<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number: 0-29464
ROCK OF AGES CORPORATION
- --------------------------------------------------------------------------------
(Exact name of Registrant as Specified in its Charter)
Delaware 03015320
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
772 Graniteville Road
Graniteville, Vermont 05654
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(802) 476-3121
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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 than 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 ___
As of August 14, 1999, 4,324,171 shares of Class A Common Stock, par value $0.01
per share, and 3,115,746 shares of Class B Common Stock, par value $0.01 per
share, of Rock of Ages Corporation were outstanding.
<PAGE> 2
ROCK OF AGES CORPORATION
INDEX
Form 10-Q for the Quarterly Period
Ended June 30, 1999
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - June 30, 1999 and
December 31, 1998
Condensed Consolidated Statements of Operations - Three Months
Ended and the Six Months Ended June 30, 1999 and 1998
Condensed Consolidated Statements of Cash Flows - Three Months Ended
And Six Months Ended June 30, 1999 and 1998
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Exhibits and Reports on Form 8-K
Signature
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
ROCK OF AGES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in thousands)
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1999 1998
-------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,216 $ 4,701
Trade receivables, net 17,099 14,004
Inventories 23,411 24,075
Prepaid & refundable income taxes 646 586
Due from affiliate 44
Deferred tax assets 307 352
Other current assets 2,471 1,549
-------- --------
Total current assets 49,194 45,267
Property, plant and equipment, net 44,140 44,475
Cash surrender value of life insurance, net 1,426 1,426
Intangibles, net 33,522 29,487
Deferred tax assets 572 110
Investments in and advances to affiliated company 131 131
Intangible pension asset 219 219
Other investments 343
Other 931 436
-------- --------
Total assets $130,135 $121,894
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under lines of credit $ 14,415 $ 6,687
Current installments of long-term debt 483 803
Trade payables 3,202 2,674
Accrued expenses 3,382 3,478
Due to related parties 4
Customer deposits 7,267 5,100
-------- --------
Total current liabilities 28,749 18,746
Long-term debt, excluding current installments 12,800 12,880
Deferred compensation 3,912 3,692
Accrued pension cost 34 34
Accrued postretirement benefit cost 570 570
Other 135 135
-------- --------
Total liabilities 46,200 36,057
Commitments
Stockholder's equity:
Preferred stock - $.01 par value;
2,500,000 shares authorized
No shares issued or outstanding
Common stock - Class A, $.01 par value;
30,000,000 shares authorized
4,324,171 and 3,896,178 shares issued and
outstanding 43 39
Common stock - Class B, $.01 par value;
15,000,000 shares authorized
3,115,746 and 3,484,957 shares issued and
outstanding 31 35
Additional paid-in capital 67,891 69,350
Retained earnings 16,222 16,898
Accumulated other comprehensive loss (252) (485)
-------- --------
Total stockholder's equity 83,935 85,837
-------- --------
Total liabilities and stockholder's equity $130,135 $121,894
======== ========
</TABLE>
**SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
Page 1
<PAGE> 4
ROCK OF AGES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- --------------------
1999 1998 1999 1998
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Net Revenues:
Quarrying $ 5,520 $ 5,625 $ 9,094 $ 8,970
Manufacturing 11,508 13,443 21,427 24,029
Retailing 11,958 3,887 15,982 5,127
------- ------- ------- -------
Total net revenues 28,986 22,955 46,503 38,126
Gross profit:
Quarrying 2,386 2,791 3,013 3,650
Manufacturing 2,922 3,616 4,482 5,546
Retailing 6,334 2,193 8,438 2,942
------- ------- ------- -------
Total gross profit 11,642 8,600 15,933 12,138
Selling, general and administrative expenses 8,195 4,493 14,581 8,542
------- ------- ------- -------
Income from operations 3,447 4,107 1,352 3,596
Loss on sale of assets 723 723
Interest expense 506 73 989 131
------- ------- ------- -------
Income (loss) before provision (benefit) for
income taxes and cumulative effect of a
change in accounting principle 2,218 4,034 (360) 3,465
Income tax expense 882 1,247 166 1,109
------- ------- ------- -------
Net income (loss) before cumulative effect of a
change in accounting principle $ 1,336 $ 2,787 $ (526) $ 2,356
Cumulative effect in prior years of a change in
accounting principle (net of taxes of $48) (150)
------- ------- ------- -------
Net income (loss) $ 1,336 $ 2,787 $ (676) $ 2,356
Per share information:
Net income (loss) per share-basic:
Net income (loss) before cumulative effect of
a change in accounting principle $ 0.18 $ 0.38 $ (0.07) $ 0.32
Cumulative effect in prior years of a change in
accounting principle (net of taxes of $48) -- -- (0.02) --
------- ------- -------- ------
Net income (loss) per share $ 0.18 $ 0.38 $ (0.09) $ 0.32
Net income (loss) per share - diluted:
Net income (loss) before cumulative effect of
a change in accounting principle $ 0.17 $ 0.35 $ (0.07) $ 0.29
Cumulative effect in prior years of a change in
accounting principle (net of taxes of $48) -- (0.02) --
------- ------- -------- ------
Net income (loss) $ 0.17 $ 0.35 $ (0.09) $ 0.29
Weighted average number of common shares
outstanding - basic 7,604 7,349 7,579 7,319
Weighted average number of common shares
outstanding - diluted 7,940 8,033 7,579 8,004
</TABLE>
**SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
Page 2
<PAGE> 5
ROCK OF AGES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------
1999 1998
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (676) $ 2,356
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation, depletion and amortization 2,324 1,552
Loss on sale of assets 752 2
Increase in cash surrender value (6)
Cumulative effect of a change in accounting
principle (150) 0
Deferred taxes 1 (71)
Changes in assets and liabilities:
Increase in trade receivables (2,722) (2,044)
Increase in due from related parties (53) (99)
Decrease (increase) in inventories 665 (2,546)
Increase in other assets (656) (232)
Increase in trade payables, accrued
expenses and income taxes payable 157 2,492
Increase in due to related parties 154
Increase in customer deposits 1,667 90
Increase (decrease) in deferred compensation 96 (200)
------- -------
Net cash provided by operating activities 1,405 1,448
Cash flows from investing activities:
Purchases of property, plant and equipment (2,501) (1,986)
Increase in intangibles (235)
Cash included in sale of subsidiary (250)
Acquisitions, net of cash acquired (1) (5,991) (4,272)
------- -------
Net cash used in investing activities (8,977) (6,258)
Cash flows from financing activities:
Net borrowings under lines of credit 7,728 255
Net stock option transactions 700
Increase in debt issuance costs (75)
Principal payments on long-term debt (449) (114)
------- -------
Net cash provided by financing activities 7,904 141
Effect of exchange rate changes on cash 183 (7)
------- -------
Net increase (decrease) in cash and cash
equivalents 515 (4,676)
Cash and cash equivalents, beginning of period 4,701 8,637
Cash and cash equivalents, end of period $ 5,216 $ 3,961
======= =======
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
(1) Acquisitions:
Assets acquired $ 7,887 $ 8,419
Liabilities assumed and issued (937) (2,730)
Common stock issued (640) (1,350)
------- -------
Cash paid 6,310 4,339
Less cash acquired (319) (67)
------- -------
Net cash paid for acquisitions $ 5,991 $ 4,272
======= =======
</TABLE>
Supplemental non-cash investing and financing activities:
Page 3
<PAGE> 6
On May 28, 1999 the Company exchanged all of the outstanding shares of Keystone
Memorial Inc., a newly formed subsidiary, containing land, buildings and
equipment of $2,281,457, inventory of $1,750,000, deferred tax liabilities of
$417,564, prepaids of $9,351, intangibles of $47,974 and cash of $250,000 for
shares valued at $2,799,061 and a note receivable with a net present value of
$399,538. See Note 7 for further discussion.
**SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
Page 4
<PAGE> 7
ROCK OF AGES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared pursuant to the rules and regulations for reporting on Form 10-Q.
Accordingly, certain information and notes required by generally accepted
accounting principles for complete financial statements are not included herein.
In the opinion of management, all adjustments of a normal recurring nature
considered necessary for a fair presentation have been included. Results of
operations for the interim periods are not necessarily indicative of the results
that may be expected for a full year. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Form 10-K 405 (SEC File No. 000-29464, filed March 31, 1999).
(2) Inventories
<TABLE>
<CAPTION>
Inventories consist of the following at June 30, ($ in thousands)
1999 and December 31, 1998: June 30, December 31,
1999 1998
------- -------
<S> <C> <C>
Raw materials $ 9,059 $ 9,815
Work-in-process 2,999 5,724
Finished goods and supplies 11,353 8,536
------- -------
$23,411 $24,075
======= =======
</TABLE>
(3) Pro Forma Information
During the six months ended June 30, 1999, the Company acquired seven retail
monument companies. The Company paid a total of $6,310,235 in cash and issued
52,643 shares of Class A Common Stock with a value of $639,986 for the acquired
companies. In addition, various employment, noncompetition and lease agreements
were entered into.
The acquisitions have been 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 approximately $4,389,000
of cost in excess of net assets acquired which has been allocated to intangible
assets, primarily names and reputations.
The following unaudited pro forma information has been prepared assuming that
the acquisitions during 1998 (refer to specifics in the footnotes of Form 10-K
405 mentioned above) and 1999 occurred at the beginning of the periods
presented. The pro forma information is presented for information purposes only
and is not necessarily indicative of what would have occurred if the
acquisitions had been made as of those dates.
<TABLE>
<CAPTION>
($ in thousands except per share data)
(Unaudited)
Six Months Ended
June 30,
--------------------------------------
1999 1998
------- -------
<S> <C> <C>
Net revenues $47,671 $49,411
Net income (loss) $ (855) $ 2,142
Net income (loss) per share-basic $ (.11) $ .29
Net income (loss) per share-diluted $ (.11) $ .27
</TABLE>
Page 5
<PAGE> 8
(4) Earnings Per Share
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share (EPS) computations for net loss for the
three and six month periods ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
($ in thousands except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
1999 1998 1999 1998
----- ----- ------- ------
<S> <C> <C> <C> <C>
Numerator:
Income (loss) available to common shareholders
used in basic and diluted earnings per share $1,336 $2,787 $ (676) $2,356
====== ====== ====== ======
Denominator:
Denominator for basic earnings per share:
Weighted average shares 7,604 7,349 7,579 7,319
Effect of dilutive securities:
Stock options 336 684 0 685
------ ------ ------ ------
Denominator for dilulted earnings per share:
Adjusted weighted average shares 7,940 8,033 7,579 8,004
====== ====== ====== ======
Basic earnings per share $ 0.18 $ 0.38 $(0.09) $ 0.32
Diluted earnings per share $ 0.17 $ 0.35 $(0.09) $ 0.29
</TABLE>
Options to purchase 483,252 shares of Class A common stock at prices ranging
from $12.00 to $18.50 per share were outstanding in 1999, 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.
(5) Segment Information
On December 31, 1998 the Company adopted SFAS No. 131, Disclosures about
Segments of Enterprise 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.
Page 6
<PAGE> 9
The following is the unaudited segment information for the three and six month
periods ending June 30, 1999 and 1998 (in thousands):
Six month period:
<TABLE>
<CAPTION>
1999 Quarrying Manufacturing Retailing Total
-------- ------------- --------- -------
<S> <C> <C> <C> <C>
Total net revenues $12,500 $24,711 $15,982 $53,193
Inter-segment net revenues 3,406 3,284 -- 6,690
------- ------- ------- -------
Net revenues 9,094 21,427 15,982 46,503
Total gross profit 4,108 3,482 8,343 15,933
Inter-segment gross profit 1,095 (1,000) (95) 0
------- ------- ------- -------
Gross profit 3,013 4,482 8,438 15,933
Selling, general and administrative expenses 2,590 3,333 8,658 14,581
------- ------- ------- -------
Income (loss) from operations 423 1,149 (220) 1,352
Loss on sale of assets 723 723
Interest expense 2 66 921 989
------- ------- ------- -------
Income (loss) before provision (benefit) for
income taxes $ 421 $ 360 $(1,141) $ (360)
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
1998 Quarrying Manufacturing Retailing Total
-------- ------------- --------- -------
<S> <C> <C> <C> <C>
Total net revenues $12,876 $25,764 $5,127 $43,767
Inter-segment net revenues 3,906 1,735 -- 5,641
------- ------- ------ -------
Net revenues 8,970 24,029 5,127 38,126
Total gross profit 4,715 4,481 2,942 12,138
Inter-segment gross profit 1,065 (1,065) -- 0
------- ------- ------ -------
Gross profit 3,650 5,546 2,942 12,138
Selling, general and administrative expenses 2,569 3,407 2,566 8,542
------- ------- ------ -------
Income from operations 1,081 2,139 376 3,596
Interest expense 37 94 -- 131
------- ------- ------ -------
Income before provision for income taxes $ 1,044 $ 2,045 $ 376 $ 3,465
======= ======= ====== =======
</TABLE>
Three month period:
<TABLE>
<CAPTION>
1999 Quarrying Manufacturing Retailing Total
-------- ------------- --------- -------
<S> <C> <C> <C> <C>
Total net revenues $ 7,517 13,447 11,958 32,922
Inter-segment net revenues 1,997 1,939 -- 3,936
------- ------- ------- ------
Net revenues 5,520 11,508 11,958 28,986
Total gross profit 3,284 2,120 6,238 11,642
Inter-segment gross profit 898 (802) (96) 0
------- ------- ------- ------
Gross profit 2,386 2,922 6,334 11,642
Selling, general and administrative expenses 1,416 1,693 5,086 8,195
------- ------- ------- ------
Income from operations 970 1,229 1,248 3,447
Loss on sale of assets 723 723
Interest expense 2 38 466 506
------- ------- ------- ------
Income before provision for income taxes $ 968 $ 468 $ 782 $2,218
======= ======= ======= ======
</TABLE>
Page 7
<PAGE> 10
<TABLE>
<CAPTION>
1998 Quarrying Manufacturing Retailing Total
-------- ------------- --------- -------
<S> <C> <C> <C> <C>
Total net revenues $7,815 14,008 3,887 25,710
Inter-segment net revenues 2,190 565 -- 2,755
------ ------- ----- ------
Net revenues 5,625 13,443 3,887 22,955
Total gross profit 3,677 2,730 2,193 8,600
Inter-segment gross profit 886 (886) -- 0
------ ------- ----- ------
Gross profit 2,791 3,616 2,193 8,600
Selling, general and administrative expenses 1,190 1,616 1,687 4,493
------ ------- ----- ------
Income from operations 1,601 2,000 506 4,107
Interest expense 25 48 -- 73
------ ------- ----- ------
Income before provision for income taxes $1,576 1,952 506 4,034
====== ======= ===== ======
</TABLE>
Net revenues by geographic area is as follows:
<TABLE>
<CAPTION>
($ in thousands) ($ in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ------------------
<S> <C> <C> <C> <C>
1999 1998 1999 1998
------- ------ ------ ------
Net revenues (1):
United States $25,828 20,421 41,587 33,708
Canada 3,158 2,534 4,916 4,418
------- ------ ------ ------
Total net revenues $28,986 22,955 46,503 38,126
======= ====== ====== ======
</TABLE>
(1) Net revenues are attributed to countries based on where product is produced.
Long-lived assets by geographic area is as follows:
<TABLE>
<CAPTION>
($ in thousands)
June 30, December 31,
1999 1998
------- ------
<S> <C> <C>
Long-lived assets:
United States $42,150 42,811
Canada 1,986 1,660
Japan 4 4
------- ------
$44,140 44,475
======= ======
</TABLE>
Page 8
<PAGE> 11
(6) Accounting Change
The Company adopted "SOP 98-5, Reporting on the Costs of Start-Up Activities",
as of January 1, 1999. The SOP requires the costs of start-up activities,
including organization costs, to be expensed as incurred. As a result,
acquisition costs of $149,781 (net of taxes of $47,559), were expensed in the
period ending June 30, 1999 as the cumulative effect of a change in accounting
principle.
The following table summarizes the pro forma net loss and per share amounts
assuming a change in application of accounting principles applied retroactively:
<TABLE>
<CAPTION>
($ in thousands)
Six Months
Ended
June 30,
-----------
1999
-----------
<S> <C>
Net loss (526)
Net loss per share - basic (0.07)
Net loss per share - diluted (0.07)
</TABLE>
Pro forma information for the three and six month periods ended June 30, 1998 is
not readily available.
(7) Significant Event
On May 28, 1999 the Company exchanged all of the outstanding shares of Keystone
Memorial Inc., a newly formed subsidiary, containing land, buildings and
equipment of its Keystone and Keywest manufacturing plants and certain inventory
at those locations, for 263,441 shares of Rock of Ages Class B Commons Stock.
The net assets of Keystone Memorial Inc. had a net book value of $3,921,219 and
a note receivable with a net present value of $399,538. A loss on the sale was
recorded of $722,620, included in loss on sale of assets. The loss was
considered a tax free event for purposes of calculating the provision for
income taxes.
(8) Comprehensive Income (loss)
Comprehensive income (loss) is as follows:
<TABLE>
<CAPTION>
($ in thousands) ($ in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1999 1998 1999 1998
----- ----- ---- -----
<S> <C> <C> <C> <C>
Net income (loss) 1,336 2,787 (676) 2,356
Cumulative translation adjustment 119 7 232 (79)
----- ----- ---- ------
Comprehensive income (loss) 1,455 2,794 (444) 2,277
===== ===== ==== ======
</TABLE>
(9) Subsequent Events
Subsequent to June 30, 1999, the Company acquired two additional retail monument
companies for approximately $1,475,000 in cash.
Page 9
<PAGE> 12
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Rock of Ages Corporation (the "Company") 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"), granite memorial manufacturers in Elberton, Georgia. In connection with
the Keystone and C&C acquisitions, the Company acquired Southern Mausoleums,
Inc. ("SMI" and, together with C&C and Keystone, the "Elberton 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 (the "Quarry
Companies"). 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 Company's Bethel White Quarry ("Gardenia" and, together with the Quarry
Companies, the "Acquired Quarry Operations"). In October 1997, the Company
acquired the Keith Monument Company and related companies which are engaged in
the retailing of granite memorials to consumers in the State of Kentucky
("Keith"). In 1998, the Company made acquisitions of thirteen additional retail
monument companies (the "1998 Retail Acquisitions"), thereby expanding its
retail presence to locations in Georgia, Iowa, Illinois, Minnesota, Nebraska,
Ohio, South Dakota, Wisconsin, Pennsylvania and New Jersey. In the six months
ended June 30, 1999, the Company acquired an additional seven monument retailers
(the "1999 Retail Acquisitions").
In May 1999, the Company sold certain Keystone assets back to the original
owners from whom it had purchased them in June, 1997. In exchange for these
assets, the Company received 263,441 shares of its Class B stock held by the
Keystone owners. These shares were then retired. In connection with this
transaction, the Company recognized a loss on disposal of assets of
approximately $723,000, or $.09 per diluted share, in the three months and six
months ended June 30, 1999. This nonrecurring charge had no impact on the
Company's tax liability or overall cash position.
The Company records revenues from quarrying, manufacturing and retailing. The
granite quarried by the Company is both sold 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
<PAGE> 13
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 sold at retail to an outside customer. Retailing revenues are
recorded when the finished monument is placed in the cemetery.
The following table sets forth certain 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 their respective revenues.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
- ---------------------------- --------------------------- -------------------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
NET SALES
Quarrying 19.0% 24.5% 19.6% 23.5%
Manufacturing 39.7% 58.6% 46.1% 63.0%
Retail 41.3% 16.9% 34.4% 13.4%
------ ------ ------ ------
TOTAL NET SALES 100.0% 100.0% 100.0% 100.0%
GROSS PROFIT
Quarrying 43.2% 49.6% 33.1% 40.7%
Manufacturing 25.4% 26.9% 20.9% 23.1%
Retail 53.0% 56.4% 52.8% 57.4%
------ ------ ------ ------
TOTAL GROSS PROFIT 40.2% 37.5% 34.3% 31.8%
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES 28.3% 19.6% 31.4% 22.4%
INCOME FROM OPERATIONS 11.9% 17.9% 2.9% 9.4%
OTHER EXPENSES
Interest Expense 1.7% 0.3% 2.1% 0.3%
Loss on Disposal of Assets 2.5% 1.6%
INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 7.7% 17.6% -0.8% 9.1%
Income Taxes 3.0% 5.4% 0.4% 2.9%
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF 4.6% 12.1% -1.1% 6.2%
CHANGE IN ACCOUNTING PRINCIPLE
Cumulative effect on prior years of change in
accounting principle -0.3%
NET INCOME (LOSS) 4.6% 12.1% -1.5% 6.2%
====== ====== ====== ======
</TABLE>
<PAGE> 14
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
Revenues for the three months ended June 30, 1999 increased $6.0 million, or
26.3%, to $29.0 million from $23.0 million for the three months ended June
30,1998. This increase was primarily attributable to revenues from the 1998
Retail Acquisitions and 1999 Retail Acquisitions, most of which the Company did
not own during the 1998 period. The Company's retailing net revenues increased
to 41.3% of total net revenues in the 1999 period from 16.9% in the 1998 period
as a result of these acquisitions.
Gross profit for the three months ended June 30, 1999 increased $3.0 million, or
35.4%, to $11.6 million from $8.6 million for the three months ended June 30,
1998. The gross profit percentage increased to 40.2% for the 1999 period from
37.5% for the 1998 period. These increases were attributable to the absolute and
relative increases in retailing net revenues during the 1999 period as described
above. The Company's retailing operations historically have experienced a higher
gross profit percentage than either quarrying or manufacturing.
Quarrying gross profit decreased $406,000, or 14.5%, to $2.4 million from $2.8
million for the 1998 period. The quarrying gross profit percentage decreased to
43.2% from 49.6% for the 1998 period. These decreases were primarily
attributable to increased development costs at the Company's Salisbury quarry
during the 1999 period.
Manufacturing gross profit decreased $694,000, or 19.2%, to $2.9 million from
$3.6 million for the 1998 period. The manufacturing gross profit percentage
decreased to 25.4% from 26.9% for the 1998 period. These decreases were
primarily attributable to poor results at the Elberton Manufacturing Operations.
During the 1999 period, the Company took several actions to address this
situation, including the sale of certain assets of the Elberton Manufacturing
Operations back to the original owners from whom it had purchased them in June,
1997.
Retailing gross profit increased $4.1 million, or 188.8%, to $6.3 million from
$2.2 million for the 1998 period. This increase was attributable to the 1998
Retail Acquisitions and 1999 Retail Acquisitions, most of which the Company did
not own during the 1998 period. The retailing gross profit percentage decreased
to 53.0% from 56.4% for the 1998 period. This decrease was due to the fact that
the 1998 Retail Acquisitions and 1999 Retail Acquisitions as a group have a
lower gross profit percentage historically than Keith, which accounted for the
vast majority of the Company's retailing revenue and gross profit for the 1998
period.
Selling, general, and administrative expenses ("SGA expenses") increased $3.7
million, or 82.4%, to $8.2 million from $4.5 million for the 1998 period. As a
percentage of net revenues, SGA expenses increased to 28.3% from 19.6% for the
1998 period. These increases were primarily attributable to SGA expenses of the
1998 Retail Acquisitions and the 1999 Retail Acquisitions.
Interest expense increased $433,000, or 593.2%, to $506,000 from $73,000 for the
1998 period. This increase was caused by increased borrowing under the Company's
credit facilities to support its retail acquisition strategy.
<PAGE> 15
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Revenues for the six months ended June 30, 1999 increased $8.4 million, or
22.0%, to $46.5 million from $38.1 million for the six months ended June
30,1998. This increase was primarily attributable to revenues from the 1998
Retail Acquisitions and 1999 Retail Acquisitions, most of which the Company did
not own during the 1998 period. The Company's retailing net revenues increased
to 34.4% of total net revenues in the 1999 period from 13.4% in the 1998 period
as a result of these acquisitions.
Gross profit for the six months ended June 30, 1999 increased $3.8 million, or
31.2%, to $15.9 million from $12.1 million for the six months ended June 30,
1998. The gross profit percentage increased to 34.3% for the 1999 period from
31.8% for the 1998 period. These increases were attributable to the absolute and
relative increases in retailing net revenues during the 1999 period as described
above. The Company's retailing operations historically have experienced a higher
gross profit percentage than either quarrying or manufacturing.
Quarrying gross profit decreased $639,000, or 17.5%, to $3.0 million from $3.7
million for the 1998 period. The quarrying gross profit percentage decreased to
33.1% from 40.7% for the 1998 period. These decreases were primarily
attributable to increased development costs at the Company's Salisbury quarry
during the 1999 period, and to the Company's Barre quarries being closed for a
longer time during the 1999 period than during the 1998 period. The Barre
quarries are usually closed during the winter months; however during the 1999
period the Company reopened them approximately three weeks later than during the
1998 period.
Manufacturing gross profit decreased $1.1 million, or 19.2%, to $4.5 million
from $5.5 million for the 1998 period. The manufacturing gross profit percentage
decreased to 20.9% from 23.1% for the 1998 period. These decreases were
primarily attributable to poor results at the Elberton Manufacturing Operations.
During the 1999 period, the Company took several actions to address this
situation, including the sale of certain assets of the Elberton Manufacturing
Operations back to the original owners from whom it had purchased them in June,
1997.
Retailing gross profit increased $5.5 million, or 186.8%, to $8.4 million from
$2.9 million for the 1998 period. This increase was attributable to the 1998
Retail Acquisitions and 1999 Retail Acquisitions, most of which the Company did
not own during the 1998 period. The retailing gross profit percentage decreased
to 52.8% from 57.4% for the 1998 period. This decrease was due to the fact that
the 1998 Retail Acquisitions and 1999 Retail Acquisitions as a group have a
lower gross profit percentage historically than Keith, which accounted for the
vast majority of the Company's retailing revenue and gross profit for the 1998
period.
Selling, general, and administrative expenses ("SGA expenses") increased $6.0
million, or 70.7%, to $14.6 million from $8.5 million for the 1998 period. As a
percentage of net revenues, SGA expenses increased to 31.4% from 22.4% for the
1998 period. These increases were primarily attributable to SGA expenses of the
1998 Retail Acquisitions and the 1999 Retail Acquisitions.
<PAGE> 16
Interest expense increased $859,000, or 655.7%, to $989,000 from $131,000 for
the 1998 period. This increase was caused by increased borrowing under the
Company's credit facilities to support its retail acquisition strategy.
LIQUIDITY AND CAPITAL RESOURCES
The Company considers liquidity to be its ability to meet its long and
short-term cash requirements. Historically the Company has met these
requirements primarily from cash generated by operating activities and periodic
borrowings under commercial credit facilities. The Company's recent and pending
acquisitions have increased its requirements for external sources of liquidity,
and the Company anticipates that this trend will continue as it further
implements its growth strategy.
For the six months ended June 30, 1999, net cash provided by operating
activities was $1.4 million. This was primarily the result of customer deposits
generated by the Company's retailing operations. Net cash used in investing
activities was $9.0 million. This was mostly due to acquisitions of monument
retailers during the quarter. Net cash provided by financing activities was $7.9
million, most of which was provided by borrowings under the company's credit
facilities.
The Company has credit facilities pursuant to a financing agreement with the CIT
Group/Business Credit ("CIT"). The agreement provides for an acquisition term
loan line of credit of $25 million and a revolving credit facility of another
$25 million. As of June 30, 1999 the revolving credit facility had $13.9 million
outstanding and the term loan facility had $12 million outstanding. The interest
rate on the revolving facility as of such date was 7.25% based on a formula of
prime less .50%. The interest rate on the term loan as of such date was 6.97%
based on a formula of LIBOR plus 1.75%. As of June 30, 1999, the Company also
had $559,000 outstanding and $2.4 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 7.25% based on a formula of Canadian prime plus .75%. The
Company is in the process of negotiating a revised and expanded credit facility
with a group of lenders; it expects to have this facility in place during the
third quarter of 1999. The Company's primary need for capital will be to finance
acquisitions of monument retailers as part of its growth strategy and to
maintain and improve its existing manufacturing, quarrying and retailing
facilities. The Company has $3.0 million budgeted for capital expenditures in
1999. The Company believes that the combination of cash flow from operations,
its existing credit facilities, and cash on hand 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 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
<PAGE> 17
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 during the third quarter of 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.
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.
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.
<PAGE> 18
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.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE 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.
PART II. OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of stockholders on June 18, 1999 (the
"Annual Meeting"), to elect two Class II directors and to ratify the selection
of KPMG LLP as the Company's independent auditors for the 1999 fiscal year.
Each of George R. Anderson and Frederick E. Webster, Jr. was elected to serve
as a Class II director for a three year term expiring at the annual meeting of
stockholders in 2002 and until their successors are duly elected and qualified.
The following table sets forth the number of votes cast for, against or
withheld, as well as the number of abstentions and broker non-votes, as to the
election of each of George R. Anderson and Frederick E. Webster, Jr. and the
ratification of the selection of KPMG LLP as the Company's independent auditors
for the 1999 fiscal year.
<TABLE>
<CAPTION>
Votes Against/
Votes For Votes Withheld Abstentions Broker Non-votes
--------- -------------- ----------- ----------------
<S> <C> <C> <C> <C>
Election of
George R. Anderson 6,685,975 16,462 -- 977,843
Frederick E. Webster, Jr. 6,685,975 16,462 -- 977,843
KPMG LLP 6,663,429 2,400 36,608 977,843
</TABLE>
<PAGE> 19
ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
NUMBER EXHIBITS
------ --------
3.1 Amended and Restated Certificate of Incorporation of the
Company (incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-1 (File No.
333-33685) filed with the Securities and Exchange
Commission on August 15, 1997 and declared effective on
October 20, 1997)
3.2 Amended and Restated By-laws of the Company as amended
through April 6, 1999 (incorporated by reference to
Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1999 filed with the
Securities and Exchange Commission on May 17, 1999)
11 Statement regarding computation of per share earnings
27 Financial Data Schedule
(b) Reports Submitted on Form 8-K:
The Registrant did not file any reports on Form 8-K during the quarter
ended June 30, 1999.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ROCK OF AGES CORPORATION
Dated: August 16,1999 By: /s/ John L. Forney
---------------------------------------
John L. Forney
Vice President, Chief Financial Officer
and Treasurer
<PAGE> 20
EXHIBIT INDEX
EXHIBITS
- --------
3.1 Amended and Restated Certificate of Incorporation of the
Company (incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-1 (File No.
333-33685) filed with the Securities and Exchange Commission
on August 15, 1997 and declared effective on October 20, 1997)
3.2 Amended and Restated By-laws of the Company as amended through
April 6, 1999 (incorporated by reference to Exhibit 3.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999 filed with the Securities and Exchange
Commission on May 17, 1999)
11 Statement regarding computation of per share earnings
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 11
Statement Regarding Computation of Net Income (Loss) Per Share
(Unaudited)
Net income (loss) per share - basic, is computed by dividing income (losses)
available for common shares by the weighted average number of common shares
outstanding during each year. Net income (loss) per share - diluted, is computed
by dividing income (losses) 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.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 5,216
<SECURITIES> 0
<RECEIVABLES> 17,099
<ALLOWANCES> 1,884
<INVENTORY> 23,411
<CURRENT-ASSETS> 49,194
<PP&E> 74,133
<DEPRECIATION> 29,993
<TOTAL-ASSETS> 130,135
<CURRENT-LIABILITIES> 28,749
<BONDS> 0
0
0
<COMMON> 74
<OTHER-SE> 83,860
<TOTAL-LIABILITY-AND-EQUITY> 130,135
<SALES> 46,503
<TOTAL-REVENUES> 46,503
<CGS> 30,570
<TOTAL-COSTS> 30,570
<OTHER-EXPENSES> 15,304
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 989
<INCOME-PRETAX> (360)
<INCOME-TAX> 166
<INCOME-CONTINUING> (526)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (150)
<NET-INCOME> (676)
<EPS-BASIC> (.09)
<EPS-DILUTED> (.09)
</TABLE>
