's inventory, the customer's name is printed on
the block, and title and risk of ownership passes to the buyer. In many
cases, granite blocks owned by customers remain on the Company's
property for varying periods of time after title passes to the buyer.
Payment terms are less 5% 30 days, net 30 days, except the December
terms described below. Sales of the Company's blocks are FOB quarry and
the Company retains the obligation to load customer's blocks on trucks.
At its Barre, Vermont location, sales are FOB Barre, Vermont and the
Company retains a delivery obligation on the Company's trucks to block
customers in Barre. The customer may take delivery at any time
determined by the customer, but all invoices must be paid in accordance
with their terms when due whether or not the customer requests
delivery.
The Company considers the earnings process substantially complete
despite the Company's obligations to load the blocks, and, in the case
of its Barre customers, deliver the blocks, because the cost of
delivery service is inconsequential (less than 3%) in relation to
the selling price. Further, under industry terms of trade, title
passes and the payment obligation is established when the block is
identified to a particular transaction.
In December each year, the Company provides special 90 day payment
terms at its Barre quarries for all block purchased in the month of
December. The reason for this is that the Barre quarries are closed
from mid-December through mid-March. The customer's manufacturing
plants remain open during most of this period, and most prefer to
assure they own blocks of a size and quality selected by them prior to
the closure. All blocks purchased in December on deferred payment terms
are invoiced on or about December 31 and removed from the Company's
inventory with title passing to the buyer. Payment terms are one-third
of the invoice amount on January 15, one-third on February 15, and
one-third on March 15. The program provides essentially the normal 30
day payment terms during the months when the quarry is closed
notwithstanding the customer's purchase of a three months supply in
December. Customers need not use these terms and may buy from inventory
during the closure period on a first come first served basis with
normal 30 day terms.
The Company does not require collateral or other security on trade
receivables. The credit risk on trade receivables is controlled by
requiring significant deposits. The Company continuously monitors
outstanding trade receivables.
(o) 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.
(p) Stock-Based Employee Compensation
The Company uses the intrinsic value based method per Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, for all of its stock-based employee compensation
arrangements.
37 (Continued)
<PAGE>
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(q) Pension and Other Postretirement Plans
On January 1, 1998, the Company adopted SFAS No. 132, Employers'
Disclosures about Pension and Other Postretirement Benefits. SFAS
No. 132 revises employers' disclosures about pension and other
postretirement benefit plans. SFAS No. 132 does not change the
method of accounting for such plans.
(r) Net Income Per Share
Net income per share, or basic earnings per share, is computed by
dividing earnings available for common shares by the weighted average
number of common shares outstanding during each year. Net income per
share - diluted, or diluted earnings per share, is computed by dividing
earnings available for common shares by the weighted average number of
common shares outstanding during each year, adjusted to include the
additional number of common shares that would have been outstanding if
the dilutive potential common shares had been issued. Potential common
shares are not included in the diluted earnings per share calculations
where the effect of their inclusion would be antidilutive.
(s) Comprehensive Income
On January 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income. SFAS No. 130 establishes standards for reporting
and presentation of comprehensive income and its components in a full
set of financial statements. Comprehensive income consists of net
income, a cumulative translation adjustment, and a minimum liability
adjustment and is presented in the consolidated statements of
stockholders' equity and comprehensive income. The Statement requires
only additional disclosures in the consolidated financial statements;
it does not affect the Company's financial position or results of
operations. Prior year financial statements have been reclassified to
conform to the requirements of SFAS No. 130.
(t) Reclassifications
Certain reclassifications have been made to 1997 in order to conform to
the 1998 presentation.
(2) Inventories
Inventories consist of the following at December 31, 1998 and 1997:
1998 1997
------------ -----------
Raw materials $ 9,814,621 9,013,974
Work-in-process 5,724,011 2,261,444
Finished goods and supplies 8,535,990 4,828,439
------------ -----------
$ 24,074,622 16,103,857
============ ===========
38 (Continued)
<PAGE>
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(3) Lines of Credit
The Company's financing with the CIT Group/Business Credit, Inc. provides
for an acquisition term loan line of credit of $25 million and a revolving
credit facility of an additional $25 million. Effective July 1, 1998, 50%
of each facility has been assigned to the Bank of Boston, consistent with
the initial agreement. Such loans and advances under the revolving credit
facility shall be in amounts up to 75% of the outstanding eligible accounts
receivable of the Company and 50% of the aggregate value of eligible
inventory of the Company; however, advances against eligible inventory may
not exceed $12,500,000 at any one time. The acquisition term loans are
limited to two per calendar quarter and must be at least $1,000,000 each.
The interest rate on this agreement is based on a formula of prime less
.50%, or at the Company's election, the sum of 1-3/4% plus LIBOR. However,
if the Company chooses the latter option, the elections must be in
multiples of $1,000,000, and no more than four LIBOR elections may be in
effect at any one time. Fees include a one time fee of $125,000, a line of
credit fee of $4,167 per month and a collateral management fee of $1,000
per month. Amounts outstanding as of December 31, 1998 were $6,379,511 and
$12,000,000 on the revolving credit facility and term loan line of credit,
respectively. The weighted average interest rate was 7.96% on the revolving
credit facility in 1998. As of December 31, 1997, both credit lines were
unused and available in their entirety.
A subsidiary of the Company also has 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 Canadian prime rate plus
3/4%, and is secured by substantially all assets of the subsidiary. Amounts
outstanding as of December 31, 1998 and 1997 were $307,145 and $1,328,480,
respectively. The weighted average interest rates were 7.35% and 7.02% in
1998 and 1997, respectively.
(4) Long-Term Debt
Long-term debt at December 31, 1998 and 1997 consists of the following:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Note payable - Dutton, interest at 6%, payable in monthly principal and
interest payments of $674, unsecured, due December 2003 $ 34,860 40,662
Note payable - Plante, interest at 8.0%, payable in monthly payments of
$2,593 beginning February 2001, unsecured, due January 2021 310,000 310,000
Note payable - bank, interest at prime plus 1.5%, payable in monthly
installments of $544 plus interest, due November 2001, secured
by property 18,516 26,802
Obligation under capital lease, interest at 7.99%, payable in monthly
installments of $1,505 plus interest, due December 2000,
secured by equipment 48,163 66,096
Obligation under capital lease, interest at 7.89%, payable in monthly
installments of $10,276, due June 2001, secured by equipment 384,909 507,139
</TABLE>
39 (Continued)
<PAGE>
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Note payable - Anderson, payable with granite inventory at a set sales
price of $14.50 per cubic foot at maximum sales of 1,500 cubic feet
per month $ 342,227 407,547
Note payable - Chrysler Financial, interest at 2.9%, payable in
monthly installments of $598, due December 2001,
secured by equipment 20,045 --
Note payable - GMAC, interest at 4.9%, payable in monthly installments of
$439, due February 2002, secured by equipment 15,440 --
Note payable - GMAC, interest at 2.9%, payable in monthly installments of
$716, due October 2002, secured by equipment 31,157 --
Note payable - Harold, interest at 10%, payable in monthly
installments of $4,366, due June 2001, secured by property
and equipment 115,465 --
Term loan, interest at 6.97% (see note 3), due December 2002,
secured by substantially all assets of the Company 12,000,000 --
Note payable - PNC, interest at 8.95%, payable in monthly installments of
$334, due July 2001, secured by equipment 9,220 --
Note payable - Ford Motor Credit, interest at 9.2%, payable in monthly
installments of $480, due July 1999, secured by equipment 3,264 --
Notes payable - assumed at acquisition and paid in full in 1999 349,080 --
13,682,346 1,358,246
Less current installments 802,685 383,676
----------- -----------
Long-term debt, excluding current installments $12,879,661 974,570
=========== ===========
</TABLE>
Future maturities of the December 31, 1998 long-term debt are as follows:
<TABLE>
<CAPTION>
Obligations Other
Under Long-Term
Year ended December 31: Capital Lease Debt
------------- ---------
<S> <C> <C>
1999 $ 141,364 691,571
2000 158,823 166,835
2001 191,494 64,255
2002 -- 12,021,818
2003 -- 15,464
Thereafter -- 289,331
491,681 13,249,274
===========
Interest included in obligations under capital lease 58,609
-----------
$ 433,072
===========
</TABLE>
40 (Continued)
<PAGE>
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
The cost of the equipment under capital leases was $742,554 and $794,482
and related accumulated depreciation was $107,760 and $39,831 as of
December 31, 1998 and 1997, respectively.
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, 1998 all covenants have been complied with
or waived by the banks.
(5) Investment in Affiliated Company
Investment in affiliated company, accounted for under the equity method, at
December 31, 1998 and 1997 consists of the Company's 50% equity interest in
Rock of Ages of Asia.
The Company has recorded losses on its investment in Rock of Ages Asia of
$0, $87,326 and $160,661 in 1998, 1997 and 1996, respectively. Net revenues
with Rock of Ages Asia were $0, $2,161,891 and $837,842 in 1998, 1997 and
1996, respectively. Trade receivables due from Rock of Ages Asia were
$662,659 and $1,113,549 as of December 31, 1998 and 1997, respectively.
(6) Income Taxes
A summary of the significant components of the provision for income taxes
for the years ended December 31, 1998, 1997 and 1996 is as follows:
1998 1997 1996
----------- ------------ ------------
Current $2,095,780 922,016 626,857
Deferred 207,044 (72,980) 16,486
---------- --------- ---------
Total $2,302,824 849,036 643,343
========== ========= =========
Included in income before provision for income taxes is foreign income
(loss) of $1,346,338, $379,736 and ($303,374) for the years ended December
31, 1998, 1997 and 1996, respectively.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1998 and 1997 are presented below:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Accrued pension, accrued postretirement benefit cost
and deferred compensation $ 1,590,080 1,050,131
Allowance for doubtful accounts 615,273 499,980
Accrued expenses 147,863 109,766
Deferred income -- 111,200
Inventories, principally due to additional costs inventoried
for tax purposes pursuant to the Tax Reform Act of 1986 546,376 410,922
Other assets 492,500 1,295,252
----------- -----------
Total gross deferred tax assets 3,392,092 3,477,251
Less valuation allowance (1,158,339) (1,520,183)
----------- -----------
Total net deferred tax assets 2,233,753 1,957,068
----------- -----------
</TABLE>
41 (Continued)
<PAGE>
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
1998 1997
------------ ------------
Deferred tax liabilities:
Quarry development $ (657,235) (412,169)
Names and reputations (204,693) --
Other liabilities (909,303) (816,794)
----------- ----------
Total gross deferred tax liabilities (1,771,231) (1,228,963)
----------- ----------
Net deferred tax assets $ 462,522 728,105
=========== ==========
SFAS No. 109, Accounting for Income Taxes, 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.
Deferred tax assets and liabilities have been computed utilizing a tax rate
of 39.3% and 27.8% for 1998 and 1997, respectively. The deferred tax rate
used prior to 1998 reflected the Company being subjected to only a 20%
Federal alternative minimum tax rate, as the Company was generating minimum
tax credits in those years.
The reconciliation of differences between the statutory U.S. federal
income tax rate and the Company's effective tax rate follows:
1998 1997 1996
-------- -------- --------
U.S. statutory rate 34.0% 34.0% 34.0%
State taxes 5.3 6.0 6.1
Names and reputations amortization 1.6 0.0 0.0
Minimum tax credits (2.3) 0.0 0.0
Other, primarily tax depletion (14.5) (15.7) (14.9)
------ ------ ------
Effective tax rate 24.1% 24.3% 25.2%
====== ====== ======
The Company has approximately $2 million in minimum tax credits which may
be carried forward indefinitely.
(7) Leases
The Company has several noncancellable operating leases for vehicles,
equipment and office space which expire over the next five years. Rental
expense for all operating leases was $596,912, $207,646 and $161,607 during
1998, 1997 and 1996, respectively. Rental expense includes amounts for
related party operating leases of $320,330, $29,500 and $0 in 1998, 1997
and 1996, respectively.
42 (Continued)
<PAGE>
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
Future minimum lease payments under noncancellable operating leases (with
initial or remaining lease terms in excess of one year) are as follows:
Year ended December 31: Related Party Other
----------------------- ------------- ---------
1999 $ 560,220 373,960
2000 543,649 231,487
2001 541,949 126,046
2002 516,816 95,650
2003 255,401 49,977
Thereafter 200,750 17,600
--------- ---------
$ 2,618,785 894,720
========= =========
The Company also acts as the lessor of various parcels of land. Rental
income was $36,031, $32,133 and $32,210 in 1998, 1997 and 1996,
respectively. Future minimum rentals to be received under noncancellable
leases are as follows:
Year ended December 31:
-----------------------
1999 $ 34,952
2000 32,527
2001 31,927
2002 19,827
2003 16,227
Thereafter 12,150
---------
$ 147,610
=========
(8) Pension and Other Benefits
The Company has a defined pension plan covering substantially all of its
Vermont based non-union employees. The benefits are based on years of
service and the employee's compensation. The cost of this program is being
funded currently.
The Company has a salary continuation plan which covers certain employees
who have deferred compensation agreements with the Company. The Company
measures the costs of its obligations based on actuarial estimates. The net
periodic costs are recognized as employees render the necessary services to
earn the deferred compensation benefits.
The Company also sponsors a defined benefit postretirement health care plan
for certain early retirees and defined benefit postretirement group life
insurance plans for all Vermont based union and non-union employees. The
Company measures the costs of its obligation based on actuarial estimates.
The net periodic costs are recognized as retirees and employees render the
services necessary to earn the postretirement benefits.
43 (Continued)
<PAGE>
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Non-Union Deferred
Pension Benefits Compensation Benefits
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $ 16,359,506 15,045,099 1,585,088 1,445,083
Service cost 451,249 387,461 84,815 67,366
Interest cost 1,146,229 1,098,197 111,725 99,859
Amendments (1,108,710) -- -- (44,390)
Actuarial (gain)/loss 881,772 661,895 100,226 155,656
Benefits paid (910,431) (833,146) (88,100) (138,486)
------------ ------------ ------------ ------------
Benefit obligation at end of year $ 16,819,615 16,359,506 1,793,754 1,585,088
------------ ------------ ------------ ------------
Change in plan assets:
Fair value of plan assets at beginning of year $ 14,670,887 11,277,530 -- --
Actual return on plan assets 1,723,826 1,922,656 -- --
Employer contribution 649,588 2,303,847 88,100 138,486
Spin-off (note 17) (458,445) -- -- --
Benefits paid (910,431) (833,146) (88,100) (138,486)
------------ ------------ ------------ ------------
Fair value of plan assets at end of year $ 15,675,425 14,670,887 -- --
------------ ------------ ------------ ------------
Funded status $ (1,144,190) (1,688,619) (1,793,754) (1,585,088)
Unrecognized net actuarial (gain)/loss (732,885) (1,135,787) 202,768 102,542
Unrecognized prior service cost 1,364,837 2,032,632 195,610 219,873
Unrecognized transition obligation 478,146 791,774 23,278 29,443
------------ ------------ ------------ ------------
Net amount recognized $ (34,092) -- (1,372,098) (1,233,230)
------------ ------------ ------------ ------------
Amounts recognized in the consolidated
balance sheet consist of:
Accrued benefit liability $ (34,092) -- (1,621,728) (1,427,266)
Intangible asset -- -- 218,888 194,036
Minimum liability adjustment -- -- 30,742 --
------------ ------------ ------------ ------------
Net amount recognized $ (34,092) -- (1,372,098) (1,233,230)
------------ ------------ ------------ ------------
Weighted-average assumptions as of December 31:
Discount rate 6.75% 7.25% 6.75% 7.25%
Expected return on plan assets 9.00% 9.00%
Rate of compensation increase 5.50% 5.50% 4.50% 4.50%
</TABLE>
<TABLE>
<CAPTION>
Other Benefits
1998 1997
------------ ------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year 1,670,595 1,653,506
Service cost 22,159 13,619
Interest cost 117,122 117,876
Amendments -- --
Actuarial (gain)/loss 131,324 53,316
Benefits paid (158,598) (167,722)
------------ ------------
Benefit obligation at end of year 1,782,602 1,670,595
------------ ------------
Change in plan assets:
Fair value of plan assets at beginning of year -- --
Actual return on plan assets -- --
Employer contribution 158,598 167,722
Spin-off (note 17) -- --
Benefits paid (158,598) (167,722)
------------ ------------
Fair value of plan assets at end of year -- --
------------ ------------
Funded status (1,782,602) (1,670,595)
Unrecognized net actuarial (gain)/loss 265,919 132,907
Unrecognized prior service cost -- --
Unrecognized transition obligation 947,038 1,010,174
------------ ------------
Net amount recognized (569,645) (527,514)
------------ ------------
Amounts recognized in the consolidated
balance sheet consist of:
Accrued benefit liability (569,645) (527,514)
Intangible asset -- --
Minimum liability adjustment -- --
------------ ------------
Net amount recognized (569,645) (527,514)
------------ ------------
Weighted-average assumptions as of December 31:
Discount rate 6.75% 7.25%
Expected return on plan assets
Rate of compensation increase
</TABLE>
For measurement purposes, a 7 percent annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1998. The rate
was assumed to decrease gradually to 4 percent for 2001 and remain at that
level thereafter.
44 (Continued)
<PAGE>
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Deferred
Non-Union Pension Benefits Compensation Benefits
-------------------------------------------- ---------------------------------------
1998(1) 1997 1996 1998 1997 1996
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Components of net
periodic benefit cost:
Service cost $ 451,249 387,461 392,429 84,815 67,366 56,108
Interest cost 1,146,229 1,098,197 1,042,864 111,725 99,859 98,386
Expected return on
plan assets (1,283,875) (1,005,314) (884,624) -- -- --
Amortization of
prior service cost 173,318 177,220 177,220 24,263 24,263 25,032
Amortization of
transition obligation 138,644 141,771 141,771 6,165 6,165 6,360
Recognized net
actuarial (gain)/loss -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Net periodic benefit
cost $ 625,565 799,335 869,660 226,968 197,653 185,886
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
Other Benefits
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
Components of net
periodic benefit cost:
Service cost 22,159 13,619 17,454
Interest cost 117,122 117,876 118,168
Expected return on
plan assets -- -- --
Amortization of
prior service cost -- -- --
Amortization of
transition obligation 63,136 63,136 63,136
Recognized net
actuarial (gain)/loss (1,688) (6,334) (10,682)
----------- ----------- -----------
Net periodic benefit
cost 200,729 188,297 188,076
----------- ----------- -----------
----------- ----------- -----------
(1) In addition, there was a special charge under SFAS No. 88 of $58,115
due to the spin-off of the Swenson Granite Company LLC salaried employees
as of December 1, 1998.
The Company has multiple postretirement benefit plans. The health care plan
covers a closed group of retirees selected by the Company and benefits for
all but two of the participants cease at age 65. The life insurance plan
covers all Vermont based employees; non-union employee coverage is 50% of
the group insurance coverage which the employee had prior to retirement
(but not more than $60,000) and union employee coverage is $6,000. The life
insurance plan assumes a 4.50% rate of compensation increase for all years.
Assumed health care trend rates have a significant effect on the amounts
reported for the health care plan. A one-percentage-point change in assumed
health care cost trend rates would have the following effects:
1-Percentage- 1-Percentage-
Point Increase Point Decrease
-------------- --------------
Effect on total of service and
interest cost components $ 342 (327)
Effect on postretirement benefit
obligation 5,174 (4,945)
Union Pension Benefits
Vermont based 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 $740,941, $786,217 and $713,738 in 1998, 1997
and 1996, respectively.
45 (Continued)
<PAGE>
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
Deferred Compensation Benefits
In addition to the deferred compensation benefits under its salary
continuation plan, the Company has deferred compensation agreements with
three former stockholders of acquired companies. The present value of the
future payments under these agreements was $2,070,171 and $2,294,031 as of
December 31, 1998 and 1997, respectively. Total annual payments of $260,200
begin and end at various dates from 1997 to 2016. One of these agreements
is partially paid through benefits paid by the Company into the defined
pension plan, therefore the payment amount changes annually based on
actuarial estimates.
401(k) Benefits
The Company's contributions were $93,263, $72,303 and $51,949 in 1998, 1997
and 1996, respectively. The acquisitions during 1998 and 1997 have
significantly increased the number of participants in the plans.
(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 and directors to
purchase equivalent shares of common stock. The options granted have a five
year term and vest at 20% per year.
The following table sets forth the stock option transactions for the years
ended December 31, 1998, 1997 and 1996:
Weighted
Number Average
of Options Exercise Price
---------- --------------
Outstanding, December 31, 1995 275,000 $ 2.49
Granted during 1996 587,500 3.69
---------- ----------
Outstanding, December 31, 1996 862,500 3.31
Granted during 1997 383,252 18.50
---------- ----------
Outstanding, December 31, 1997 1,245,752 7.98
Granted during 1998 125,000 14.44
Lapsed during 1998 (40,500) (3.57)
Exercised during 1998 (42,000) (3.10)
---------- ----------
Outstanding, December 31, 1998 1,288,252 $ 8.90
========== ==========
Exercisable, December 31, 1998 746,301 $ 6.69
Weighted average remaining contractual life 2.1 years
<TABLE>
<CAPTION>
Weighted Average Options Exercisable
----------------------------- -----------------------
Weighted
Number of Remaining Average
Options Exercise Contractual Exercise
Exercise Price Outstanding Price Life Number Price
-------------- ----------- -------- ----------- ------ ---------
<S> <C> <C> <C> <C> <C>
$ 2.40 - $ 4.12 780,000 $ 3.30 1.4 Years 568,000 $ 3.16
$ 12.00 - $ 18.50 508,252 $ 17.50 3.2 Years 178,301 $ 17.93
</TABLE>
46 (Continued)
<PAGE>
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
The Company has adopted the disclosure-only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation. Accordingly, no compensation cost
has been recognized for stock options granted under the plan as the options
were all granted at exercise prices which equaled the fair market value at
the date of the grant. Had compensation cost for the Company's stock option
plan been determined based on the fair value at the grant date for awards
during 1998, 1997 and 1996 consistent with the provisions of SFAS No. 123,
the Company's net income would have been reduced to the pro forma amount
indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ------------------ -----------------
<S> <C> <C> <C>
Net income, as reported $ 7,236,027 2,644,933 1,908,164
Net income, pro forma 6,616,927 2,268,984 1,798,619
Net income per share, pro forma .90 .53 .51
Net income per share - assuming dilution, pro forma .83 .45 .43
</TABLE>
Pro forma net income reflects only options granted subsequent to December
31, 1995 and is not necessarily indicative of future effects on net income.
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, 1996 is not considered.
The fair value of each option grant is estimated on the date of the grant.
Options granted prior to 1997 were valued using the Minimum Value Method
with the following weighted-average assumptions: risk-free interest rate of
6%; dividend yield of $0; and expected lives of five (5) years. The 1998
and 1997 options were valued using the Black-Scholes option-pricing model
with the following weighted-average assumptions: risk-free interest rate of
6%; dividend yield of $0; expected volatility of 49% and 16%, respectively;
and expected lives of five (5) years.
(10) Related Party Transactions
The Company is related through common ownership with several companies. The
transactions with related parties, included in the consolidated statements
of operations, are as follows for the years ended December 31, 1998, 1997
and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ------------------ -----------------
<S> <C> <C> <C>
Net revenues $ 196,032 840,554 729,611
Cost of revenues 2,084,292 1,231,151 194,047
Selling, general and administrative expenses -- 750,000 936,000
</TABLE>
47 (Continued)
<PAGE>
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
Amounts due to (from) related parties as of December 31, 1998 and 1997 are
as follows:
<TABLE>
<CAPTION>
1998 1997
------------------- ------------------
<S> <C> <C>
Due to (from) Swenson Granite Company, LLC $ 37,417 (89,597)
Due from K & E Sawing Company (6,213) (6,000)
Due to Missouri Red Quarries 107,047 146,708
Due to (from) Keystone Granite Company (28,267) 4,331
Due from Granite Accents, Inc. (105,572) --
-------------- -------------
$ 4,412 55,442
============== =============
</TABLE>
See note 7 for operating lease obligations with related parties.
(11) Fair Value of Financial Instruments
SFAS 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,
1998.
(12) Unaudited Quarterly Summary Information
The following is a summary of unaudited quarterly summary information for
the years ended December 31, 1998 and 1997 (in thousands, except per share
data):
<TABLE>
<CAPTION>
Net Income
(Loss)
Net Income Per Share -
Net Net Income (Loss) Assuming
Revenues (Loss) Per Share Dilution
----------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
1998 Quarters:
First $ 15,171 (431) (.06) (.06)
Second 22,955 2,787 .38 .35
Third 22,006 2,754 .37 .35
Fourth 22,614 2,126 .29 .27
----------- ---------- ----------- ------------
Total $ 82,746 7,236 .98 .91
============ ========== =========== ============
1997 Quarters:
First $ 8,192 (978) (.28) (.23)
Second 12,575 986 .28 .23
Third 16,374 833 .22 .19
Fourth 17,066 1,804 .28 .26
----------- ---------- ----------- ------------
Total $ 54,207 2,645 .62 .53
=========== ========== =========== ============
</TABLE>
48 (Continued)
<PAGE>
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
Note
The Company has historically experienced certain seasonal patterns,
primarily due to weather conditions affecting operations in Vermont and
Canada and the setting of memorials in cemeteries located in northern
regions. The Company made a significant number of acquisitions in the third
and fourth quarters of 1997 and the second and third quarters of 1998.
(13) Earnings Per Share
Effective December 31, 1997 the Company adopted SFAS No. 128, Earnings per
Share. This adoption resulted in the restatement of per share information
for 1996.
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share (EPS) computations for net income for
the years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Numerator:
Income available to common shareholders
used in basic and diluted earnings per share $ 7,236,027 2,644,933 1,908,164
============ ============ ============
Denominator:
Denominator for basic earnings per share:
Weighted average shares 7,349,371 4,289,858 3,499,998
Effect of dilutive securities:
Stock options 634,723 707,371 707,827
------------ ------------ ------------
Denominator for diluted earnings per share:
Adjusted weighted average shares $ 7,984,094 4,997,229 4,207,825
============ ============ ============
Basic earnings per share $ .98 .62 .55
Diluted earnings per share $ .91 .53 .45
</TABLE>
Options to purchase 478,252 and 383,252 shares of Class A common stock at
exercises prices ranging from $13.688 to $18.50 per share were outstanding
in 1998 and 1997, respectively, but were not included in the computation of
diluted EPS because the options' exercise price was greater than the
average market price of the common shares.
49 (Continued)
<PAGE>
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(14) Segment Information
On December 31, 1998 the Company adopted SFAS No. 131, Disclosures about
Segments of and Enterprise and Related Information. SFAS No. 131
established standards for reporting information about operating segments in
annual financial statements and requires selected information about
operating segments in interim financial reports issued to stockholders. It
also established standards for related disclosures about products and
services and geographic areas.
The Company is organized based on the products and services that it offers.
Under this organizational structure, the Company operates in three
segments: quarrying, manufacturing, and retailing.
The quarrying segment extracts granite from the ground and sells it to both
the manufacturing segment and to outside manufacturers, as well as to
distributors in Europe and Japan.
The manufacturing segment's principal product is granite memorials used
primarily in cemeteries, although it also manufactures some specialized
granite products for industrial applications.
The retailing segment engraves and sells memorials and other granite
products at various locations throughout the United States.
Inter-segment revenues are accounted for as if the sales were to third
parties.
The following is the segment information for the years ended December 31,
1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
1998 Quarrying Manufacturing Retailing Total
---- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Total net revenues $ 26,448 48,858 18,597 93,903
Inter-segment net revenues 7,223 3,934 -- 11,157
------------- ------------- ------------- -------------
Net revenues 19,225 44,924 18,597 82,746
Total gross profit 11,672 7,950 10,799 30,421
Inter-segment gross profit 2,892 (2,892) -- --
------------- ------------- ------------- -------------
Gross profit 8,780 10,842 10,799 30,421
Selling, general and administrative expenses 4,497 6,506 9,368 20,371
------------- ------------- ------------- -------------
Income from operations 4,283 4,336 1,431 10,050
Interest expense 56 182 273 511
------------- ------------- ------------- -------------
Income before provision for income taxes $ 4,227 4,154 1,158 9,539
============= ============= ============= =============
</TABLE>
50 (Continued)
<PAGE>
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1997 Quarrying Manufacturing Retailing Total
---- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Total net revenues $ 18,544 40,850 1,781 61,175
Inter-segment net revenues 4,454 2,514 -- 6,968
------------- ------------- ------------- -------------
Net revenues 14,090 38,336 1,781 54,207
Total gross profit 7,400 7,508 1,198 16,106
Inter-segment gross profit 1,794 (1,794) -- --
------------- ------------- ------------- -------------
Gross profit 5,606 9,302 1,198 16,106
Selling, general and administrative expenses 4,407 5,832 797 11,036
------------- ------------- ------------- -------------
Income from operations 1,199 3,470 401 5,070
Interest expense 783 793 -- 1,576
------------- ------------- ------------- -------------
Income before provision for income taxes $ 416 2,677 401 3,494
------------- ------------- ------------- -------------
</TABLE>
Comparative reportable segment information is not readily available for
1996 and the Company does not maintain its asset records by segment.
Net revenues by geographic area is as follows for the years ended December
31, 1998, 1997 and 1996 (in thousands):
1998 1997 1996
------------ ------------- -------------
Net revenues (1):
United States $ 74,174 46,138 42,617
Canada 8,572 8,069 2,052
---------- ----------- -----------
Total net revenues $ 82,746 54,207 44,669
========== =========== ===========
(1) Net revenues are attributed to countries based on where product is
produced.
Long-lived assets by geographic area is as follows as of December 31, 1998
and 1997 (in thousands):
1998 1997
------------ -------------
Long-lived assets:
United States $ 42,810 34,570
Canada 1,660 1,866
Japan 5 --
---------- -----------
$ 44,475 36,436
========== ===========
Comparative reportable geographic area information is not readily
available for 1996.
(15) Initial Public Offering
Effective October 21, 1997 the Company made an initial public offering
(IPO) of 3,225,000 shares of Class A common stock at $18.50 per share,
inclusive of 275,482 shares being sold by the selling shareholders. On
November 21, 1997 the underwriters exercised their option to purchase an
additional 483,750 shares of Class A common stock at $18.50 per share. The
issuance of stock has been recorded net of underwriting fees and other IPO
expenses incurred of $6,392,948.
51 (Continued)
<PAGE>
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(16) Acquisitions
On June 30, 1997 the Company acquired all of the outstanding stock of KSGM,
a successor to Keystone Memorials, Inc. for 263,441 shares of the Company's
Class B common stock in a transaction which was accounted for under the
purchase method. The fair market value of KSGM on the date of acquisition
was $3,898,927. As of June 30, 1997 investment in affiliated company
included Keystone's 50% equity investment in four Quarry Companies (QC's)
and Southern Mausoleums, Inc. (SMI).
On October 24, 1997 the Company acquired Childs & Childs Granite Company,
Inc. and a related company for $6,600,000 in cash and 10,810 shares of
Class A common stock at the IPO price of $18.50 per share in a transaction
which was accounted for under the purchase method. The assets acquired
included the remaining 50% equity investment in four QC's and SMI. The
purchase price has been allocated to the assets acquired and liabilities
assumed based upon their respective fair market values, resulting in
$5,690,032 of cost in excess of net assets acquired of which $4,167,254 was
allocated to property, plant and equipment with the remaining $1,522,778 to
names and reputations.
Also on October 24, 1997 the Company acquired Keith Monument Company and
its affiliated companies for $16,375,000, consisting of 81,081 shares of
Class A common stock at the IPO price of $18.50 per share and $14,875,000
in cash in a transaction which was accounted for under the purchase method.
The purchase price has been allocated to the assets acquired and
liabilities assumed based upon their respective fair market values,
resulting in $13,202,181 of cost in excess of net assets acquired of which
$1,014,000 was allocated to property, plant and equipment, $246,211 for the
conversion of inventory previously accounted for under LIFO, and the
remaining $11,941,970 to names and reputations.
Proceeds from the purchases of $100,000 and $250,000 for the Keith and
Childs acquisitions, respectively, were held by the Company per the
purchase and sale agreements for the settlement of certain conditions.
These amounts were recorded as accrued expenses as of December 31, 1997 and
have been paid by the Company during 1998.
For the period April through December 1998 the Company, through its
subsidiary Rock of Ages Memorials, Inc., acquired Clark Memorials, Inc.,
Watertown Monument Works, Inc., Aberdeen Monument Works, Inc., Owatonna
Granite Works, Inc., Desch-Paine Monuments, Inc., Mount Rushmore Granite
Corp., Gallagher & Sons Monuments, Inc., Owatonna Granite & Monument Works,
Inc. and all of the outstanding stock of Maumee Valley Memorials, Inc.,
Miller Bros. Monument, Inc., Sioux Falls Monument Co., Portage Marble &
Granite Co., Nor-Por Granite, Inc., North Hill Marble & Granite Co.,
Kotecki Monuments, Inc., Edward T. Christiansen & Sons, Inc., and Joseph
Uras Monument Corp. In connection with these acquisitions, certain assets
were acquired and liabilities assumed of Fremont Forsberg, JUM Corporation
and Joseph Uras Management Cemeteries, Inc.
In November 1998 the Company, through its subsidiary Carolina Quarries,
Inc., acquired the Gardenia White Quarry, its related operating entity,
Piedmont Quarries Limited Liability Company, and certain undeveloped
land in proximity to the Company's existing Salisbury Pink Quarry.
52 (Continued)
<PAGE>
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
The aggregate consideration for the 1998 acquisitions was $21,075,175 in
cash and $1,447,476 representing 90,537 shares of the Company's Class A
common stock ranging from $14.6875 to $17.625 per share in a transaction
which was accounted for under the purchase method of accounting. The
aggregate purchase price has been allocated to the assets acquired and
liabilities assumed based upon their respective fair market values,
resulting in $16,547,323 of cost in excess of net assets acquired of which
$2,274,392 has been allocated to property, plant and equipment and the
remaining $14,272,931 to names and reputations.
Proceeds of $261,022 from certain of the 1998 purchases are being held by
the Company for a period of one year per the purchase and sale agreements
for the settlement of certain conditions. These amounts are recorded as
accrued expenses as of December 31, 1998.
The following unaudited pro forma information has been prepared assuming
that the acquisitions occurred at the beginning of the current and
immediately preceding periods, if 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,
-----------------------------------------------------------
1998 1997 1996
----------------- ------------------ ----------------
<S> <C> <C> <C>
Net revenues $ 92,420,780 100,579,947 74,157,928
Net income 6,854,027 5,160,312 2,761,948
Net income per share .93 1.20 .79
Net income per share - assuming dilution .86 1.03 .66
</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,
therefore pro forma information has not been provided.
(17) Reorganization/Recapitalization
In August 1997, in connection with 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. The Common Stock outstanding and weighted average shares
outstanding for all periods presented have been adjusted for the new
stock capitalization.
53 (Continued)
<PAGE>
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
Prior to the initial public offering, the Company went through 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 received 1,618.123 shares of Class B Common
Stock for each share of Swenson Granite common stock (immediately prior to
the Swenson Merger, a total of 2,163 shares of Swenson Granite were
outstanding); and (ii) immediately prior to the Swenson Merger, Swenson
Granite distributed 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").
Following the Swenson Granite Distribution and prior to the Swenson Merger,
the sole asset of Swenson Granite was a 93% stock interest in the Company
and its only liabilities were a $3,340,000 intercompany payable to the
Company and a $310,000 note payable. Pursuant to the Swenson Merger, the
Swenson Granite stockholders received a total of 3,499.998 shares of Class
B Common Stock which represented 93% of the Company's total shares
outstanding prior to the offering, the shares of Class B Common Stock held
by Swenson Granite were cancelled, the intercompany payable was forgiven
and the Company assumed the note payable. The minority interest in the
Company is the same both before and after the Swenson Merger. The only
effect on the Company's financial statements was 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.
(18) Subsequent Event
In January 1999 the Company acquired Toledo Monument Works Co. and J.W.
Reynolds Monument Co. and all of the outstanding stock of Milwaukee
Monuments Co., Inc. for $3,771,094 in cash and 32,045 shares of the
Company's Class A common stock at $13.2625 per share. The aggregate
purchase price has been allocated to the assets acquired and liabilities
assumed based upon their respective fair market values. The amount of cost
in excess of net assets acquired has been allocated to names and
reputations.
Also in January 1999 employees exercised 216,100 options and the Company
granted options to purchase 75,000 shares of Class A common stock to a key
employee under the Amended and Restated 1994 Stock Plan at the market price
on the date of grant of $13.25 per share.
54 (Continued)
<PAGE>
Independent Auditors' Report On Supplementary Information
The Board of Directors
Rock of Ages Corporation and Subsidiaries:
Under date of March 12, 1999, we reported on the consolidated balance sheets of
Rock of Ages Corporation and subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of operations, stockholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 1998. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the related
consolidated financial statement schedule referred to as "Schedule II -
Valuation and Qualifying Accounts and Reserves". This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule based on our
audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG LLP
March 12, 1999
Burlington, Vermont
55
<PAGE>
Rock of Ages Corporation and Subsidiaries
Schedule II - Valuation and Qualifying Accounts and Reserves
Years ended December 31, 1998, 1997 and 1996
(In Thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
------------- --------------- ----------------------------- ------------- -------------
Additions
-----------------------------
Balance at Increase Charged to Balance at
Beginning Due to Costs and End
Description of Period Acquisitions Expenses Deductions of Period
------------- --------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
1998
Allowances for doubtful
accounts $ 2,231 120 238 465 2,124
1997
Allowances for doubtful
accounts $ 564 1,472 332 137 2,231
1996
Allowances for doubtful
accounts $ 446 -- 181 63 564
</TABLE>
See accompanying independent auditors' report on supplementary information.
56
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Rock of Ages Corporation
By: /s/ Kurt M. Swenson
-------------------------------
Kurt M. Swenson
President, Chief Executive Officer
and Chairman of the Board of Directors
Date: March 31, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated as of March 31, 1999.
Signature Title
--------- -----
/s/ Kurt M. Swenson President, Chief Executive Officer and
- ------------------------ Chairman of the Board of Directors
Kurt M. Swenson (Principal Executive Officer)
/s/ John L. Forney Chief Financial Officer and Treasurer
- ------------------------ (Principal Financial Officer and
John L. Forney Principal Accounting Officer)
/s/ Richard C. Kimball Vice Chairman and Chief Operating Officer,
- ------------------------ Memorials Division, Director
Richard C. Kimball
/s/ Jon M. Gregory President and Chief Operating Officer,
- ------------------------ Quarry Division, Director
Jon M. Gregory
/s/ George R. Anderson Senior Vice President, Director
- ------------------------
George R. Anderson
/s/ James L. Fox Director
- ------------------------
James L. Fox
/s/ Charles M. Waite Director
- ------------------------
Charles M. Waite
/s/ Frederick Webster Director
- ------------------------
Frederick Webster
57
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
3.1 Form of Amended and Restated Certificate of Incorporation of the
Company (incorporated herein by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-1
(Registration No. 333-33685) filed with the Securities and Exchange
Commission on August 15, 1997 and declared effective on
October 20, 1997)
3.2 By-laws of the Company (incorporated herein by reference to Exhibit 3.2
to the Company's Registration Statement on Form S-1
(Registration No. 333-33685) filed with the Securities and Exchange
Commission on August 15, 1997 and declared effective on
October 20, 1997)
4. Specimen Certificate representing the Class A Common Stock
(incorporated herein by reference to Exhibit 4. to the Company's
Registration Statement on Form S-1 (Registration No. 333-33685)
filed with the Securities and Exchange Commission on August 15, 1997
and declared effective on October 20, 1997)
10.1* Rock of Ages Corporation Amended and Restated 1994 Stock Plan (as
amended through October 26, 1998)
10.2* Employment Agreement of Kurt M. Swenson (incorporated herein by
reference to Exhibit 10.2 to the Company's Registration Statement on
Form S-1 (Registration No. 333-33685) filed with the Securities and
Exchange Commission on August 15, 1997 and declared effective on
October 20, 1997)
10.3* Employment Agreement of Peter Friberg (incorporated herein by
reference to Exhibit 10.4 to the Company's Registration Statement on
Form S-1 (Registration No. 333-33685) filed with the Securities and
Exchange Commission on August 15, 1997 and declared effective on
October 20, 1997)
10.4* Employment Agreement of Mark Gherardi (incorporated herein by
reference to Exhibit 10.6 to the Company's Registration Statement on
Form S-1 (Registration No. 333-33685) filed with the Securities and
Exchange Commission on August 15, 1997 and declared effective on
October 20, 1997)
10.5* Form of Employment Agreement with G. Thomas Oglesby, Jr., George T.
Oglesby, III, Robert Otis Childs, III and John E. Keith (incorporated
herein by reference to Exhibit 10.7 to the Company's Registration
Statement on Form S-1 (Registration No. 333-33685) filed with the
Securities and Exchange Commission on August 15, 1997 and declared
effective on October 20, 1997)
10.6* Form of Employment Agreement with each of Richard C. Kimball, George
R. Anderson and Jon M. Gregory (incorporated herein by reference to
Exhibit 10.8 to the Company's Registration Statement on Form S-1
(Registration No. 333-33685) filed with the Securities and Exchange
Commission on August 15, 1997 and declared effective on
October 20, 1997)
10.7 Supply and Distribution Agreement dated as of June 27, 1997 by and
among Keystone Granite Company, Inc., the Estate of George T.
Oglesby and Rock of Ages Corporation (incorporated herein by reference
to Exhibit 10.9 to the Company's Registration Statement on Form S-1
(Registration No. 333-33685) filed with the Securities and Exchange
Commission on August 15, 1997 and declared effective on
October 20, 1997)
10.8 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 (incorporated herein by reference to Exhibit 10.10
to the Company's Registration Statement on Form S-1
(Registration No. 333-33685) filed with the Securities and Exchange
Commission on August 15, 1997 and declared effective on
October 20, 1997)
10.9* Form of Salary Continuation Agreement (incorporated herein by
reference to Exhibit 10.15 to the Company's Registration Statement on
Form S-1 (Registration No. 333-33685) filed with the Securities and
Exchange Commission on August 15, 1997 and declared effective on
October 20, 1997)
10.10 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. (incorporated herein by reference to
Exhibit 10.20 to the Company's Registration Statement on Form S-1
(Registration No. 333-33685) filed with the Securities and Exchange
Commission on August 15, 1997 and declared effective on
October 20, 1997)
10.11 Financing Agreement dated December 17, 1997 by and between The CIT
Group/Business Credit, Inc., Rock of Ages Corporation, Royalty
Granite Corporation, Carolina Quarries, Inc., Pennsylvania Granite
Corp., Childs & Childs Granite Company, Inc., Southern Mausoleums,
Inc. and Rock of Ages Memorials LLC (incorporated herein by reference
to Exhibit 10.19 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 filed with the Securities and
Exchange Commission on March 31, 1998)
10.12 Exclusive Supply Agreement dated as of December 8, 1997 by and
between Rock of Ages Corporation and Eurimex (incorporated herein by
reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997 filed with the Securities
and Exchange Commission on March 31, 1998)
11. Statement re: computation of per share earnings (incorporated herein by
reference to Note (1)(r) of the Company's consolidated financial
statements (filed herewith))
21. Subsidiaries of the Company
23. Consent of KPMG LLP
58
<PAGE>
27. Financial Data Schedule
- ---------------------------
* This exhibit is a management contract or compensatory plan or arrangement.
59
<PAGE>
EXHIBIT 10.1
ROCK OF AGES CORPORATION
AMENDED AND RESTATED 1994 STOCK PLAN
As Approved by the Board of Directors
and Shareholders on August 18, 1997 and as
Amended by the Board of Directors on October 26, 1998
1. PURPOSE. This Amended and Restated 1994 Stock Plan (the "Plan") is
intended to benefit and provide incentives:
(a) to the employees of Rock of Ages Corporation, a Delaware
corporation (the "Company"), its parent (if any) and any present or future
subsidiaries of the Company (collectively, "Related Corporations"), by
providing them with opportunities to purchase stock in the Company
pursuant to options granted hereunder which qualify as "incentive stock
options" ("ISO" or "ISOs") under Section 422(b) of the Internal Revenue
Code of 1986, as amended (the "Code");
(b) to employees, directors and consultants of the Company and
Related Corporations by providing them with opportunities to purchase
stock in the Company pursuant to options granted hereunder which do not
qualify as ISOs ("Non-Qualified Option" or "Non-Qualified Options"); and
(c) to employees, directors and consultants of the Company and
Related Corporations by providing them with awards or opportunities to
make direct purchases of stock in the Company ("Awards").
Both ISOs and Non-Qualified Options are referred to hereinafter
individually as an "Option" and collectively as "Options." Options and
Awards are referred to hereinafter collectively as "Stock Rights." As used
herein, the terms "parent" and "subsidiary" mean "parent corporation" and
"subsidiary corporation," respectively, as those terms are defined in
Section 424 of the Code.
2. ADMINISTRATION OF THE PLAN.
(a) BOARD OR COMMITTEE ADMINISTRATION. The Plan shall be
administered by a Committee of not less than two (2) persons, each of whom
shall be a "Non-
<PAGE>
Employee Director" within the meaning of Rule 16b-3(b)(3)(i) promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")
and an "outside director" within the meaning of Section 162(m) of the
Code. The members of the Committee shall be appointed by the Company's
Board of Directors (the "Board") and shall serve at the pleasure of the
Board. If no Committee has been appointed to administer the Plan, the
functions of the Committee specified in the Plan shall be carried out by
the Board, except that at any time after a registration of any of the
Company's stock under the Exchange Act or the Company otherwise becomes
subject to the reporting requirements of the Exchange Act, administration
by a Committee is required. Subject to the terms of the Plan, the
Committee shall have the authority to:
(i) determine the employees of the Company and Related
Corporations (from among the class of employees eligible under
paragraph 3 to receive ISOs) to whom ISOs may be granted, and to
determine (from among the class of individuals and entities eligible
under paragraph 3 to receive Non-Qualified Options and Awards) to
whom Non-Qualified Options and Awards may be granted;
(ii) determine the time or times at which Options or Awards
may be granted;
(iii) determine the option price of shares subject to each
Option, which price shall not be less than the minimum price
specified in paragraph 6, and the purchase price (if any) of shares
subject to each Award;
(iv) determine whether each Option granted shall be an ISO or
a Non-Qualified Option;
(v) determine (subject to paragraph 7) the time or times when
each Option shall become exercisable and the duration of the
exercise period;
(vi) determine whether restrictions such as repurchase rights
and other vesting restrictions are to be imposed on shares subject
to Options and Awards and the nature of such restrictions, if any;
and
(vii) interpret the Plan and prescribe and rescind rules and
regulations relating to it.
-2-
<PAGE>
If the Committee determines to issue a Non-Qualified Option, it
shall designate the Non-Qualified Option as such upon grant and in the
agreement governing such Non-Qualified Option. The interpretation and
construction by the Committee of any provisions of the Plan or of any
Stock Right granted under it shall be final unless otherwise determined by
regulations for carrying out the Plan as it may deem best. No member of
the Board or the Committee shall be liable for any action or determination
made in good faith with respect to the Plan or any Stock Right granted
under the Plan.
(b) COMMITTEE ACTIONS. The Committee may select one of its members
as its chairman, and shall hold meetings at such time and place as it may
determine. Acts by a majority of the Committee, or acts reduced to or
approved in writing by a majority of the members of the Committee, shall
be the valid acts of the Committee. All references in this Plan to the
Committee shall mean the Board if no Committee has been appointed.
3. ELIGIBLE EMPLOYEES AND OTHERS. ISOs may be granted to any employee
(including employees who serve as officers or directors) of the Company or any
Related Corporation. Non-Qualified Options and Awards may be granted to any
employee (including an employee who serves as an officer or director), director
or consultant (including a consultant who also serves as a director) of the
Company or any Related Corporation. The Committee may take into consideration a
recipient's individual circumstances in determining whether to grant a Stock
Right. No participant in the Plan shall be granted Stock Rights which in the
aggregate exceed fifty percent (50%) of the total number of shares of Class A
Common Stock, par value one cent ($.01) per share ("Class A Common Stock"), and
Class B Common Stock, par value one cent ($.01) per share, of the Company
(collectively, the "Common Stock"), authorized to be issued with respect to such
Stock Rights pursuant to the Plan. The granting of any Stock Right to any
individual or entity shall neither entitle that individual or entity to, nor
disqualify him from, participation in any other grant of Stock Rights.
4. STOCK. The stock subject to Options and Awards shall be authorized but
unissued shares of Common Stock or shares of Common Stock reacquired by the
Company in any manner; provided that the stock subject to Options granted on or
after the date of consummation of the Company's initial public offering shall be
Class A Common Stock only. The aggregate number of shares which may be issued
pursuant to the Plan is one million five hundred thousand (1,500,000), which
aggregate number of shares reflects (i) the adjustment, pursuant to paragraph 13
of the Plan as in effect at the time, and as a result, of the reincorporation
merger of Rock of Ages Corporation, a
-3-
<PAGE>
Vermont corporation and the predecessor to the Company, with and into the
Company on August 12, 1997 (the "Reincorporation Merger"), including the
one-for-two reverse stock split effected pursuant to the Reincorporation Merger,
and (ii) a five hundred thousand (500,000) share increase in such aggregate
number of shares approved by the Board as of August 18, 1997, in connection with
the approval and adoption by the Board of the Plan as set forth in paragraph 15
hereof, subject to adjustment as provided in paragraph 13. Any such shares may
be issued pursuant to ISOs, Non-Qualified Options or Awards, so long as the
number of shares so issued does not exceed such number, as adjusted. If any
Option granted under the Plan shall expire or terminate for any reason without
having been exercised in full or shall cease for any reason to be exercisable in
whole or in part, or if the Company shall reacquire any unvested shares issued
pursuant to Awards, the unpurchased shares subject to such Options and any
unvested shares so reacquired by the Company shall again be available for grants
of Stock Rights under the Plan.
5. GRANTING OF STOCK RIGHTS. Stock Rights may be granted under the Plan at
any time on or after November 21, 1994, and prior to November 21, 2004. The date
of grant of a Stock Right under the Plan will be the date specified by the
Committee at the time it grants the Stock Right; provided, however, that such
date shall not be prior to the date on which the Committee acts to approve the
grant. The Committee shall have the right, with the consent of the optionee, to
convert an ISO granted under the Plan to a NonQualified Option pursuant to
paragraph 16.
6. MINIMUM OPTION PRICE; ISO LIMITATIONS.
(a) PRICE FOR NON-QUALIFIED OPTIONS. The exercise price per share
specified in the agreement relating to each Non-Qualified Option granted
under the Plan shall in no event be less than the par value per share of
Common Stock as of the date of grant.
(b) EXERCISE PRICE FOR ISOS. The exercise price per share of Common
Stock specified in the agreement relating to each ISO granted under the
Plan shall not be less than the fair market value per share of Common
Stock on the date of such grant. In the case of an ISO to be granted to an
employee owning stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or any
Related Corporation, the price per share specified in the agreement
relating to such ISO shall not be less than one hundred ten percent (110%)
of the fair market value per share of Common Stock on the date of such
grant.
-4-
<PAGE>
(c) $100,000 ANNUAL LIMITATION ON ISOS. Each eligible employee may
be granted ISOs only to the extent that, in the aggregate under this Plan
and all incentive stock option plans of the Company and any Related
Corporation, such ISOs do not become exercisable for the first time by
such employee during any calendar year in a manner which would entitle the
employee to purchase more than One Hundred Thousand Dollars ($100,000) in
fair market value (determined at the time the ISOs were granted) of Common
Stock in that year. Any options granted to an employee in excess of such
amount will be granted as Non-Qualified Options.
(d) DETERMINATION OF FAIR MARKET VALUE. If, at the time an Option is
granted under the Plan, the Company's Common Stock is publicly traded,
"fair market value" shall be determined as of the last business day for
which the prices or quotes referred to in this sentence are available
prior to the date such Option is granted and shall mean (i) the average
(on that date) of the high and low prices of the Common Stock on the
principal national securities exchange on which the Common Stock is
traded, if the Common Stock is then traded on a national securities
exchange; or (ii) the last reported sale price (on that date) of the
Common Stock on the NASDAQ National Market, if the Common Stock is not
then traded on a national securities exchange; or (iii) the closing bid
price (or average bid prices) last quoted (on that date) by an established
quotation service for over-the-counter securities, if the Common Stock is
not then listed on the NASDAQ National Market. However, if the Common
Stock is not publicly traded at the time an Option is granted under the
Plan, "fair market value" shall be deemed to be the fair market value of
the Common Stock as determined by the Committee after taking into
consideration all factors which it deems appropriate, including, without
limitation, recent sale and offer prices of the Common Stock in private
transactions negotiated at arm's length.
7. OPTION DURATION. Subject to earlier termination as provided in
paragraphs 9 and 10, each Option shall expire on the date specified by the
Committee, but not more than (i) ten (10) years from the date of grant in the
case of Non-Qualified Options and in the case of ISOs generally, and (ii) five
(5) years from the date of grant in the case of ISOs granted to an employee
owning stock possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or any Related Corporation. Subject
to earlier termination as provided in paragraphs 9 and 10, the term of each ISO
shall be the term set forth in the original instrument granting such ISO, except
with respect to any part of such ISO that is converted into a Non-Qualified
Option pursuant to paragraph 16.
-5-
<PAGE>
8. EXERCISE OF OPTION. Subject to the provisions of paragraphs 9 through
12, each Option granted under the Plan shall be exercisable as follows:
(a) VESTING. The Option (or any portion thereof) shall either be
fully exercisable on the date of grant or shall become exercisable
thereafter in such installments as the Committee may specify.
(b) FULL VESTING OF INSTALLMENTS. Once an installment becomes
exercisable, it shall remain exercisable until expiration or termination
of the Option, unless otherwise specified by the Committee.
(c) PARTIAL EXERCISE. Each Option or installment may be exercised at
any time or from time to time, in whole or in part, for up to the total
number of shares with respect to which it is then exercisable.
(d) ACCELERATION OF VESTING. The Committee shall have the right to
accelerate the date of exercise of any installment of any Option;
provided, that the Committee shall not, without the consent of an
optionee, accelerate the exercise date of any installment of any Option
granted to any employee as an ISO (and not previously converted into a
Non-Qualified Option pursuant to paragraph 16) if such acceleration would
violate the annual vesting limitation contained in Section 422(d) of the
Code, as described in paragraph 6(c).
9. TERMINATION OF EMPLOYMENT. If an ISO optionee ceases to be employed by
the Company and all Related Corporations other than by reason of death or
disability as defined in paragraph 10, no further installments of his ISOs shall
become exercisable (unless otherwise approved by the Committee), and his ISOs
which are exercisable on the date of termination of his employment shall
terminate after the passage of three (3) months from the date of termination of
his employment, but in no event later than on their specified expiration dates,
except (i) in the case of termination for "Misconduct," as defined in the
instrument granting such ISOs, in which case such ISOs shall terminate
automatically on the date of such termination, and (ii) to the extent that such
ISOs (or unexercised installments thereof) have been converted into
Non-Qualified Options pursuant to paragraph 16. Employment shall be considered
as continuing uninterrupted during any bona fide leave of absence (such as those
attributable to illness, military obligations or governmental service);
provided, that the period of such leave does not exceed three (3) months or, if
longer, any period during which such optionee's right to reemployment is
guaranteed by statute. A bona fide leave of absence with the written approval of
the Committee shall not be considered an interruption of employment under
-6-
<PAGE>
the Plan, provided, that such written approval contractually obligates the
Company or any Related Corporation to continue the employment of the optionee
after the approved period of absence. ISOs granted under the Plan shall not be
affected by any change of employment within or among the Company and Related
Corporations, so long as the optionee continues to be an employee of the Company
or any Related Corporation. Nothing in the Plan shall be deemed to give any
grantee of any Stock Right the right to be retained in employment or other
service by the Company or any Related Corporation for any period of time.
10. DEATH; DISABILITY.
(a) DEATH. If an ISO optionee ceases to be employed by the Company
and all Related Corporations by reason of his death, any ISO of his may be
exercised, to the extent of the number of shares with respect to which he
could have exercised it on the date of his death, by his estate, personal
representative or beneficiary who has acquired the ISO by will or by the
laws of descent and distribution, at any time prior to the earlier of the
specified expiration date of the ISO or one hundred eighty (180) days from
the date of the optionee's death or such longer period not in excess of
one (1) year as the Committee shall determine.
(b) DISABILITY. If an ISO optionee ceases to be employed by the
Company and all Related Corporations by reason of his disability, he shall
have the right to exercise any ISO held by him on the date of termination
of employment, to the extent of the number of shares with respect to which
he could have exercised it on that date, at any time prior to the earlier
of the specified expiration date of the ISO or one hundred eighty (180)
days from the date of the termination of the optionee's employment or such
longer period not in excess of one (1) year as the Committee shall
determine. For the purposes of the Plan, the term "disability" shall mean
"permanent and total disability" as defined in Section 22(e)(3) of the
Code or successor statute.
11. ASSIGNABILITY. No Option shall be assignable or transferable by the
optionee except by will or by the laws of descent and distribution or, in the
sole discretion of the Committee at the time of the proposed assignment or
transfer, pursuant to a qualified domestic relations order as defined under the
Code or Title I of the Employee Retirement Income Security Act of 1974, as
amended, (or the rules thereunder), or as the Committee, in its sole discretion,
shall otherwise permit. The Option shall be exercisable during the lifetime of
the optionee only by such optionee or his guardian or legal representative, or
by an assignee or transferee if the Option has been assigned or transferred in
compliance
-7-
<PAGE>
with the immediately preceding sentence.. Notwithstanding the foregoing, to the
extent the instrument evidencing any Non-Qualified Option so provides, and
subject to the conditions that the Committee may prescribe, an optionee may,
upon providing written notice to the President of the Company, elect to transfer
the Options granted to such optionee pursuant to such instrument, without
consideration therefor. The terms of such Option shall be binding upon any
recipient of such Option.
12. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 through 11 hereof and may contain such
other provisions as the Committee deems advisable which are not inconsistent
with the Plan, including restrictions applicable to shares of Common Stock
issuable upon exercise of Options (including, without limitation, rights of
repurchase by the Company and, in the event of an underwritten public offering
of the Company's securities, restrictions on any sale or distribution by the
optionee of any of the Company's common equity for a period of time as the
underwriters in such public offering shall determine). In granting any
Non-Qualified Option, the Committee may specify that such Non-Qualified Option
shall be subject to the restrictions set forth herein with respect to ISOs, or
to such other termination, cancellation and other provisions not inconsistent
with the Plan as the Committee may determine. The Committee may from time to
time confer authority and responsibility on one or more of its own members or
one or more officers of the Company to execute and deliver such instruments. The
proper officers of the Company are authorized and directed to take any and all
action necessary or advisable from time to time to carry out the terms of such
instruments.
13. ADJUSTMENTS. Upon the occurrence of any of the following events, an
optionee's rights with respect to Options granted to him hereunder shall be
adjusted as and to the extent hereinafter required, unless otherwise
specifically provided in the written agreement between the optionee and the
Company relating to such Option:
(a) STOCK DIVIDENDS AND STOCK SPLITS. If the shares of Common Stock
shall be subdivided or combined into a greater or smaller number of shares
or if the Company shall issue any shares of Common Stock as a stock
dividend on its outstanding Common Stock, the number of shares of Common
Stock deliverable upon the exercise of Options shall be appropriately
increased or decreased proportionately and appropriate adjustments shall
be made in the purchase price per share to reflect such subdivision,
combination or stock dividend.
-8-
<PAGE>
(b) CONSOLIDATIONS OR MERGERS. If the Company is to be consolidated
with or acquired by another entity in a merger, sale of all or
substantially all of the Company's assets or otherwise (an "Acquisition"),
the Committee or the Board of Directors of any entity assuming the
obligations of the Company hereunder (the "Successor Board"), shall, as to
the outstanding Options, either (i) make appropriate provision for the
continuation of such Options by (A) substituting on an equitable basis for
the shares then subject to such Options the consideration payable with
respect to the outstanding shares of Common Stock in connection with the
Acquisition, or (B) making such other equitable changes or adjustments in
the terms of such Options (including, without limitation, the type or
number of shares of capital stock subject to such Options and the
respective exercise prices thereof) as the Successor Board shall deem
necessary or appropriate; (ii) upon written notice to the optionees,
provide that all Options must be exercised, to the extent then exercisable
(or in the discretion of the Committee or the Successor Board, also
provide that all unvested Options shall be, or become at the time which
the Committee shall determine, immediately exercisable), within a
specified number of days of the date of such notice, at the end of which
period the Options shall terminate; or (iii) terminate all Options in
exchange for a cash payment or other consideration equal to the excess of
the fair market value of the shares subject to such Options (to the extent
then exercisable, or in the discretion of the Committee or the Successor
Board, whether or not then exercisable) over the exercise price thereof.
(c) RECAPITALIZATION OR REORGANIZATION. In the event of a
recapitalization or reorganization of the Company (other than a
transaction described in subparagraph (b) above) pursuant to which
securities of the Company or of another corporation are issued with
respect to the outstanding shares of Common Stock, an optionee upon
exercising an Option shall be entitled to receive for the purchase price
paid upon such exercise, the securities he would have received if he had
exercised his Option immediately prior to such recapitalization or
reorganization.
(d) MODIFICATION OF ISOS. Notwithstanding the foregoing, any
adjustments made pursuant to subparagraphs (a), (b), or (c) with respect
to ISOs shall be made only after the Committee, after consulting with
counsel for the Company, determines whether such adjustments would
constitute a "modification" of such ISOs (as that term is defined in
Section 424 of the Code) or would cause any adverse tax consequences for
the holders of such ISOs. If the Committee determines that such
adjustments made with respect to ISOs would constitute a modification of
such ISOs, it may refrain from making such adjustments.
-9-
<PAGE>
(e) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, each Option will terminate
immediately prior to the consummation of such proposed action or at such
other time and subject to such other conditions as shall be determined by
the Committee.
(f) ISSUANCES OF SECURITIES. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or
price of shares subject to Options. No adjustments shall be made for
dividends paid in cash or in property other than securities of the
Company.
(g) FRACTIONAL SHARES. No fractional shares shall be issued under
the Plan and the optionee shall receive from the Company cash in lieu of
such fractional shares.
(h) ADJUSTMENTS. Upon the happening of any of the events described
in subparagraphs (a), (b), or (c) above, the class and aggregate number of
shares set forth in paragraph 4 hereof that are subject to Stock Rights
which previously have been or subsequently may be granted under the Plan
shall also be appropriately adjusted to reflect the events described in
such subparagraphs. If changes in the capitalization of the Company shall
occur other than those referred to above in this paragraph 13, the
Committee shall make such adjustments, if any, in the number of shares
covered by each Option and in the per share purchase price as the
Committee in its discretion may consider appropriate. The Committee or, if
applicable, the Successor Board, shall determine the specific adjustments
to be made under this paragraph 13 and its determination shall be
conclusive.
If any person or entity owning restricted Common Stock obtained by exercise
of a Stock Right made hereunder receives shares or securities or cash in
connection with a corporate transaction described in subparagraphs (a), (b), or
(c) above as a result of owning such restricted Common Stock, such shares or
securities or cash shall be subject to all of the conditions and restrictions
applicable to the restricted Common Stock with respect to which such shares or
securities or cash were issued, unless otherwise determined by the Committee or
the Successor Board.
14. MEANS OF EXERCISING OPTIONS. An Option (or any part or installment
thereof) shall be exercised by giving written notice to the Company at its
principal executive office or to the transfer agent as the Company shall
designate. Such notice
-10-
<PAGE>
shall identify the Option being exercised and specify the number of shares as to
which such Option is being exercised, accompanied by full payment of the
purchase price therefor either (a) in United States dollars in cash or by check,
(b) at the discretion of the Committee at the time of exercise, through delivery
of shares of Common Stock having an aggregate fair market value (as determined
by the Committee in its sole discretion) equal as of the date of the exercise to
the cash exercise price of the Option, (c) at the discretion of the Committee at
the time of exercise, by delivery of the grantee's personal recourse note
bearing interest payable not less than annually at no less than one hundred
percent (100%) of the lowest applicable Federal rate, as defined in Section 1274
(d) of the Code, or (d) at the discretion of the Committee at the time of
exercise, by any combination of (a), (b), or (c) above. In connection with any
payment pursuant to clause (c) above, the Committee may require the optionee to
concurrently execute and deliver to the Company a pledge agreement in a form
reasonably satisfactory to the Company, together with a stock certificate or
certificates representing shares of the Company's Common Stock (having an
aggregate fair market value, as determined by the Committee at the time of
exercise, equal as of the date of exercise to at least the value of the
principal amount of the note), duly endorsed or accompanied by a stock power or
powers duly endorsed, to secure the optionee's obligations under such personal
recourse note. The holder of an Option shall not have the rights of a
shareholder with respect to the shares covered by his Option until the date of
issuance of a stock certificate to him for such shares. Except as expressly
provided above in paragraph 13 with respect to changes in capitalization and
stock dividends, no adjustment shall be made for dividends or similar rights for
which the record date is before the date such stock certificate is issued.
15. TERM AND AMENDMENT OF PLAN. The Plan was originally adopted by the
Board and the shareholders of the Company on November 21, 1994. The Plan was
amended by action of the Board which, on December 16, 1996, approved and adopted
an amendment and restatement thereof, effective on December 31, 1996, which
amendment and restatement was approved by the sole shareholder of the Company on
December 31, 1996. The Plan as currently in effect was approved and adopted by
the Board as of August 18, 1997, and was approved by the shareholders of the
Company as of August 18, 1997. The Plan shall expire at the end of the day on
November 21, 2004 (except as to Stock Rights outstanding on that date). The
Board may terminate or amend the Plan in any respect at any time; provided, that
no such amendment or termination shall adversely affect any Plan participant's
rights under any Stock Right previously granted, without such participant's
written consent.
16. CONVERSION OF ISOS INTO NON-QUALIFIED OPTIONS; TERMINATION OF ISOS. The
Committee, at the written request of any optionee, may in its discretion, take
such actions
-11-
<PAGE>
as may be necessary to convert such optionee's ISOs (or any installments or
portions of installments thereof) that have not been exercised on the date of
conversion into Non-Qualified Options at any time prior to the expiration of
such ISOs, regardless of whether the optionee is an employee of the Company or a
Related Corporation at the time of such conversion. Such actions may include,
but not be limited to, extending the exercise period or reducing the exercise
price of the appropriate installments of such ISOs. At the time of such
conversion, the Committee (with the consent of the optionee) may impose such
conditions on the exercise of the resulting Non-Qualified Options as the
Committee in its discretion may determine; provided, that such conditions shall
not be inconsistent with this Plan. Nothing in the Plan shall be deemed to give
any optionee the right to have such optionee's ISOs converted into Non-Qualified
Options, and no such conversion shall occur until and unless the Committee takes
appropriate action. The Committee, with the consent of the optionee, may also
terminate any portion of any ISO that has not been exercised at the time of such
conversion.
17. GOVERNMENTAL REGULATION. The Company's obligation to sell and deliver
shares of the Common Stock under this Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance
or sale of such shares.
18. TAX WITHHOLDING. Upon the exercise of a Non-Qualified Option, the grant
of an Award or the making of a purchase of Common Stock for less than its fair
market value pursuant to an Award, the making of a Disqualifying Disposition (as
defined in paragraph 19) or the vesting of Restricted Stock (as defined in
paragraph 20), the Company, in accordance with Section 3402(a) of the Code, may
require the optionee or Award recipient to pay withholding taxes in respect of
the amount that is considered compensation required to be included in such
person's gross income. The Committee, in its discretion, may condition (i) the
exercise of an Option, (ii) the grant of an Award, (iii) the making of a
purchase of Common Stock for less than its fair market value pursuant to an
Award, or (iv) the vesting of Restricted Stock on the grantee's payment of such
withholding taxes. The Committee shall have the sole discretion to determine the
form in which payment of such withholding taxes will be made (i.e., cash,
securities, or a combination thereof).
19. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. Each employee who
receives an ISO must agree to notify the Company in writing immediately after
the employee makes a Disqualifying Disposition of any Common Stock acquired
pursuant to the exercise of an ISO. A Disqualifying Disposition is any
disposition (including any sale) of such Common Stock before the later of (a)
two (2) years after the date the
-12-
<PAGE>
employee was granted the ISO, or (b) one (1) year after the date the employee
acquired Common Stock by exercising the ISO. If the employee has died before
such stock is sold, these holding period requirements do not apply and no
Disqualifying Disposition can occur thereafter.
20. PROVISIONS RELATED TO RESTRICTED STOCK AND OTHER AWARDS.
(a) Awards of shares of Common Stock may be granted either alone, in
addition to or in tandem with other awards granted under the Plan or cash
awards made outside the Plan, and such shares may be subject to repurchase
by the Company upon such terms and conditions as the Committee may
determine (such shares subject to such repurchase being referred to as
"Restricted Stock"). The Committee shall determine the eligible persons to
whom, and the time or times at which, Awards will be made, the number of
shares to be awarded, the price (if any) to be paid by the Award
recipient, in the case of Restricted Stock, the time or times within which
such shares of Restricted Stock may be subject to forfeiture and all other
terms and conditions of any such Award. The Committee may condition an
Award or the vesting of Restricted Stock upon the attainment of specified
performance goals or such other factors as the Committee may determine in
its sole discretion. The terms and conditions of Awards need not be the
same for each recipient.
(b) The prospective recipient of an Award shall not have any rights
with respect to such Award, unless and until such recipient has executed
an agreement evidencing the Award and has delivered a fully executed copy
thereof to the Company, and has otherwise complied with the applicable
terms and conditions of such Award.
(i) The consideration for shares issued pursuant to an Award
shall be equal to or greater than their par value.
(ii) Awards must be accepted within a period of sixty (60)
days (or such shorter period as the Committee may specify at grant)
after the Award date, by executing an Award agreement and paying
whatever price (if any) is required under the Award.
(iii) A stock certificate in respect of shares of Common Stock
which are the subject of an Award shall be issued in the name of the
-13-
<PAGE>
participant receiving such Award, and shall bear an appropriate
legend referring to the terms, conditions and restrictions
applicable to such Award.
(iv) The Committee may require that the stock certificates
evidencing shares of Restricted Stock be held in custody by the
Company until the restrictions thereon shall have lapsed, and that,
as a condition of any Restricted Stock Award, the participant shall
have delivered a stock power, endorsed in blank, relating to the
shares of Restricted Stock covered by such Award.
(c) Awards of shares of Restricted Stock under the Plan shall be
subject to the following restrictions and conditions (in addition to other
restrictions and conditions set forth in the Award agreement with respect
to such shares not inconsistent with this Plan which the Committee shall
determine in its sole discretion):
(i) Subject to the provisions of the Plan and the Award
agreement, during a period set by the Committee commencing with the
date of such Award (the "Restricted Period"), the participant shall
not be permitted to sell, transfer, pledge or assign shares of
Restricted Stock issued pursuant to an Award. The Committee, in its
sole discretion, may provide for the lapse of such restrictions in
installments and may accelerate or waive such restrictions in whole
or in part, based on service, performance or such other factors or
criteria as the Committee may determine, in its sole discretion. The
Award agreement may contain other restrictions and conditions not
inconsistent with the Plan as the Committee shall deem appropriate,
including, without limitation, rights of repurchase by the Company
and, in the event of an underwritten public offering of the
Company's securities, restrictions on any sale or distribution by
the Award recipient of any of the Company's common equity for a
period of time as the underwriters in such public offering shall
determine.
(ii) Except as provided herein, the recipient shall have, with
respect to shares of Restricted Stock issued pursuant to an Award,
all of the rights of a shareholder of the Company, including the
right to vote the shares, and the right to receive any cash
dividends. The Committee may, in its sole discretion, at the time of
the grant of an Award of Restricted Stock, permit or require the
payment of cash dividends with respect to such Restricted Stock to
be deferred and, if the Committee so determines,
-14-
<PAGE>
reinvested in additional shares of Restricted Stock to the extent
shares are available under the Plan, or otherwise reinvested. Stock
dividends issued with respect to Restricted Stock shall be treated
as additional shares of Restricted Stock that are subject to the
same restrictions and other terms and conditions that apply to the
shares with respect to which such dividends are issued.
(iii) Subject to the applicable provisions of the Award
agreement, if and when the Restricted Period expires without a prior
forfeiture of the Restricted Stock subject to such Restricted
Period, certificates for an appropriate number of unrestricted
shares (without any legend referred to in subparagraph (iii) of
subsection (b) of Section 20) shall be delivered to the participant
promptly upon the surrender and cancellation of the previously
issued certificate(s) representing such shares.
21. GOVERNING LAW; CONSTRUCTION. The validity and construction of the Plan
and the instruments evidencing Stock Rights shall be governed by the laws of the
State of Delaware, or the laws of any jurisdiction in which the Company or its
successors in interest may be organized. In construing this Plan, the singular
shall include the plural and the masculine gender shall include the feminine and
neuter, unless the context otherwise requires.
-15-
<PAGE>
EXHIBIT 21
Subsidiaries of the Company Place of Incorporation
- --------------------------- ----------------------
Associated Memorials Inc. Vermont
Autumn Rose Quarry, Inc. Georgia
C&K Trucking Inc. Georgia
Carolina Quarries, Inc. Georgia
Kabushiki Kaisha Rock of Ages Asia* Japan
Keith Monuments Company LLC Delaware
Keystone & Childs Inc. Georgia
Pennsylvania Granite Corp. Pennsylvania
Rock of Ages Canada, Inc. Canada
Rock of Ages International Corp. Japan
Rock of Ages International, Ltd. Virgin Islands
Rock of Ages Memorials Inc. Delaware
Sioux Falls Monument Co. South Dakota
*50% owned
<PAGE>
The Board of Directors
Rock of Ages Corporation:
We consent to the use of our reports included herein (or incorporated herein by
reference) and to the reference to our firm under the heading "Experts" in the
prospectus.
KPMG LLP
Burlington, Vermont
March 29, 1999
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