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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, 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 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 05654
GRANITEVILLE, VERMONT (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (802) 476-3121
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE
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
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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 21, 2000, 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 $38,412,603. As of March 21, 2000, there were outstanding
4,359,580 shares of Class A Common Stock and 3,104,137 shares of Class B Common
Stock.
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TABLE OF CONTENTS
PART I
PAGE
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ITEM 1. BUSINESS 1
ITEM 2. PROPERTIES 6
ITEM 3. LEGAL PROCEEDINGS 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS 9
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 9
ITEM 6. SELECTED FINANCIAL DATA 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 12
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA 16
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE 16
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS 17
ITEM 11. EXECUTIVE COMPENSATION 18
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 22
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 23
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K 24
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULE SIGNATURES 25
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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 10
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 97 Company-owned retail sales outlets as of
March 21, 2000 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 400 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
markets its memorials at four quality and price points under four separate brand
names: Rock of Ages Signature, Rock of Ages Sealmark, Golden Rule by Rock of
Ages and Stone Eternal by Rock of Ages. The Company also sells non-branded
memorials. 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 its brand names and places a seal bearing the brand name on
each branded memorial. All Rock of Ages branded memorials are supported by a
perpetual warranty with varying levels of coverage depending on the brand.
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 and of major
granite memorial manufacturers, principally in three of these four regions.
In 1999, 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 50 retail sales outlets in the
states of Iowa, Illinois, Ohio, Wisconsin, Pennsylvania, Rhode Island,
Connecticut, Massachusetts and New Jersey (the "1999 Retail Acquisitions"). The
Company paid a total aggregate purchase price in the 1999 Retail Acquisitions of
approximately $13.7 million, comprised of $13.1 million in cash and assumed
interest bearing debt and 52,623 shares of Class A Common Stock having an
aggregate market value of $640,000 as of the respective closings of these
acquisitions.
In May 1999, the Company sold certain manufacturing assets in Elberton,
Georgia back to the original owners from whom it had purchased them in June 1997
(the "Keystone Sale"). In exchange for these assets, the Company received
263,441 shares of its Class B Common 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 $845,000 or $.11 per
diluted share, during the 1999 fiscal year. This nonrecurring charge had no
impact on the Company's tax liability or overall cash position. See Item 13 -
"Certain Relationships and Related Transactions" for more information regarding
the Keystone Sale.
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. In addition, information
regarding the revenues of each business segment is incorporated herein by
reference to Item 7-"Management's Discussion and Analysis of Financial Condition
and Results of Operations." Additional information regarding each business
segment and Rock of Ages in general is set forth below.
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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:
* Expansion of Company-Owned Retail Network. The Company anticipates that it
will continue to acquire independent granite memorial retailers in selected
markets in North America in order to further develop its network of
Company-owned Rock of Ages retailers, thereby capturing the higher margins
(relative to quarrying and manufacturing margins) that have historically
existed at the retail level.
* Increased Emphasis on Independent Authorized Dealers. The Company will seek
to increase sales to independent authorized Rock of Ages retailers that are
current or potential customers of the Company in furtherance of its efforts
to build an integrated retail network consisting of Company-owned and
independent authorized Rock of Ages retail outlets that sell the Company's
brands.
* 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
Company-owned retailers, continue to increase promotion of and advertising
expenditures on the Rock of Ages brand and other proprietary brands sold at
its Company-owned retail outlets and independent authorized Rock of Ages
dealers.
* Pre-Need Selling Program. The Company intends to initiate an active
pre-need selling program for granite memorials at its Company-owned retail
locations and to assist its independent Rock of Ages authorized retailers
in developing similar programs. Currently, the best estimate of the Company
is that less than 10% of granite memorials are sold pre-need.
* 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.
* 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.
* 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 available at
various price ranges.
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 typically weigh between 20 and 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
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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 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. This agreement expires on December 31, 2003. The Company
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's quarry sales force markets and advertises its
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 and shapes ranging from
small, inexpensive markers set flush to the ground to very elaborate and
expensive personal mausoleums of larger sizes available at various price ranges.
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 owned and independent 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 97 retail outlets in 15 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
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and newspaper advertising. The Company's retail sales outlets are positioned to
sell branded and unbranded memorials at all price points and qualities.
MANUFACTURING AND RAW MATERIALS
The Company quarries and manufactures granite in the United States and
Canada at the locations detailed in Item 2 "Properties." In 1999, the Company
acquired new equipment for certain of its quarries and plants. There were no
plants acquired or material additions to plants in 1999. Management believes
that the Company's manufacturing and quarrying capacity is generally sufficient
to meet anticipated production requirements for the foreseeable future.
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 $9.5 million as of December
31, 1999 and $16.1 million as of December 31, 1998. 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 of $11.1 million as of
December 31, 1999 and $7.0 million as of December 31, 1998. The Company expects
that substantially all of the backlog orders will be filled during the 2000
fiscal year.
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.
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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 1997, 1998 or 1999.
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, 1999, the Company had approximately 1,078 employees.
The Company's collective bargaining agreements with the Granite Cutters
Association and the United Steelworkers of America, respectively, which together
represent approximately 260 of the Company's employees, expire on May 1, 2000.
The Company is currently negotiating renewal contracts. No assurance can be
given that an agreement will be reached on satisfactory terms or otherwise.
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."
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 those relating to
air and water quality, and solid and hazardous waste handling and disposal.
These laws and regulations may require the Company to fund remedial action or to
pay damages regardless of fault. Environmental laws and regulations may also
impose
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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 or anticipated
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. These
risks and uncertainties include 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 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, the
Company's ability to negotiate collective bargaining agreements, competitive
market conditions or other factors, demand for the Company's products 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 such other factors and the failure of such other
assumptions to be realized, 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
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<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
Rock of Ages Saw
Plant #1 Slabbing of granite blocks
Lawson Production Plant Slabbing of granite blocks and memorials production facility
Bethel
Qarry Properties
Bethel Quarry Quarrying of dimensional Bethel White granite blocks
GEORGIA
Madison County
Quarry Properties
Royalty/Berkeley
Quarries Quarrying of dimensional Royalty Blue and Berkeley Blue granite blocks
Oglethorpe County
</TABLE>
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<TABLE>
<S> <C>
Quarry Properties
Millstone Quarry Quarrying of dimensional Millstone Gray
Elberton
Manufacturing Properties
Southern Mausoleum Plant Manufacturing of mausoleums
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 American 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
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 97 retail sales outlets and 17 associated
sand blasting facilities in the states of Georgia, Iowa, Illinois, Minnesota,
Connecticut, Massachusetts, Rhode Island, 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.
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.
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<TABLE>
<CAPTION>
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NET
APPROXIMATE NET SALEABLE SALEABLE
DATE OF MEANS TOTAL RECOVERABLE RECOVERABLE
COMMENCEMENT PRIOR OWNER OF ORIGINAL COST RESERVES(1) RESERVES
QUARRY OF OPERATIONS (DATE ACQUIRED) ACCESS OF EACH PROPERTY (CUBIC FEET) (YEARS)(2)
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<S> <C> <C> <C> <C> <C> <C>
E.L. Smith 1880 E.L. Smith Quarry Co. (1948) Paved road $7,562,676 2,459,534,000 4,918
Adam-Pirie 1880 J.K. Pirie Quarry (1955) Paved road $4,211,363 984,886,000 6,559
Bethel 1900 Woodbury Granite Company, Inc. (1957) Dirt road $174,024 76,529,000 382
Royalty/Berkeley 1923 Coggins Granite (1991) Paved road $2,794,500 6,691,000 67
Millstone 1985 Coggins Granite (1991) Paved road $1,195,900 5,599,000 55
Stanstead 1920 Brodies Limited and Stanstead Granite Paved road $505,453 32,563,000 216
Company (1960)
Laurentian Pink 1944 Brodies Limited (1960) Paved road $860,115 3,864,000 51
American Black 1973 Pennsylvania Granite Inc. (1997) Paved road $2,900,000 14,615,000 97
Salisbury 1918 Pennsylvania Granite Inc. (1997) Paved road $3,886,592 19,344,000 86
Autumn Rose 1969 Autumn Rose Quarry Inc. (1997) Paved road $200,000 708,000 21
Kershaw 1955 Pennsylvania Granite Inc. (1997) Paved road $200,000 591,000 21
Coral Gray 1955 Pennsylvania Granite Inc. (1997) Paved road $200,000 No estimate No
estimate
Gardenia White 1995 J. Greg Faith Dirt road $4,633,000 2,602,000 37
Thomas E. Ebans, Sr.
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.
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.
8
<PAGE> 12
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
fiscal years 1998 and 1999, 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.
1998
----------------
HIGH LOW
------ ------
First Quarter............................................ 18 1/4 14 1/4
Second Quarter. ......................................... 18 1/4 15 1/8
Third Quarter............................................ 16 1/2 9
Fourth Quarter........................................... 16 10
1999
----------------
HIGH LOW
------- ------
First Quarter............................................ 14 15/16 10 3/8
Second Quarter. ......................................... 12 9 3/4
Third Quarter............................................ 11 6 1/16
Fourth Quarter........................................... 7 1/8 4 1/4
As of March 23, 2000, based upon information provided by the Company's
transfer agent, there were 288 record holders of Class A Common Stock and 33
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 a cash dividend since the Class A
Common Stock commenced public trading. The Company does not anticipate paying
cash dividends in the foreseeable future, but intends to retain any future
earnings for reinvestment in its business. Any future determination to pay cash
dividends will be at the discretion of the Board of Directors and will be
dependent upon the Company's financial condition, results of operations, capital
requirements, contractual restrictions and such other factors as the Board of
Directors deems relevant.
9
<PAGE> 13
RECENT SALES OF UNREGISTERED SECURITIES
During fiscal 1999, in connection with the 1999 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 52,623 shares of Class A Common Stock (the "1999
Acquisition Shares"). The respective issuances and sales of the 1999 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
1999 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 1999 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 1999 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 1999
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 1999 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 1999 Retail Acquisitions or the issuance
and sale of the respective 1999 Acquisition Shares.
10
<PAGE> 14
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, 1999 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,
---------------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
(U.S. $ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues:
Quarrying .......................................... $15,295 $12,083 $14,090 $19,225 $22,181
Manufacturing ...................................... 17,793 32,586 38,336 44,294 37,414
Retailing .......................................... 1,781 18,597 36,933
Total net revenues ............... 33,088 44,669 54,207 82,746 96,527
Gross Profit:
Quarrying .......................................... 6,104 5,158 5,606 8,780 9,973
Manufacturing ...................................... 4,345 8,248 9,302 10,842 7,791
Retailing .......................................... 1,198 10,799 19,579
Total gross profit ............... 10,449 13,406 16,106 30,421 37,344
Selling, general and administrative expenses ................ 6,453 9,131 11,036 20,371 31,241
Income from operations ...................................... 3,996 4,275 5,070 10,050 6,103
Loss on sale of assets ...................................... -- -- -- -- 845
Interest expense ............................................ 1,678 1,723 1,576 511 2,034
Other expenses .............................................. 564
Income before provision for income taxes .................... 1,754 2,552 3,494 9,539 3,224
Provision for income taxes .................................. 358 643 849 2,303 1,395
Net income before cumulative effect of a change in accounting
principle ................................................... $ 1,396 $ 1,909 $ 2,645 $ 7,236 $ 1,829
Net income per share ........................................ $ 0.40 $ 0.55 $ 0.62 $ 0.98 $ 0.22
Net income per share assuming dilution....................... $ 0.35 $ 0.45 $ 0.53 $ 0.91 $ 0.21
Weighted average number of shares outstanding ............... 3,500 3,500 4,290 7,349 7,509
Weighted average number of shares outstanding assuming
dilution .................................................. 4,027 4,208 4,997 7,984 7,826
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ................................... $ 1,995 $ 763 $ 8,637 $ 4,701 $ 4,877
Working capital ............................................. 13,691 13,286 28,737 26,520 18,121
Total assets ................................................ 48,101 47,995 93,137 121,893 130,669
Long-term debt, net of current maturities ................... 14,657 13,054 975 12,880 12,620
Stockholders' equity ........................................ 15,479 17,371 77,844 85,837 86,382
</TABLE>
11
<PAGE> 15
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 (the
"White Gardenia Quarry") in North Carolina. 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.
During the year ended December 31, 1998, the Company acquired 13 more retail
monument companies, thereby expanding its retail presence to locations in
Georgia, Iowa, Illinois, Minnesota, Nebraska, New Jersey, Pennsylvania, Ohio and
South Dakota (the "1998 Retail Acquisitions"). During the year ended December
31, 1999, the Company acquired an additional 13 retail monument companies and in
so doing strengthened its existing retail presence in certain states while
expanding its retail presence to Connecticut, Rhode Island, Massachusetts and
Missouri (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 (the "Keystone
Sale"). 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 $845,000 or $.11 per diluted share, during the 1999
fiscal year. 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 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.
12
<PAGE> 16
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,
--------------------------
1997 1998 1999
------ ------ ------
STATEMENT OF OPERATIONS DATA:
Net Revenues:
Quarrying .......................... 26.0% 23.2% 23.0%
Manufacturing ...................... 70.7% 54.3% 38.8%
Retailing .......................... 3.3% 22.5% 38.3%
Total net revenues........ 100.0% 100.0% 100.0%
GROSS PROFIT:
Quarrying .......................... 39.8% 45.7% 45.0%
Manufacturing ...................... 24.3% 24.1% 20.8%
Retailing .......................... 67.3% 58.1% 53.0%
Total gross profit........ 29.7% 36.7% 38.7%
Selling, general & administrative expenses .. 20.3% 24.6% 32.4%
Income from operations ...................... 9.4% 12.1% 6.3%
Loss on disposal of assets .................. -- -- .9%
Interest expense ............................ 2.9% 0.6% 2.1%
Income before provision for income taxes .... 6.5% 11.5% 3.3%
Provision for income taxes .................. 1.6% 2.8% 1.4%
Net income .................................. 4.9% 8.7% 1.9%
===== ===== =====
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998.
Revenues for the fiscal year ended December 31, 1999 increased 16.7% to $96.6
million from $82.7 million for the year ended December 31, 1998. Quarrying
revenues increased $3.0 million, of which $1.1 million was due to owning and
operating the White Gardenia Quarry for the full year and the remaining $1.9
million from stronger sales at existing quarry operations. Manufacturing
revenues declined $7.5 million, primarily as a result of the Keystone Sale.
Retailing revenues increased $18.4 million due to the positive impact of a full
year's revenue from the 1998 Retail Acquisitions and revenues generated by the
1999 Retail Acquisitions.
Gross profit for the fiscal year ended December 31, 1999 increased 22.7% to
$37.3 million from $30.4 million for the fiscal year ended December 31, 1998.
Quarrying gross profit increased $1.2 million as a result of the increase in
quarry sales. The quarrying gross profit percentage decreased to 45.0% in 1999
from 45.7% in 1998.
Manufacturing gross profit decreased $3.1 million, which was attributable to
lower manufacturing revenues and inadequate pricing in the Company's monumental
operations. The manufacturing gross profit percentage decreased to 20.8% in 1999
from 24.1% in 1998.
Retailing gross profit increased $8.8 million in 1999 as a result of the 1999
Retail Acquisitions and owning and operating the 1998 Retail Acquisitions for
the full 1999 fiscal year. However, the retailing gross profit percentage
declined from 58.1% to 53.0% due to operating the 1998 Retail Acquisitions
during the first quarter of fiscal year 1999, which is historically a poor
quarter due to seasonality, and delays in fully implementing the Company's
branding strategy and pricing policy at its retail locations. See Item 7 -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Seasonality."
Selling, general and administrative expenses for 1999 increased 53.3% to
$31.2 million from $20.4 million. As a percentage of net sales, these expenses
for 1999 increased to 32.4% from 24.6%. The absolute increase in selling,
general and administrative expenses was primarily caused by the Company's
increase in retail sales, which carry substantially higher selling costs than
the Company's other sources of revenue; the relative increase in selling,
general and
13
<PAGE> 17
administrative expenses was primarily caused by the Company's continued
investment in people to support and foster the growth in its retail operations.
Interest expense for the fiscal year ended December 31, 1999 increased to
$2.0 million from $.5 million for the fiscal year ended December 31, 1997. This
increase was due to increased borrowings by the Company to support its retail
acquisition growth strategy.
Income taxes as a percentage of earnings before taxes increased to 43.3% in
1999 from 24.1% in 1998. This was primarily the result of three factors: (1) the
$845,000 loss from the Keystone Sale which was not deductible for tax purposes;
(2) an increase in the relative effect of state taxes and (3) an increase in the
effect of Canadian taxes due to a relatively high proportion of the Company's
profits being generated by its Canadian subsidiary.
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 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.
14
<PAGE> 18
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 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, 1999. For 1999, net cash provided by operating
activities was $9.2 million. This result was primarily attributable to
depreciation, depletion and amortization of $4.0 million, net income of $1.7
million, a decrease in inventories of $1.7 million, and an increase in customer
deposits of $1.2 million. Net cash used in investing activities was $16.2
million, used primarily for net acquisitions of $12.6 million and capital
expenditures of $3.7 million. Net cash provided by financing activities was $7.1
million, most of which was from net borrowings under commercial credit
facilities of $6.9 million.
15
<PAGE> 19
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, 1999,
the Company had $12.0 million outstanding and $13.0 million available under the
term loan line of credit and $13.6 million outstanding and $900,000 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 7.25% based on a
formula of LIBOR plus 1.75%. 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 did not experience any interruptions to its business or
operations as a result of the transition to the year 2000. Costs associated with
year 2000 remediation were not material to the Company's financial position.
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 F-1 through F-32, inclusive, and is incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
16
<PAGE> 20
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Certain information concerning directors and executive officers of the
Company is set forth below:
<TABLE>
<CAPTION>
NAMES OF DIRECTORS AND EXECUTIVE
OFFICERS(1) AGE POSITIONS WITH THE COMPANY
- -------------------------------- --- --------------------------
<S> <C> <C>
George R. Anderson (2) 60 Director
John L. Forney (3) 38 Chief Financial Officer, Treasurer
James L. Fox 48 Director
Jon M. Gregory 50 President and Chief Operating Officer/Quarries Division, Director
John E. Keith 52 President/Memorials Division
Richard C. Kimball 59 Chief Operating Officer/Wholesale Division, Vice Chairman of the Board of Directors
Kurt M. Swenson 55 President and Chief Executive Officer, Chairman of the Board of Directors
Charles M. Waite 67 Director
Frederick E. Webster, Jr 62 Director
</TABLE>
- -----------
(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 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 2001.
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.
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/Wholesale 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,
17
<PAGE> 21
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 2002.
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 years ended December 31, 1999, December 31, 1998 and December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
SALARY BONUS SECURITIES
------ ----- ------------ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ANNUAL COMPENSATION OPTIONS(2) COMPENSATION(1)
- --------------------------- ---- --------------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Kurt M. Swenson 1999 $340,080 $ 0 -0- $1,150
President, Chief Executive Officer, Chairman of the 1998 $310,320 $36,000 -0- $1,150
Board of Directors 1997 $310,320 $29,500 -0- $1,100
Richard C. Kimball 1999 $240,000 $ 0 25,000 $1,150
Chief Operating Officer/Memorials Division, Vice 1998 $210,360 $33,000 -0- $1,150
Chairman of the Board of Directors 1997 $210,360 $26,500 -0- $1,100
John L. Forney (2) 1999 $185,040 $ 0 -0- $1,150
Chief Financial Officer, Treasurer 1998 -- -- -- --
1997 -- -- -- --
Jon M. Gregory 1999 $185,040 $ 0 -0- $1,150
President and Chief Operating Officer/Quarries 1998 $171,920 $22,000 -0- $1,150
Division, Director 1997 $160,440 $13,500 -0- $1,100
John E. Keith (3) 1999 $170,040 $ 0 -0- $1,150
President/Memorials Division 1998 $165,000 $17,500 -0- $1,150
1997 $165,000 4,200 62,500 $ 0
</TABLE>
- -----------
(1) In each case, represents a matching contribution under the Company's 401(K)
plan.
(2) Mr. Forney has been the Chief Financial Officer and Treasurer of the
Company since February 1, 1999.
(3) Mr. Keith has been the President/Memorials Division of the Company since
October 24, 1997. The 1997 salary listed above represents Mr. Keith's
annualized 1997 salary.
18
<PAGE> 22
STOCK OPTION GRANTS
The following table sets forth information concerning options to
purchase Class A Common Stock granted by the Company to Named Executive Officers
during the 1999 fiscal year. Except as set forth below, the Company did not
grant options to purchase its Class A Common Stock or Class B Common Stock to
any Named Executive Officer.
OPTION GRANTS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
Potential Realizable Value
Number of Securi- Percent of Total Op- Exercise At Assumed Annual Rates
ties Underlying tions Granted to Em- Price Expiration of Stock Price Appre-
Name Options Granted ployees in Fiscal year ($/Sh) Date ciation for Option Term
<S> <C> <C> <C> <C> <C> <C>
5%($) 10%($)
Richard C. Kimball 25,000(2) 100% $12.375 February 22, 2004 $85,474 $188,875
</TABLE>
- -----------
(1) On January 25, 1999, John L. Forney was granted options to purchase up to
75,000 shares of Class A Common Stock at an exercise price of $13.25 per
share and with an expiration date of January 25, 2004. On December 20,
1999, Mr. Forney surrendered such options.
(2) Options to purchase 5,000 or 20% of such shares of Class A Common Stock
became exercisable immediately upon grant and options to purchase an
additional 20,000 shares of Class A Common Stock will become exercisable at
a rate of 20% annually for four years.
The following table sets forth information concerning options to
purchase Class B Common Stock (except for Richard C. Kimball who has options to
purchase both Class A Common Stock and Class B 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. The Company has not granted any stock
appreciation rights.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
- -------------------------------------------------------------------------------------------------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE OPTIONS AT DECEMBER 31, 1999 AT DECEMBER 31, 1999(1)
EXERCISE REALIZED ---------------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Kurt M. Swenson 107,500 1,048,850 2,500 2,500 $ 1,106 $1,106
Richard C. Kimball 82,500 832,200 7,500(3) 22,500(4) 2,056 2,056
Jon M. Gregory 25,000 280,625 40,000 10,000 32,900 8,225
John L. Forney (2) 0 0 0 0 0 0
John E. Keith (2) 0 0 0 0 0 0
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------
(1) These values are calculated using the $4 9/16 per share closing price of
the Class A Common Stock on the Nasdaq(R) National Market on December 31,
1999.
(2) On December 20, 1999, Messrs. Forney and Keith surrendered options to
purchase 75,000 and 62,500 shares of Class A Common Stock, respectively.
(3) Includes options to purchase 2,500 shares of Class B Common Stock and 5,000
shares of Class A Common Stock.
(4) Includes options to purchase 2,500 shares of Class B Common Stock and
20,000 shares of Class A Common Stock.
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 2000 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.
19
<PAGE> 23
PENSION PLAN TABLE
<TABLE>
<CAPTION>
FINAL AVERAGE 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
COMPENSATION -------- --------- -------- --------- --------
- -------------
<S> <C> <C> <C> <C> <C>
$125,000 $39,165 $52,220 $65,275 $78,330 $78,330
$150,000 $47,415 $63,220 $79,025 $94,830 $94,830
$175,000 $55,665 $74,220 $92,775 $111,330 $111,330
$200,000 $63,915 $85,220 $106,525 $127,830 $127,830
$225,000 $72,165 $96,220 $120,275 $144,330 $144,330
$250,000 $80,415 $107,220 $134,025 $160,830 $160,830
$275,000 $88,665 $118,220 $147,775 $177,330 $177,330
$300,000 $96,915 $129,220 $161,525 $193,830 $193,830
$325,000 $105,165 $140,220 $175,275 $210,330 $210,330
$350,000 $113,415 $151,220 $189,025 $226,830 $226,830
</TABLE>
These calculations are based on the retirement formula in effect as of
December 31, 1999, 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, 1999 and rounded to the full year, are: Mr. Forney, 1 year;
Mr. Gregory, 24 years; Mr. Keith, 2 years; Mr. Kimball, 7 years; and Mr.
Swenson, 16 years.
20
<PAGE> 24
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
- ---- ------------ ----------- ---------
R. Kimball $240,000 12 28,800
K. Swenson $340,080 26 97,263
J. Gregory $185,040 39 43,299
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 are 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 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, with the exception of
the Company's
21
<PAGE> 25
agreement with John L. Forney, which has a five-year term commencing on January
22, 1999. 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.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 21, 2000, 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>
PERCENT OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1) NUMBER CLASS NUMBER (2) CLASS (2)
- --------------------------------------- --------- ---------- ---------- ----------
SHARES OF CLASS B SHARES OF CLASS A
COMMON STOCK COMMON STOCK
BENEFICIALLY OWNED BENEFICIALLY OWNED
------------------ ------------------
<S> <C> <C> <C> <C>
Wellington Management Company, LLP(3)
75 State Street
Boston, MA 02109 -- -- 808,000 18.5
Goldman Sachs Asset Management(4)
1 New York Plaza
New York, NY 10004 -- -- 555,500 12.7
Dimensional Fund Advisors Inc.(5)
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401 -- -- 337,600 7.7
Commonwealth of Pennsylvania(6)
Public School Employees Retirement System
5 North 5th Street
Harrisburg, PA 07101 -- -- 270,500 6.2
Kurt M. Swenson(7) ** 1,002,500 28.3 1,131,500 21.1
Kevin C. Swenson(8) 1,023,489 28.9 1,023,489 19.0
Mark A. Gherardi(9) 322,573 9.1 322,573 6.9
Robert L. Pope(10) 246,375 7.0 246,375 5.3
Peter A. Friberg (11) 206,375 5.8 251,375 5.5
Richard C. Kimball(12)** 31,626 * 132,426 3.0
John E. Keith ** -- -- 40,540 *
George R. Anderson(13)** 20,000 * 45,000 1.0
Jon M. Gregory(14)** 40,000 1.1 94,126 2.1
Charles M. Waite** 29,126 * 30,000 *
James L. Fox** -- -- 1,000 *
John L. Forney** -- -- -- --
Frederick E. Webster, Jr.** -- -- -- *
All directors and executive officers as a group (9 persons) 1,123,252 31.7 1,474,592 26.9
</TABLE>
- -----------
** Executive Officer and/or Director
* Less than 1%
22
<PAGE> 26
(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 21, 2000
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 a Schedule 13G dated February 9, 2000, 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.
(4) According to a Schedule 13G dated February 16, 2000, Goldman Sachs
Asset Management, in its capacity as an investment advisor, may be
deemed to be the beneficial owner of the listed shares which are held
of record by its clients.
(5) According to a Schedule 13G dated February 4, 2000, Dimensional Fund
Advisors Inc., in its capacity as an investment advisor or manager, may
be deemed to be the beneficial owner of the listed shares which are
held of record by certain investment companies, trusts or other
accounts that it advises or manages.
(6) According to a Schedule 13G dated January 31, 2000, the Commonwealth of
Pennsylvania, Public School Employees Retirement System, an employee
benefit plan, is the beneficial owner of the listed shares.
(7) Kurt M. Swenson is the brother of Kevin C. Swenson. Includes 2,500
shares of Class B Common Stock subject to currently exercisable
options. Includes 1,000,000 shares of Class B Common Stock and 129,000
shares of Class A Common Stock held by the Kurt M. Swenson Revocable
Trust of 2000. Kurt M. Swenson, as the sole trustee of the Kurt M.
Swenson Revocable Trust of 2000, beneficially owns such shares.
(8) Kevin C. Swenson is the brother of Kurt M. Swenson.
(9) Includes 75,000 shares of Class B Common Stock subject to currently
exercisable stock options.
(10) Includes 75,000 shares of Class B Common Stock subject to currently
exercisable stock options.
(11) Includes 75,000 shares of Class B Common Stock subject to currently
exercisable stock options.
(12) Includes 5,000 shares of Class A Common Stock subject to currently
exerciseable options and 2,500 shares of Class B Common Stock subject
to currently exerciseable options.
(13) All 20,000 shares of Class B Common Stock listed are subject to
currently exercisable stock options.
(14) All 40,000 shares of Class B Common Stock listed are subject to
currently exercisable stock options.
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.
23
<PAGE> 27
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 1999 were approximately $278,000. 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 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 1999 the Company
paid, annual rental payments of $195,322.
In May 1999, the Company sold certain manufacturing assets in Elberton,
Georgia back to Missouri Red Quarries, Inc. ("Missouri Red") and G. Thomas
Oglesby, Jr., the original owners of such assets from whom the Company had
purchased them in June 1997 (the "Keystone Sale"). Prior to the Keystone Sale,
G. Thomas Oglesby, Jr., the President of Missouri Red, was an officer of the
Company and beneficially owned approximately six percent of the Company's Class
A Common Stock then outstanding. In exchange for these assets, the Company
received 263,441 shares of its Class B Common Stock held by Missouri Red and G.
Thomas Oglesby, Jr. These shares were then retired. The Company recognized a
loss on disposal of assets of approximately $845,000 or $.11 per diluted share,
during the 1999 fiscal year. This nonrecurring charge had no impact on the
Company's tax liability or overall cash position.
Additionally, in connection with the Keystone Sale, a Supply and
Distribution Agreement among the Company, Missouri Red and G. Thomas Oglesby,
Jr., and a Supply and Distribution Agreement among the Company, Keystone Granite
Company, Inc., an affiliate of Missouri Red, and Missouri Red were mutually
terminated (the "Old Supply Agreements"). Effective as of June 1, 1999, the
Company entered into two Supply Agreements with Keystone Memorials, Inc., an
affiliate of Missouri Red ("KMI"), under which the Company agrees to sell to KMI
certain amounts of granite from the Company's quarries (the "KMI Supply
Agreement"). KMI has no obligation to purchase any of the Company's granite
under these agreements. The Company also entered into a Supply Agreement with
Missouri Red under which Missouri Red agrees to sell to the Company certain
amounts of granite from Missouri Red's quarries (the "Missouri Red Supply
Agreement", together with the KMI Supply Agreement, the "New Supply
Agreements"). The Company has no obligation to purchase any of Missouri Red's
granite under this agreement.
In 1999, the Company purchased approximately $120,000 from Missouri Red
and its affiliates under the Old Supply Agreements and New Supply Agreements.
The Company believes the terms and conditions of the transactions under such
agreements were and are as favorable to the Company as would have been available
from unrelated suppliers.
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.
24
<PAGE> 28
(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, 1999.
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Table of Contents
PAGE
----
Independent Auditors' Report F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders' Equity and Comprehensive Income F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-8
Supplementary Information:
Independent Auditors' Report on Supplementary Information F-31
Schedule II-Valuation and Qualifying Accounts and Reserves F-32
25
<PAGE> 29
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(With Independent Auditors' Report Thereon)
<PAGE> 30
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Table of Contents
PAGE
Independent Auditors' Report F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders' Equity and Comprehensive Income F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-8
Supplementary Information:
Independent Auditors' Report on Supplementary Information F-31
Schedule II - Valuation and Qualifying Accounts and Reserves F-32
<PAGE> 31
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, 1999 and 1998 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, 1999. 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, 1999 and 1998, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the financial statements, the Company adopted the
provisions of Statement of Position 98-5, "Reporting the Costs of Start-Up
Activities," in 1999.
KPMG LLP
/s/ KPMG LLP
March 2, 2000
Boston, Massachusetts
F-1
<PAGE> 32
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
------------ -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,877,214 4,701,168
Trade receivables, less allowance for doubtful accounts
of $1,826,150 in 1999 and $2,123,702 in 1998 (note 5) 14,127,848 14,003,954
Due from affiliates (note 11) 95,289 --
Inventories (notes 2 and 5) 23,291,807 24,074,622
Income taxes receivable -- 585,765
Deferred tax assets (note 8) 156,000 352,201
Other current assets 2,250,659 1,548,658
------------ -----------
Total current assets 44,798,817 45,266,368
------------ -----------
Property, plant and equipment:
Granite reserves and development costs 16,549,564 16,461,219
Land 6,989,004 6,736,003
Buildings and land improvements 15,905,426 15,302,318
Machinery and equipment 34,564,968 36,328,432
Furniture and fixtures 1,150,355 960,994
Construction-in-process 156,937 418,823
------------ -----------
75,316,254 76,207,789
Less accumulated depreciation, depletion and amortization 30,537,131 31,732,945
------------ -----------
Net property, plant and equipment 44,779,123 44,474,844
------------ -----------
Other assets:
Cash surrender value of life insurance, net of loans
of $95,412 in 1999 and 1998 1,525,132 1,426,476
Intangibles, less accumulated amortization
of $1,914,343 in 1999 and $771,428 in 1998 (note 3) 37,786,935 29,070,802
Debt issuance costs, less accumulated amortization
of $90,469 in 1999 and $42,436 in 1998 135,676 195,495
Organization costs, less accumulated amortization
of $77,634 in 1998 -- 220,513
Deferred tax assets (note 8) 721,377 110,321
Intangible pension asset (note 9) -- 218,888
Other investments -- 342,551
Other 922,279 566,868
------------ -----------
Total other assets 41,091,399 32,151,914
------------ -----------
Total assets (note 6) $130,669,339 121,893,126
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 33
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
------------- ------------
<S> <C> <C>
Current liabilities:
Borrowings under lines of credit (note 5) $ 13,619,846 6,686,656
Current installments of long-term debt (note 6) 616,118 802,685
Trade payables 1,991,930 2,674,139
Accrued expenses 2,404,988 3,478,280
Due to related parties (note 11) -- 4,412
Income taxes payable 843,780 --
Customer deposits 7,201,254 5,099,963
------------- ------------
Total current liabilities 26,677,916 18,746,135
Long-term debt, excluding current installments (note 6) 12,620,306 12,879,661
Deferred compensation (note 9) 3,658,043 3,691,899
Accrued pension cost (note 9) 501,190 34,092
Accrued postretirement benefit cost (note 9) 634,805 569,645
Other 195,417 135,000
------------- ------------
Total liabilities 44,287,677 36,056,432
------------- ------------
Commitments (note 4)
Stockholders' equity (note 10):
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
4,328,171 shares issued and outstanding in 1999
and 3,896,178 shares in 1998 43,282 38,962
Common stock - Class B, $.01 par value;
15,000,000 shares authorized
3,115,746 shares issued and outstanding in 1999
and 3,484,957 shares in 1998, convertible into
equivalent shares of Class A common stock 31,157 34,849
Additional paid-in capital 67,909,375 69,350,225
Retained earnings 18,577,207 16,897,906
Accumulated other comprehensive income (179,359) (485,248)
------------- ------------
Total stockholders' equity 86,381,662 85,836,694
------------- ------------
Total liabilities and stockholders' equity $ 130,669,339 121,893,126
============= ============
</TABLE>
F-3
<PAGE> 34
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ---------- ----------
<S> <C> <C> <C>
Net revenues $ 96,527,337 82,745,780 54,207,117
Cost of revenues 59,183,035 52,324,812 38,100,903
------------ ---------- ----------
Gross profit 37,344,302 30,420,968 16,106,214
Selling, general and administrative expenses 31,241,128 20,371,776 11,035,768
------------ ---------- ----------
Income from operations 6,103,174 10,049,192 5,070,446
Loss on sale of Keystone assets 845,117 -- --
Interest expense 2,034,129 510,341 1,576,477
------------ ---------- ----------
Income before provision for income taxes
and cumulative effect of a change in
accounting principle 3,223,928 9,538,851 3,493,969
Provision for income taxes (note 8) 1,394,846 2,302,824 849,036
------------ ---------- ----------
Net income before cumulative effect of
a change in accounting principle 1,829,082 7,236,027 2,644,933
Cumulative effect in prior years of a change in accounting
principle (net of tax benefit of $47,559) (note 19) (149,781) -- --
------------ ---------- ----------
Net income $ 1,679,301 7,236,027 2,644,933
============ ========== ==========
Net income per share - basic:
Net income before cumulative effect of a
change in accounting principle $ .24 .98 .62
Cumulative effect in prior year of a change in
accounting principle (net of tax benefit of $47,559) (.02) -- --
------------ ---------- ----------
Net income per share $ .22 .98 .62
============ ========== ==========
Net income per share - diluted:
Net income before cumulative effect of a
change in accounting principle $ .23 .91 .53
Cumulative effect in prior year of a change in
accounting principle (net of tax benefit of $47,559) (.02) -- --
------------ ---------- ----------
Net income per share $ .21 .91 .53
============ ========== ==========
Weighted average number of common shares
outstanding - basic 7,509,241 7,349,371 4,289,858
Weighted average number of common shares
outstanding - diluted 7,825,589 7,984,094 4,997,229
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 35
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity and Comprehensive Income
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
NUMBER OF SHARES
ISSUED AND OUTSTANDING
-----------------------
CLASS A CLASS B ACCUMULATED
COMMON COMMON CLASS A CLASS B ADDITIONAL OTHER TOTAL
STOCK STOCK COMMON COMMON PAID-IN RETAINED COMPREHENSIVE STOCKHOLDERS'
(SHARES) (SHARES) STOCK STOCK CAPITAL EARNINGS INCOME EQUITY
---------- ---------- ----------- -------- ------------ ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance
at December 31, 1996 -- 3,499,998 $ -- $ 35,000 $ 5,593,843 $ 11,736,082 $ 6,561 $ 17,371,486
Comprehensive income:
Net income -- -- -- -- -- 2,644,933 -- 2,644,933
Cumulative
translation
adjustment -- -- -- -- -- -- (174,808) (174,808)
------------
Total comprehensive
income 2,470,125
------------
Dividends -- -- -- -- -- (1,069,136) -- (1,069,136)
Swenson merger
(note 17) -- -- -- -- -- (3,650,000) -- (3,650,000)
Issuance of stock
(note 15) 3,708,750 (275,482) 37,088 (2,755) 57,088,177 -- -- 57,122,510
Acquisitions (note 16) 91,891 263,441 919 2,634 5,595,374 5,598,927
---------- ---------- ----------- -------- ------------ ------------ --------- ------------
Balance
at December 31, 1997 3,800,641 3,487,957 38,007 34,879 68,277,394 9,661,879 (168,247) 77,843,912
Comprehensive income:
Net income -- -- -- -- -- 7,236,027 -- 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 5,000 (5,000) 50 (50) -- -- -- --
Exercise of options -- 2,000 -- 20 7,460 -- -- 7,480
Purchase of options -- -- -- -- (381,200) -- -- (381,200)
Acquisitions (note 16) 90,537 -- 905 -- 1,446,571 1,447,476
---------- ---------- ----------- -------- ------------ ------------ --------- ------------
Balance
at December 31, 1998 3,896,178 3,484,957 38,962 34,849 69,350,225 16,897,906 (485,248) 85,836,694
Comprehensive income:
Net income -- -- -- -- -- 1,679,301 -- 1,679,301
Cumulative
translation
adjustment -- -- -- -- -- -- 305,889 305,889
------------
Total comprehensive
income 1,985,190
------------
Retirement of stock (1,000) -- (10) -- -- -- -- (10)
Conversion of
common stock 380,370 (380,370) 3,804 (3,804) -- -- -- --
Exercise of options -- 274,600 -- 2,746 716,117 -- -- 718,863
Repurchase of
stock (note 18) -- (263,441) -- (2,634) (2,796,427) -- -- (2,799,061)
Acquisitions (note 16) 52,623 -- 526 -- 639,460 639,986
---------- ---------- ----------- -------- ------------ ------------ --------- ------------
Balance
at December 31, 1999 4,328,171 3,115,746 $ 43,282 $ 31,157 $ 67,909,375 $ 18,577,207 $(179,359) $ 86,381,662
========== ========== =========== ======== ============ ============ ========= ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 36
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,679,301 7,236,027 2,644,933
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation, depletion and amortization 4,010,012 3,308,377 2,106,642
Increase in cash surrender value of life insurance (78,076) (149,685) (105,713)
Loss (gain) on sale of property, plant and equipment 842,030 34,078 (40,612)
Loss in income of affiliated company -- -- 130,341
Cumulative effect of a change in accounting principle 149,781 -- --
Deferred taxes 2,709 207,044 (79,658)
Changes in operating assets and liabilities:
Decrease (increase) in trade receivables 400,648 538,321 (152,923)
Decrease (increase) in due to/from related parties (99,701) (31,030) 38,872
Decrease (increase) in inventories 1,671,371 (3,996,110) (1,034,738)
Decrease (increase) in other current assets (613,993) 241,015 (376,363)
Decrease (increase) in intangible pension asset 218,888 (24,852) (100,618)
Decrease (increase) in other assets 59,413 26,462 (59,108)
Decrease in trade payables (987,382) (716,437) (996,628)
Decrease in accrued expenses (1,196,545) (607,247) (309,864)
Increase (decrease) in income taxes payable/receivable 1,482,531 (941,723) (199,708)
Increase (decrease) in customer deposits 1,241,789 (1,090,054) (238,225)
Increase (decrease) in deferred compensation (33,856) (29,398) 217,207
Decrease in deferred income (124,386) (400,000) (400,000)
Increase (decrease) in accrued pension cost 467,098 34,092 (1,504,512)
Increase in accrued postretirement benefit cost 65,160 42,131 20,576
Increase in other liabilities 417 -- --
------------ ----------- -----------
Net cash provided by (used in) operating activities 9,157,209 3,681,011 (440,099)
------------ ----------- -----------
Cash flows from investing activities:
Purchases of property, plant and equipment (3,559,510) (3,462,286) (4,100,519)
Proceeds from sale of property, plant and equipment 137,451 40,725 136,959
Decrease (increase) in other investments 342,551 (12,424) 56,340
Acquisitions, net of cash acquired (12,919,177) (20,451,341) (19,124,100)
Cash included in sale of subsidiary (250,000) -- --
------------ ----------- -----------
Net cash used in investing activities (16,248,685) (23,885,326) (23,031,320)
------------ ----------- -----------
Cash flows from financing activities:
Net borrowings (repayments) under lines of credit 6,933,190 5,358,176 (2,171,957)
Decrease (increase) in debt issuance costs 11,796 (147,398) (66,215)
Increase in organization costs -- (9,717) (234,765)
Proceeds from long-term debt -- 12,000,000 --
Principal payments on long-term debt (608,216) (327,016) (23,181,796)
Net stock option transactions 718,853 (373,720) --
Proceeds from issuance of common stock, net of fees -- -- 57,122,510
------------ ----------- -----------
Net cash provided by financing activities 7,055,623 16,500,325 31,467,777
------------ ----------- -----------
Effect of exchange rate changes on cash 211,899 (231,702) (122,554)
------------ ----------- -----------
Net increase (decrease) in cash and cash equivalents 176,046 (3,935,692) 7,873,804
Cash and cash equivalents, beginning of year 4,701,168 8,636,860 763,056
------------ ----------- -----------
Cash and cash equivalents, end of year $ 4,877,214 4,701,168 8,636,860
============ =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 37
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
1999 1998 1997
---------- --------- ----------
<S> <C> <C> <C>
Supplemental cash flow information:
Cash paid during the year for:
Interest $2,112,113 432,257 1,576,477
Income taxes 363,954 3,203,313 982,262
</TABLE>
Supplemental non-cash investing and financing activities:
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 $2,381,292, 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 18 for further discussion.
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 dividend 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>
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
Acquisitions:
Assets acquired $ 15,364,803 29,187,584 40,345,902
Liabilities assumed and issued (1,638,803) (6,664,933) (13,271,975)
Common stock issued (639,986) (1,447,476) (5,598,927)
------------ ----------- -----------
Cash paid 13,086,014 21,075,175 21,475,000
Costs related to 1998 acquisition 336,976
Less cash acquired (503,813) (623,834) (2,350,900)
------------ ----------- -----------
Net cash paid for acquisitions $ 12,919,177 20,451,341 19,124,100
============ =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 38
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(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) 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.
(e) 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 $2,658,965, $2,547,300 and
$1,720,810 in 1999, 1998 and 1997, respectively, which includes
depreciation related to equipment under capital leases.
Cost depletion and amortization of granite reserves and
development costs are 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 $160,109, $58,080 and $66,906 in 1999, 1998 and 1997,
respectively.
F-8
<PAGE> 39
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(f) INTANGIBLES
Intangibles consists of names and reputations and covenants not to
compete. Names and reputations, also called goodwill, is recorded
as a result of acquisitions, and is equal to the purchase price of
the acquisition less the value of net assets acquired. The Company
amortizes goodwill over 40 years using the straight-line method.
Covenants not to compete, which are also recorded as a result of
acquisitions, are being amortized over the length of the
respective agreements. The Company assesses the recoverability of
goodwill 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 goodwill will be impacted if estimated future
operating cash flows are not achieved.
(g) DEBT ISSUANCE COSTS
The Company amortizes debt issuance costs using the straight-line
method over the term of the related borrowing. Amortization
expense was $48,023, $34,595 and $131,046 in 1999, 1998 and 1997,
respectively.
(h) ORGANIZATION COSTS
The Company adopted "Statement of Position (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. See Note 19 for
further discussion.
Organization costs had previously been capitalized and were
amortized using the straight-line method over 60 months.
Amortization expense amounted to $0, $53,013 and $76,841 in 1999,
1998 and 1997, respectively.
(i) FOREIGN CURRENCY TRANSLATION
The Company translates the accounts of its foreign subsidiaries 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.
(j) 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.
The Company recognizes deferred tax assets and liabilities for the
future tax consequences attributable to the differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax basis. The Company measures
deferred tax assets and liabilities 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
Company recognizes the effect on deferred tax assets and
liabilities of a change in tax rates in income in the period that
includes the enactment date.
F-9
<PAGE> 40
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
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, 1999.
(k) 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.
(l) 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.
The Company has a defined benefit 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 Company recognizes net periodic costs
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 and recognizes net
periodic costs as retirees and employees render the services
necessary to earn the postretirement benefits.
(m) USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
use estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates.
F-10
<PAGE> 41
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(n) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE
DISPOSED OF
The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
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. The Company measures
recoverability of assets to be held and used 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. The Company reports assets to be disposed of
at the lower of the carrying amount or fair value less costs to
sell.
(o) REVENUE RECOGNITION
The manufacturing division recognizes revenue upon shipment of
finished orders from the manufacturing plant. 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.
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 using the Company's trucks
for 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 customer and 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
generally closed from mid-December through mid-March because of
weather. The quarry customer's manufacturing plants remain open
during most of this period, however, and most prefer to assure
they own blocks of a size and quality selected by them prior to
the quarries' 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.
F-11
<PAGE> 42
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
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.
(p) COMMON STOCK
The Company has two classes of common stock outstanding, Class A
and Class B. The shares of Class A common stock and Class B common
stock differ with respect to 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.
(q) 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.
(r) 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, cumulative translation adjustment,
and a minimum liability adjustment and is presented in the
consolidated pension 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 prior year's financial
statements in order to conform to the 1999 presentation.
F-12
<PAGE> 43
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(2) INVENTORIES
Inventories consist of the following at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------------------ ------------------
<S> <C> <C>
Raw materials $ 9,650,190 9,814,621
Work-in-process 1,703,543 5,724,011
Finished goods and supplies 11,938,074 8,535,990
-------------- -------------
$ 23,291,807 24,074,622
============== =============
</TABLE>
(3) INTANGIBLES
Intangibles consist of the following at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE 1999 1998
----------------- ------------------ ------------------
<S> <C> <C> <C>
Names and reputations 40 Years $ 39,206,178 29,397,130
Covenants not to compete 5-10 Years 495,100 445,100
-------------- -------------
39,701,278 29,842,230
Less accumulated amortization 1,914,343 771,428
-------------- -------------
Total $ 37,786,935 29,070,802
============== =============
</TABLE>
Amortization expense was $1,142,915 in 1999, $615,389 in 1998 and
$111,039 in 1997.
(4) 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 $1,257,320, $596,912 and $207,646
during 1999, 1998 and 1997, respectively. Rental expense includes amounts
for related party operating leases of $533,047, $320,330 and $29,500 in
1999, 1998 and 1997, respectively.
Future minimum lease payments under noncancellable operating leases (with
initial or remaining lease terms in excess of one year) are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31: RELATED PARTY OTHER
----------------------- ------------- -----
<S> <C> <C>
2000 $ 593,916 589,672
2001 596,433 463,292
2002 563,649 406,703
2003 335,882 288,869
2004 157,467 140,494
Thereafter 75,088 115,384
-------------- -------------
$ 2,322,435 2,004,414
============== =============
</TABLE>
F-13
<PAGE> 44
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
The Company also is the lessor of various parcels of land. Rental
income was $35,239, $36,031 and $32,133 in 1999, 1998 and 1997,
respectively. Future minimum rentals to be received under noncancellable
leases are as follows:
YEAR ENDED DECEMBER 31:
-----------------------
2000 $ 33,941
2001 33,341
2002 21,241
2003 17,641
2004 12,386
Thereafter --
--------------
$ 118,550
==============
(5) 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 FleetBoston,
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 (which was paid in full in 1999), a line of
credit fee of $4,167 per month and a collateral management fee of $1,000
per month. Amounts outstanding were $13,619,846 and $12,000,000 as of
December 31, 1999 and $6,379,511 and $12,000,000 as of December 31, 1998
on the revolving credit facility and term loan line of credit,
respectively. The weighted average interest rate was 7.25% and 7.96% on
the revolving credit facility in 1999 and 1998, respectively.
The Company's Canadian subsidiary also has a line of credit agreement
with a lending institution. Under the terms of this agreement, a maximum
of approximately $4,000,000 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 1/4%, and is secured by substantially all assets of the
subsidiary. Amounts outstanding as of December 31, 1999 and 1998 were $0
and $307,145 respectively
F-14
<PAGE> 45
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(6) LONG-TERM DEBT
Long-term debt at December 31, 1999 and 1998 consists of the following:
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Note payable - Dutton, interest at 6%, payable in monthly principal
and interest payments of $674, unsecured, due December 2003 $ 28,733 34,860
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 12,693 18,516
Obligation under capital lease, interest at 7.99%, payable in monthly
installments of $1,505 plus interest, due December 2000,
secured by equipment 35,411 48,163
Obligation under capital lease, interest at 7.89%, payable in monthly
installments of $10,276, due June 2001, secured by equipment 305,711 384,909
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 282,660 342,227
Note payable - Chrysler Financial, interest at 2.9%, payable in
monthly installments of $598, due December 2001,
secured by equipment 10,508 20,045
Note payable - GMAC, interest at 4.9%, payable in monthly
installments of $439, due February 2002, secured by equipment 10,820 15,440
Note payable - GMAC, interest at 2.9%, payable in monthly
installments of $716, due October 2002, secured by equipment 23,360 31,157
Note payable - Harold, interest at 10%, payable in monthly
installments of $4,366, due June 2001, secured by property
and equipment 72,688 115,465
Term loan, interest at 7.25% and 6.97% in 1999 and 1998,
respectively (see note 5), due December 2002,
secured by substantially all assets of the Company 12,000,000 12,000,000
Note payable - PNC, interest at 8.95%, payable in monthly
installments of $334, due July 2001, secured by equipment 6,482 9,220
Note payable - Remsen Dodge, interest at 2.9%, payable in
monthly installments of $598, due December 2002,
secured by equipment 13,362 --
Note payable - Ford Motor Credit Corp., interest at 2.9%,
payable in monthly installments of $392, due September
2002, secured by equipment 11,996 --
Note payable - Hilgendorf, paid in February 2000 62,000
Note payable - Hilgendorf, paid in February 2000 50,000 --
</TABLE>
F-15
<PAGE> 46
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998
------------------ ------------------
<S> <C> <C>
Note payable - Ford Motor Credit, interest at 9.2%, paid
in full $ -- 3,264
Notes payable - assumed at acquisition and paid in full in 1999 -- 349,080
-------------- -------------
13,236,424 13,682,346
Less current installments 616,118 802,685
-------------- -------------
Long-term debt, excluding current installments $ 12,620,306 12,879,661
============== =============
</TABLE>
Future maturities of the December 31, 1999 long-term debt are as follows:
<TABLE>
<CAPTION>
OBLIGATIONS OTHER
UNDER LONG-TERM
YEAR ENDED DECEMBER 31: CAPITAL LEASE DEBT
---------------------- ------------------ ----------
<S> <C> <C>
2000 $ 168,277 470,243
2001 202,892 97,859
2002 -- 12,022,368
2003 -- 15,500
2004 -- 8,324
Thereafter 281,008
---------------- ----------
371,169 12,895,302
Interest included in obligations under capital lease 30,047 ==========
----------------
$ 341,122
================
</TABLE>
The cost of the equipment under capital leases was $786,755 and $742,554
and related accumulated depreciation was $181,432 and $107,760 as of
December 31, 1999 and 1998, 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, 1999 the Company was in compliance
with all such covenants.
(7) 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,
1999.
F-16
<PAGE> 47
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(8) INCOME TAXES
A summary of the significant components of the provision for income taxes
for the years ended December 31, 1999, 1998 and 1997 is as follows:
1999 1998 1997
--------- --------- -------
Current:
Federal 796,667 1,572,964 715,942
State 314,787 423,833 242,685
Foreign 280,683 98,983 (36,611)
--------- --------- -------
Total current 1,392,137 2,095,780 922,016
========= ========= =======
Deferred:
Federal (1,713) -- (48,034)
State (926) -- (24,946)
Foreign 5,348 207,044 --
--------- --------- -------
Total deferred 2,709 207,044 (72,980)
========= ========= =======
Total 1,394,846 2,302,824 849,036
Cumulative effect of a change
in accounting principle (47,559) -- --
--------- --------- -------
Total provision for income taxes 1,347,287 2,302,824 849,036
========= ========= =======
Included in income before provision for income taxes is foreign income
(loss) of $872,264, $1,346,338 and $379,736 for the years ended December
31, 1999, 1998 and 1997, 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, 1999 and 1998 are presented below:
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Deferred tax assets:
Accrued pension, accrued postretirement benefit cost
and deferred compensation $ 1,324,000 1,125,000
Allowance for doubtful accounts 463,000 550,000
Accrued expenses 98,000 99,000
Inventories, principally due to additional costs inventoried
for tax purposes pursuant to the Tax Reform Act of 1986 393,000 345,000
Alternative minimum tax credits 2,898,000 2,280,000
----------- ----------
Total gross deferred tax assets 5,176,000 4,399,000
Less valuation allowance (3,347,000) (2,908,000)
----------- ----------
Total net deferred tax assets 1,829,000 1,491,000
----------- ----------
Deferred tax liabilities:
Quarry development (386,000) (400,000)
Names and reputations (286,000) (87,000)
Other liabilities (279,623) (541,478)
----------- ----------
Total gross deferred tax liabilities (951,623) (1,028,478)
----------- ----------
Net deferred tax assets $ 877,377 462,522
=========== ==========
</TABLE>
F-17
<PAGE> 48
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
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. Deferred tax assets include significant alternative
minimum tax credit carryforwards which have been fully reserved and may be
carried forward indefinitely. Utilization of these alternative minimum tax
credits is limited to future federal income tax in excess of the
alternative minimum tax. 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.
A reconciliation of differences between the statutory U.S. federal income
tax rate, on income before provision for income taxes and cumulative
effect of a change in accounting principle, and the Company's effective
tax rate follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
U.S. statutory rate 34.0% 34.0% 34.0%
State taxes, net of federal benefit 8.8 5.3 6.0
Names and reputations amortization 6.0 1.6 0.0
Keystone divestiture 10.3 0.0 0.0
Minimum tax credits utilized 0.0 (2.3) 0.0
Other, primarily tax depletion (15.8) (14.5) (15.7)
---- ---- ----
Effective tax rate 43.3% 24.1% 24.3%
==== ==== ====
</TABLE>
Deferred taxes have not been provided on the undistributed earnings of the
Company's wholly-owned Canadian subsidiary since the Company can control
the distribution of such earnings and has determined that such earnings
will be reinvested indefinitely. Additional taxes could be due if these
earnings were distributed.
(9) PENSION AND OTHER BENEFITS
The Company has a defined benefit 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.
F-18
<PAGE> 49
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
NON-UNION DEFERRED
PENSION BENEFITS COMPENSATION BENEFITS OTHER BENEFITS
------------------------- ------------------------ -----------------------
1999 1998 1999 1998 1999 1998
----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $16,819,615 16,359,506 1,793,754 1,585,088 1,782,602 1,670,595
Service cost 475,922 451,249 96,855 84,815 24,613 22,159
Interest cost 1,127,258 1,146,229 117,612 111,725 119,513 117,122
Amendments -- (1,108,710) -- -- -- --
Actuarial (gain)/loss (1,248,952) 881,772 (313,510) 100,226 (63,819) 131,324
Benefits paid (944,883) (910,431) (102,695) (88,100) (151,018) (158,598)
----------- ----------- ---------- ---------- ---------- ----------
Benefit obligation at end of year $16,228,960 16,819,615 1,592,016 1,793,754 1,711,891 1,782,602
----------- ----------- ---------- ---------- ---------- ----------
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year $15,675,425 14,670,887 -- -- -- --
Actual return on plan assets 1,811,082 1,723,826 -- -- -- --
Employer contribution -- 649,588 102,695 88,100 151,018 158,598
Spin-off (note 17) -- (458,445) -- -- -- --
Benefits paid (944,883) (910,431) (102,695) (88,100) (151,018) (158,598)
----------- ----------- ---------- ---------- ---------- ----------
Fair value of plan assets at end of year $16,541,624 15,675,425 -- -- -- --
----------- ----------- ---------- ---------- ---------- ----------
Funded status $ 312,664 (1,144,190) (1,592,016) (1,793,754) (1,711,891) (1,782,602)
Unrecognized net actuarial (gain)/loss (2,422,189) (732,885) (112,302) 202,768 193,184 265,919
Unrecognized prior service cost 1,234,433 1,364,837 171,347 195,610 -- --
Unrecognized transition obligation 373,902 478,146 17,113 23,278 883,902 947,038
----------- ----------- ---------- ---------- ---------- ----------
Net amount recognized $ (501,190) (34,092) (1,515,858) (1,372,098) (634,805) (569,645)
----------- ----------- ---------- ---------- ---------- ----------
Amounts recognized in the consolidated
balance sheet consist of:
Accrued benefit liability $ (501,190) (34,092) (1,515,858) (1,621,728) (634,805) (569,645)
Intangible asset -- -- -- 218,888 -- --
Minimum liability adjustment -- -- -- 30,742 -- --
----------- ----------- ---------- ---------- ---------- ----------
Net amount recognized $ (501,190) (34,092) (1,515,858) (1,372,098) (634,805) (569,645)
----------- ----------- ---------- ---------- ---------- ----------
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31:
Discount rate 7.5% 6.75% 7.5% 6.75% 7.5% 6.75%
Expected return on plan assets 9.0% 9.00% N/A N/A N/A N/A
Rate of compensation increase 5.5% 5.50% 4.5% 4.50% N/A N/A
</TABLE>
For measurement purposes, a 6 percent annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1999. The rate was assumed
to decrease gradually to 5 percent for 2000 and 4 percent for 2001 and remain at
that level thereafter.
F-19
<PAGE> 50
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
DEFERRED
NON-UNION PENSION BENEFITS COMPENSATION BENEFITS OTHER BENEFITS
------------------------------------- ------------------------- ----------------------------
1999 1998(1) 1997 1999 1998 1997 1999 1998 1997
----------- ---------- ---------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COMPONENTS OF NET
PERIODIC BENEFIT COST:
Service cost $ 475,922 451,249 387,461 96,855 84,815 67,366 24,613 22,159 13,619
Interest cost 1,127,258 1,146,229 1,098,197 117,612 111,725 99,859 119,513 117,122 117,876
Expected return on
plan assets (1,370,730) (1,283,875) (1,005,314) -- -- -- -- -- --
Amortization of
prior service cost 130,404 173,318 177,220 24,263 24,263 24,263 -- -- --
Amortization of
transition obligation 104,244 138,644 141,771 6,165 6,165 6,165 63,136 63,136 63,136
Recognized net
actuarial (gain)/loss -- -- -- 1,560 -- -- 8,916 (1,688) (6,334)
----------- ---------- ---------- ------- ------- ------- ------- -------- --------
Net periodic benefit cost $ 467,098 625,565 799,335 246,455 226,968 197,653 216,178 200,729 188,297
=========== ========== ========== ======= ======= ======= ======= ======== ========
</TABLE>
(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:
<TABLE>
<CAPTION>
1-PERCENTAGE- 1-PERCENTAGE-
POINT INCREASE POINT DECREASE
-------------- --------------
<S> <C> <C>
Effect on total of service and
interest cost components $ 342 (327)
Effect on postretirement benefit obligation 5,174 (4,945)
</TABLE>
UNION PENSION BENEFITS
In July 1999, Vermont based union employees became participants in Steelworkers
Pension Trust. The Company contributes amounts as required by the union
contract.
In 1998, Vermont based union employees participated in a multi-employer defined
benefit pension plan. The Company contributed amounts as required by the union
contract. The amount charged to operations in the accompanying consolidated
statements of operations was $641,150, $740,941 and $786,217 in 1999, 1998 and
1997, respectively.
F-20
<PAGE> 51
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
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 $2,142,185, $2,070,171 and
$2,294,031 as of December 31, 1999, 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 $156,205, $93,263 and $72,303 in 1999,
1998 and 1997, respectively. Acquisitions during 1999, 1998 and 1997 have
significantly increased the number of participants in the plans.
(10) 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, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
OF OPTIONS EXERCISE PRICE
---------- --------------
<S> <C> <C>
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
Granted during 1999 175,000 11.68
Lapsed -- --
Exercised (274,600) (2.62)
Surrendered (658,252) (16.17)
---------- -------
Outstanding, December 31, 1999 530,400 $ 4.04
========== =======
Exercisable, December 31, 1999 404,400 $ 3.78
Weighted average remaining contractual life 1.1 years
</TABLE>
F-21
<PAGE> 52
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
<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>
$3.59 - $3.76 505,400 $ 3.68 1 Year 399,400 $ 3.68
$12.38 25,000 $12.38 4 Years 5,000 $12.38
</TABLE>
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 1999, 1998 and 1997 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>
1999 1998 1997
---------- --------- ---------
<S> <C> <C> <C>
Net income, as reported $1,679,301 7,236,027 2,644,933
Net income, pro forma 1,518,030 6,616,927 2,268,984
Net income per share, pro forma .20 .90 .53
Net income per share - assuming dilution, pro forma .19 .83 .45
</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 only for options granted
after January 1, 1996.
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
1999, 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 47%, 49% and 16%, respectively; and expected lives of five (5) years.
(11) 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,
1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Net revenues $ 26,013 196,032 840,554
Cost of revenues 320,247 2,084,292 1,231,151
Selling, general and administrative expenses -- -- 750,000
</TABLE>
F-22
<PAGE> 53
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
Amounts due to (from) related parties as of December 31, 1999 and 1998 are
as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Due to (from) Swenson Granite Company, LLC $ (8,370) 37,417
Due from K & E Sawing Company -- (6,213)
Due to Missouri Red Quarries -- 107,047
Due to (from) Keystone Granite Company -- (28,267)
Due from Granite Accents, Inc. (83,723) (105,572)
Due to (from) Kotecki Family Enterprises (3,196) --
-------- --------
$(95,289) 4,412
======== ========
</TABLE>
See note 4 for operating lease obligations with related parties.
(12) UNAUDITED QUARTERLY SUMMARY INFORMATION
The following is a summary of unaudited quarterly summary information for
the years ended December 31, 1999, 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>
1999 Quarters:
First $17,518 (2,012) (.27) (.27)
Second 28,986 1,336 .18 .17
Third 24,413 1,062 .14 .14
Fourth 25,610 1,293 .17 .17
------ ------ ---- ----
Total $96,527 1,679 .22 .21
====== ====== ==== ====
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
====== ====== ==== ====
</TABLE>
F-23
<PAGE> 54
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
NET INCOME
(LOSS)
NET INCOME PER SHARE -
NET NET INCOME (LOSS) ASSUMING
REVENUES (LOSS) PER SHARE DILUTION
-------- ------ --------- --------
<S> <C> <C> <C> <C>
1997 Quarters:
First $ 8,192 (978) (.22) (.20)
Second 12,575 986 .23 .20
Third 16,374 833 .19 .17
Fourth 17,066 1,804 .42 .36
------ ----- ----- ----
Total $54,207 2,645 .62 .53
====== ===== ===== ====
</TABLE>
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
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, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---------- --------- ---------
<S> <C> <C> <C>
Numerator:
Income available to common shareholders
used in basic and diluted earnings per share $1,679,301 7,236,027 2,644,933
========== ========= =========
Denominator:
Denominator for basic earnings per share:
Weighted average shares 7,509,241 7,349,371 4,289,858
Effect of dilutive securities:
Stock options 316,348 634,723 707,371
---------- --------- ---------
Denominator for diluted earnings per share:
Adjusted weighted average shares 7,825,589 7,984,094 4,997,229
========== ========= =========
Basic earnings per share $ .22 .98 .62
Diluted earnings per share $ .21 .91 .53
</TABLE>
Options to purchase 25,000, 478,252 and 383,252 shares of Class A common
stock at exercises prices ranging from $12.38 to $18.50 per share were
outstanding in 1999, 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 during those
years.
F-24 (Continued)
<PAGE> 55
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(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,
1999, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
1999 QUARRYING MANUFACTURING RETAILING TOTAL
---- --------- ------------- --------- -------
<S> <C> <C> <C> <C>
Total net revenues $ 27,972 44,790 36,933 109,695
Inter-segment net revenues 5,792 7,376 -- 13,168
-------- ------ ------- -------
Net revenues 22,180 37,414 36,933 96,527
Total gross profit 12,565 5,595 19,184 37,344
Inter-segment gross profit (2,591) 2,195 396 --
-------- ------ ------- -------
Gross profit 9,974 7,790 19,580 37,344
Selling, general and administrative expenses 4,768 6,715 19,758 31,241
-------- ------ ------- -------
Income (loss) from operations $ 5,206 1,075 (178) 6,103
======== ====== ======= =======
</TABLE>
F-25 (Continued)
<PAGE> 56
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
<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 20,372
------- ------- ------ ------
Income from operations $ 4,283 4,336 1,431 10,049
======= ======= ====== ======
<CAPTION>
1997 QUARRYING MANUFACTURING RETAILING TOTAL
---- --------- ------------- --------- -------
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
======= ======= ====== ======
</TABLE>
F-26 (Continued)
<PAGE> 57
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
Net revenues by geographic area are as follows for the years ended December
31, 1999, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Net revenues (1):
United States $87,045 74,174 46,138
Canada 9,482 8,572 8,069
------- ------ ------
Total net revenues $96,527 82,746 54,207
======= ====== ======
</TABLE>
(1) Net revenues are attributed to countries based on where product is
produced.
Long-lived assets by geographic area are as follows as of December 31,
1999, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Long-lived assets:
United States $42,798 42,810 34,570
Canada 1,976 1,660 1,866
Japan 5 5 --
------- ------ ------
$44,779 44,475 36,436
======= ====== ======
</TABLE>
(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 was recorded net of underwriting fees and other IPO
expenses incurred of $6,392,948.
(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.
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.
F-27 (Continued)
<PAGE> 58
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
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 White Gardenia Quarry, its related operating entity,
Piedmont Quarries Limited Liability Company, and certain undeveloped land
in proximity to the Company's existing Salisbury Pink Quarry.
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 transactions
which were 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 were recorded as
accrued expenses as of December 31, 1998.
For the period January through November 1999 the Company, through its
subsidiary Rock of Ages Memorials, Inc., acquired Toledo Monumental Works
Company, Milwaukee Memorial Company, Inc, J.W. Reynolds Monument Company,
Inc., Beasley Monument Company, Inc., Hilgendorf Memorials, Inc., R&B
Nelson Memorial Studio, Inc., Bethel-Miller Memorials, Inc., Caron Granite
Company, Clinton Monuments, Inc., East Ohio Memorial Service, Bass
Chickering Corporation, Bristol Memorial Works, Inc., Methuen Memorials,
Inc., WRL, Inc. and all of the outstanding stock of Milwaukee, R&B, Nelson,
Bethel-Miller, Caron, Clinton, Bristol and Urbach.
F-28 (Continued)
<PAGE> 59
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
The aggregate consideration for the 1999 acquisitions was $13,086,014 in
cash and $639,986 representing 52,623 shares of the Company's Class A
common stock ranging from $10.00 to $13.26 per share in transactions which
were 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
$9,570,046 of cost in excess of net assets acquired.
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,
----------------------------------------------
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
Net revenues $100,117,063 102,772,198 100,579,947
Net income 2,053,499 7,841,805 5,160,312
Net income per share .27 .93 1.20
Net income per share - assuming dilution .26 .86 1.03
</TABLE>
(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.
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").
F-29 (Continued)
<PAGE> 60
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
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) 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 common stock and a note receivable with a net present value of
$399,538. The net assets of Keystone Memorial, Inc. had a net book value of
$4,021,053. Legal costs incurred were $22,663. A loss on the sale was
recorded of $845,117, included in loss on sale of assets. The transaction
was considered a tax-free event for purposes of calculating the provision
for income taxes.
(19) 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 $197,340 were expensed in 1999 as the
cumulative effect of a change in accounting principle.
The following table summarizes the pro forma net income and per share
amounts assuming a change in application of accounting principles applied
retroactively.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1999 1998 1997
---------- --------- ---------
<S> <C> <C> <C>
Net income $1,829,082 7,268,889 2,541,455
Net income per share - basic .24 .99 .59
Net income per share - diluted .23 .91 .51
</TABLE>
F-30 (Continued)
<PAGE> 61
INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTARY INFORMATION
The Board of Directors
Rock of Ages Corporation and Subsidiaries:
Under date of March 2, 2000, we reported on the consolidated balance sheets of
Rock of Ages Corporation and subsidiaries as of December 31, 1999 and 1998, 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, 1999. 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
/s/ KPMG LLP
March 2, 2000
Boston, Massachusetts
F-31
<PAGE> 62
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Schedule II - Valuation and Qualifying Accounts and Reserves
Years ended December 31, 1999, 1998 and 1997
(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>
1999
Allowances for doubtful
accounts $2,124 -- 555 853 1,826
1998
Allowances for doubtful
accounts $2,231 120 238 465 2,124
1997
Allowances for doubtful
accounts $ 564 1,472 332 137 2,231
</TABLE>
See accompanying independent auditors' report on supplementary information.
F-32
<PAGE> 63
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 30, 2000
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 30, 2000.
SIGNATURE TITLE
--------- -----
/s/ Kurt M. Swenson President, Chief Executive Officer and (Principal
- -------------------------- Executive Officer)
Kurt M. Swenson
/s/ John L. Forney Chief Financial Officer and Treasurer (Principal
- -------------------------- Accounting Officer)
John L. Forney
/s/ Richard C. Kimball Vice Chairman and Chief Operating Officer/Wholesale
- -------------------------- Division
Richard C. Kimball
/s/ Jon M. Gregory President and Chief Operating Officer/Quarries
- -------------------------- Division
Jon M. Gregory
/s/ George R. Anderson 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
<PAGE> 64
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 Amended and Restated By-laws of the Company (as amended through
April 6, 1999) (incorporated herein by reference to Exhibit 3.2
to the Company's Quarterly report on Form 10-Q for the quarterly
period ended March 31, 1999 and filed with the Securities and
Exchange Commission on May 17, 1999)
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) (incorporated herein by
reference to Exhibit 10.1 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1999 and filed with
the Securities and Exchange Commission on March 31, 1999)
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* Employment Agreement of John L. Forney
10.6* Form of Employment Agreement with 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)
10.7* Form of Employment Agreement with Richard C. Kimball 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)
10.8* 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)
10.9 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)
10.10 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)
10.11 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)(q) of the Company's consolidated
financial statements (filed herewith))
21. Subsidiaries of the Company
23. Consent of KPMG LLP
27. Financial Data Schedule
- -----------
* This exhibit is a management contract or compensatory plan or arrangement.
<PAGE> 1
Exhibit 10.5
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT made as of the 22nd day of January, 1999, by and among Rock
of Ages Corporation, a Delaware corporation, with a place of business at 369
North State Street, Concord, New Hampshire (the "Company"), and John Forney (the
"Employee"), residing at 995 Eden Isle Drive, St. Petersburg, Florida 33704.
FACTUAL BACKGROUND:
A. Company wishes to employ Employee as a senior officer of the Company,
initially as Chief Financial Officer of the Company (the "CFO"), reporting to
the Chief Executive Officer of the Company, with principal responsibilities for
finance and administration, information systems, investor and lender relations
(the "Position") and with such other executive duties and responsibilities, and
such other or different senior executive positions, as Company may assign to
Employee; and Employee wishes to accept such employment subject to the terms and
conditions of this agreement.
B. Company and its direct and indirect subsidiaries, successors and
assigns (herein referred to as the ROAC Corporate Group) quarry, manufacture,
sell and otherwise deal in granite, marble, bronze and other memorials,
monuments and other products, perform services related thereto, and market such
products and services at wholesale and retail in the United States and in
various foreign countries (Company's "Business") and have accumulated valuable
and confidential information including trade secrets and know-how relating to
technology, manufacturing procedures, formulas, machines, marketing plans,
sources of supply, business strategies and other business records.
C. The agreement by Employee to enter into the covenants contained herein
is a condition precedent to the employment of Employee by the Company in the
Position; Employee hereby acknowledges said covenants and acknowledges that
Employee's execution of this agreement are express conditions of Employee's
employment; and that said covenants are given as material consideration for such
employment and the other benefits conferred upon Employee by this agreement.
D. As used herein, the term "Company" shall refer to Company and, where
applicable, to any member of the ROAC Corporate Group for which Employee may
from time to time be performing services under this agreement.
NOW, THEREFORE, in consideration of the foregoing, the employment provided
hereunder, and other valuable consideration, receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. EMPLOYMENT. Company agrees to employ Employee, and Employee accepts
employment in the Position, reporting to the Chief Executive Officer of the
Company, all upon the terms and conditions hereinafter set forth.
2. DUTIES AND POLICIES.
(a) DUTIES. The Employee agrees to devote Employee's full time and
best
<PAGE> 2
efforts to Employee's employment duties in the Position or such other or
different positions to which Employee may be assigned during the Term (as
hereinafter defined), and to such other duties as may be assigned to Employee
from time to time by Company.
(b) POLICIES. Employee agrees to abide by the policies, rules,
regulations or usages applicable to Employee as established by Company and the
ROAC Corporate Group, from time to time and provided to Employee in writing
(collectively, the Company's "Policies").
(c) COMPANY LOCATIONS. Employee shall be primarily assigned to the
Company's Concord, New Hampshire office, but as the CFO, the Employee must be
available for regular travel, meetings and temporary functions at other Company
and ROAC Corporate Group locations and offices and lender and investor locations
as may be required to fulfill the duties and responsibilities of the Position.
3. TERM. The term of this agreement (the "Term") shall be five (5) years,
beginning with the date first above written, unless terminated earlier as
hereinafter provided.
4. COMPENSATION. For all services to be rendered by Employee in any
capacity hereunder, the Company shall pay Employee the following:
(a) SALARY. The Company shall pay Employee an annual salary of One
Hundred Eighty-five Thousand Dollars ($185,000), less withholding and other
taxes required by federal and state law (the "Annual Base Salary"), payable in
equal monthly, bi-weekly or weekly installments, as mutually agreed to by
Company and Employee or as required by law. Employee shall be eligible to
receive increases in Employee's Annual Base Salary pursuant to periodic salary
reviews consistent with Company's corporate policies; it being understood such
increases are not guaranteed, but are subject to Employee's job performance and
the determination by the Company, in its sole discretion, to award salary
increases to Employee.
(b) BONUS. Employee may also be awarded a bonus or bonuses from time
to time during the Term in such amounts, if any, and at such time, if any, as
the Company may determine, in its sole discretion, to award such bonuses.
5. FRINGE BENEFITS. During the term of this agreement, Employee shall be
entitled to participate in such fringe benefits as, from time to time, may be
applicable to the Company's similarly situated employees, subject to the terms
and conditions of such fringe benefit plans. The Employee's "Initial Fringe
Benefits" include those listed on EXHIBIT 5 attached hereto and incorporated
herein by reference. The Initial Fringe Benefits may be phased out and
terminated and the Company may substitute for the Initial Fringe Benefits such
different and/or additional fringe benefits as the Company from time to time,
after the date hereof, makes available for the Company's similarly situated
employees.
Fringe benefits as used in this section do not include cash compensation,
stock options or other compensation. The Company reserves the right to modify,
eliminate or change fringe benefits in is discretion. Fringe benefits provided
to Employee will, however, generally be not less advantageous to Employee than
those provided by Company to its similarly situated employees.
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6. INCENTIVE STOCK OPTIONS. The Company, subject to approval by the Rock
of Ages Corporation ("ROAC") Option Committee, will grant Employee incentive
stock options on Seventy-Five Thousand (75,000) shares of Rock of Ages
Corporation ("ROAC") Class A Common Stock, One Cent ($.01) par value, at a price
per share authorized and approved by the grant by the ROAC Option Committee,
namely Thirteen Dollars and Twenty-five Cents ($13.25) per share in accordance
with ROAC's 1994 stock plan (the "Plan") and ROAC and Employee will enter into
ROAC's standard form Stock Option Agreement which will provide that the options
vest over five (5) years at the rate of twenty percent (20%) per year. The first
twenty percent (20%), namely the first Fifteen Thousand (15,000) shares, vest as
of the grant date subject to the terms of the Plan. A copy of the standard form
Stock Option Agreement is attached as EXHIBIT 6. To the extent that this level
of options exceeds the annual $100,000 limit on incentive stock options, any
excess will be treated as non-qualified options in accordance with the terms of
the Plan and applicable law.
7. TERMINATION.
(a) TERMINATION BECAUSE OF DEATH OR TOTAL DISABILITY. This agreement
will terminate automatically upon the date of Employee's Death or Total
Disability. Employee shall be deemed to have incurred a Total Disability:
(i) if Company maintains a long term disability policy in effect
for the benefit of Employee, on the date when the Employee shall have
received total disability benefits under said policy for a period of
six (6) months;
(ii) if no such long term disability insurance policy is in
effect on the date when Employee suffers from a physical or mental
disability of such magnitude and effect that Employee is unable to
perform the essential functions of Employee's assigned Position
notwithstanding reasonable accommodation and such disability continues
during a period of twelve (12) continuous or noncontinuous months
within the eighteen (18) month period beginning on the first day of
the month in which the first day of disability occurs;
(iii) if Employee illegally uses drugs and, as a result,
performance of Employee's duties and/or employment with Company is in
any way impaired; or
(iv) on the date when Employee receives more than twelve (12)
weeks of payments under the Social Security Act because of determined
by the Social Security Administration that Employee is totally
disabled.
Total Disability as set forth in subsections (ii) or (iii) above shall be deemed
to have occurred upon the written certification to Company thereof by the
Employee's personal physician, which certification may be requested in writing
by Company. If Employee does not have a personal physician or refuses to consult
with Employee's personal physician, Company may select a licensed physician,
board-certified in internal medicine or family practice, at Employer's cost, to
examine the Employee, which physician shall, for purposes hereof, be deemed to
be the Company's physician; provided, that if Employee refuses to be examined by
the Company's physician within thirty (30) days after the physician's
appointment by Company, then Employee may be conclusively presumed to have
become Totally Disabled as of the close of such thirty
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(30) days period. If Employee disagrees with the opinion of Company physician,
then Employee may select a second licensed, board-certified physician, at
Employee's cost, to examine Employee. If said two (2) physicians disagree as to
whether Employee is Totally Disabled, then the personal physician and the
Company shall then select a third licensed, board-certified physician, with the
cost of this third physician to be split between Company and Employee, to
examine Employee. Upon examination of Employee by the three (3) physicians, each
physician shall render an opinion with respect to the condition of Employee in
regards to Employee's Total Disability, and the opinion of a majority of the
physicians shall be binding upon all parties.
(b) TERMINATION BY THE COMPANY OR EMPLOYEE. The Company may terminate
this agreement with or without cause and by giving Employee thirty (30) days
prior written notice. In the event of termination or notice of termination by
Company without cause, Employee will be entitled to only a lump sum termination
payment of $370,000 payable at termination. Employee shall not be entitled to
any other payments of compensation, salary or benefits of any kind under this
agreement or otherwise including any and all accrued salary, benefits, vacation
pay or other compensation of any kind since any such accruals shall be deemed in
all respects to be included in the lump sum termination payment. Said payment
shall release the Company from any further obligations under this agreement.
Termination of Employee by the Company for proven (1) embezzlement or other
theft of corporate property, (2) a breach of Section 8 or 11 of this contract by
Employee while employed by the Company, (3) drug, alcohol or other substance
abuse, (4) sexual harassment, battery or other criminally actionable offense by
Employee against an employee or customer of the Company, or (5) Employee's
conviction of any felony while employed by the Company shall constitute and be
in all respects termination for cause by the Company and Employee shall not be
entitled to the lump sum termination payment described in preceding sentences of
this section. Employee may resign from employment at any time for any reason and
terminate this agreement by giving thirty (30) days written notice to Company of
such intention. In such event, Company may, in its discretion, permit Employee
to work through the notice period or accept the Employee's immediate
resignation. In the event of a termination by the Company for cause or by
Employee, Employee shall not be entitled to payment of any further compensation,
salary or benefits under the terms of this agreement (including the lump sum
termination payment described above) except compensation, salary, benefits and
vacation pay accrued to the date of said termination.
8. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. Employee acknowledges that
during Employee's employment, Employee will become fully familiar with all
aspects of Company's Business and the ROAC Corporate Group's businesses, and
will obtain access to confidential and proprietary information relating to such
businesses. Employee understands, agrees and covenants that such information is
valuable and Employee has no property interest in it. Therefore, Employee
covenants and agrees that during Employee's employment with Company and
thereafter, Employee will not use, disclose, communicate or divulge such
information to any person not employed by Company and the ROAC Corporate Group,
or use such information except as may be necessary to perform Employee's duties
as an Employee under this agreement. Employee's obligations in this section
shall survive the expiration of the Term of this agreement and/or termination of
Employee's employment under this agreement for any reasons whatsoever.
9. NON-SOLICITATION OF EMPLOYEES, CLIENTS AND CUSTOMERS. During the Term
of this agreement and for the period of Employee's non-competition covenant set
forth in Section 11
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hereof, following the termination of this agreement, Employee agrees not to, on
Employee's own behalf or on behalf of any other person, corporation, firm or
entity, directly or indirectly, solicit or induce any client, customer, employee
or sales representative of Company or the ROAC Corporate Group to stop doing
business with or to leave any of the said companies for any reason whatsoever or
to hire any of said companies' employees.
10. RETURN OF PROPERTY. Upon termination or non-renewal of this agreement
for any reason, employee agrees to immediately return all Company and ROAC
Corporate Group property, whether confidential or not, without keeping copies or
excerpts thereof, including, but not limited to, computers, printers, customer
lists, samples, product information, financial information, price lists,
marketing materials, keys, credit cards, automobiles, technical data, research,
blueprints, trade secrets information, and all confidential or proprietary
information.
11. NON-COMPETITION COVENANT BY EMPLOYEE. Company and Employee agree that
the Company and the ROAC Corporate Group are currently engaged in the business
of quarrying, manufacturing, lettering, setting, marketing and selling at need
and pre-need granite, bronze and other memorials and monuments and related
products and services at wholesale and at retail (herein collectively referred
to as the "Restricted Business") and Company is, or during the Term intends to
be, engaged in the Restricted Business in every state of the United States as of
the date of this agreement and has hereby hired the Employee to help expand and
grow the Restricted Business. Therefore, the restricted territory shall include
all the states of the United States (the "Restricted Territory"). Accordingly,
as a material and essential inducement to Company to hire the Employee and in
consideration of Company's agreements with the Employee under this agreement,
Employee agrees that during the Term of this agreement and, if this agreement is
terminated for any reason, lapses, is not renewed for any reason, or Employee is
not employed (with or without a written contract) by Company after the end of
the Term hereof for any reason, then, in any such case, for a period equal to
two (2) years thereafter Employee will not, in the Restricted Territory,
directly or indirectly, in any manner whatsoever:
(a) compete with Company, its successors and assigns, or the ROAC
Corporate Group, its successors and assigns, in the Restricted Business, in the
Restricted Territory;
(b) engage in the Restricted Business, except as an employee of
Company or the ROAC Corporate Group, in the Restricted Territory;
(c) have any ownership interest in (other than the ownership of less
than five percent (5%) of the ownership interests of a company whose stock or
other ownership interests are publicly traded) any business entity which
engages, directly or indirectly, in the Restricted Business in the Restricted
Territory except for any ownership interest owned by Employee during the Term of
this agreement, and after termination of this agreement, in the Company or in
any member of the ROAC Corporate Group;
(d) contract, subcontract, work for, solicit work from, solicit
Company or ROAC Corporate Group employees for, or solicit customers for, advise
or become affiliated with, any business entity which engages in the Restricted
Business in the Restricted Territory except as an employee of Company or of the
ROAC Corporate Group; or
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(e) lend money or provide anything of value to any entity which
engages in the Restricted Business in the Restricted Territory.
The term "compete" as used in this Section 11 means engage in competition,
directly or indirectly, either as an employee, officer, director, owner, agent,
member, consultant, partner, sole proprietor, stockholder, or any other
ownership form or other capacity.
While the restrictions as set forth herein and in Sections 8, 9 and 11 are
considered by the parties hereto to be reasonable in all circumstances, it is
recognized that any one or more of such restrictions might fail for unforseen
reasons. Accordingly, it is hereby agreed and declared that if any of such
restrictions shall be adjudged to be void as unreasonable in all circumstances
for the protection of Company and the ROAC Corporate Group and their interests,
but would be valid if part of the wording thereof were deleted, the period
thereof reduced, or the range of activities or area dealt with reduced in scope,
such restrictions shall apply with the minimum modification as may be necessary
to make them valid and effective, while still affording to Company and the ROAC
Corporate Group the maximum amount of protection contemplated thereby.
Employee represents that he has carefully reviewed Employee's restrictive
non-competition covenant set forth in this Section 11 and the non-disclosure
covenant in Section 8 and the non-solicitation covenant in Section 9 and has
determined that these covenants will not impose undue hardship, financial or
otherwise, on Employee; that their Restrictive Territory and duration will not
impose a hardship on Employee; that they protect Company's and the ROAC
Corporate Group's legitimate interests in their investment in Employee and in
their goodwill of their Restricted Business; and that in Employee's opinion
Employee not being able to compete in the Restrictive Territory for the duration
of Employee's covenants will not be injurious to the public interest.
Employee agrees that Employee's breach of Employee's covenants in Sections
8, 9, 10 and 11 will cause irreparable harm to Company and the ROAC Corporate
Group.
Upon termination of this agreement, nothing in this Employee's
non-competition covenant set forth in this Section 11 shall be deemed to
prohibit Employee from engaging (subject at all times to the non-disclosure
covenant in Section 8 and the non-solicitation covenant in Section 9) in the
business of being an investment banker, or as an employee of, or an investment
banker to, the funeral home and cemetery business during the period of the
otherwise applicable non-competition covenant set forth in this Section 11, so
long as Employee is not directly responsible for the sourcing, marketing or sale
of granite memorials or monuments at wholesale or retail.
12. LOYALTY. Employee shall devote Employee's full time and best efforts
to the performance of Employee's employment under this agreement. During the
term of this agreement, Employee shall not at any time or place whatsoever,
either directly or indirectly, engage in the Restricted Business or any other
professional or active business to any extent whatsoever, except on or pursuant
to the terms of this agreement, or with the prior written consent of Company.
Employee agrees that he will not, while this agreement is in effect, do any
unlawful acts or engage in any unlawful habits or usages which injure, directly
or indirectly, Company and its business or the ROAC Corporate Group and its
businesses.
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13. GOVERNING LAW, JURISDICTION AND VENUE. This agreement shall be
governed by and construed in accordance with the laws of the State of New
Hampshire.
14. HEADINGS. The descriptive headings of the several sections of this
agreement are inserted for convenience of reference only and shall not control
or affect the meanings or construction of any of the provisions hereof.
15. SEVERABILITY AND VIOLATION OF LAWS. If any provision of this agreement
shall be held invalid or unenforceable according to law, such provision shall be
modified to the extent necessary to bring it within the legal requirements. Any
such invalidity or unenforceability shall not affect the remaining provisions of
this agreement, and such remaining provisions shall continue in full force and
effect.
16. SPECIFIC PERFORMANCE. The Employee hereby agrees and stipulates that
it would be impossible to measure in monetary terms the damages which would be
suffered by Company in the event of any breach by Employee of Sections 8, 9, 10,
11 and 12 of this agreement. Therefore, if either party hereto shall institute
any action in equity to enforce such sections of this agreement, it is agreed
that the other party hereto waives any claim or defense that the plaintiff has
an adequate remedy at law, and the other party hereto agrees that the plaintiff
is entitled to specific performance of such terms of the agreement.
17. NOTICES. Any notice or other communication required or permitted under
this agreement shall be in writing and shall be deemed to have been duly given
(i) upon hand delivery, or (ii) on the third day following delivery to the U.S.
Postal Service as certified or registered mail, return receipt requested and
postage prepaid, (iii) on the first day following delivery to a nationally
recognized United States overnight courier services for next business day
delivery with fee prepaid, or (iv) when telecopied or sent by facsimile
transmission if an additional notice is also given under (i), (ii) or (iii)
above within three (3) days thereafter. Any such notice or communication shall
be directed to a party at its address set forth below or at such other address
as may be designated by a party in a notice given to all other parties hereto in
accordance with the provisions of this section.
FOR THE COMPANY:
Mr. Kurt M. Swenson
President and Chief Executive Officer
Rock of Ages Corporation
369 North State Street
Concord, NH 03301
Telephone: (603) 225-8397
Telecopy: (603) 225-4801
with a copy to:
Anthony C. Marts, Esquire
Wiggin & Nourie, P.A.
20 Market Street, Box 808
Manchester, NH 03105-0808
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Telephone: (603) 669-2211
Telecopy: (603) 623-8442
FOR THE EMPLOYEE:
John Forney
Telephone:
18. ASSIGNMENT. The rights and obligations of Company together with its
obligations and all of Employee's covenants and agreements hereunder may be
assigned by Company to any parent, subsidiary or other affiliate of the Company
by operation of law or by contractual assignment; and upon such assignment
Company shall be relieved of all of its obligations, agreements, duties and
covenants hereunder. The rights and obligations of Employee under this agreement
are not assignable.
19. COMPLETE AND ENTIRE AGREEMENT. This agreement contains all of the
terms agreed upon by the parties with respect to the subject matter hereof and
supersedes all prior agreements, representations and warranties of the parties
as to the subject matter hereof.
20. AMENDMENTS. This agreement may be amended, or any provision of the
agreement may be waived, provided that any such amendment or waiver will be
binding on the parties only if such amendment or waiver is set forth in a
writing executed by all parties hereto. The waiver by any party hereto of a
breach of any provision of this agreement shall not operate or be construed as a
waiver of any other breach.
21. SURVIVAL. Sections 7(b), 8 , 9, 10, 11, 12, 13, 15, 16, 17, 21 and 22
shall survive expiration of the Term of this agreement and/or termination of
Employee's employment under this agreement.
22. ARBITRATION. The parties agree to submit any claim, action, grievance
or controversy (the "Grievance") arising under or out of this agreement to final
and binding arbitration in accordance with the Employment Dispute Resolution
Rules of the American Arbitration Association. A request for arbitration must be
filed with the American Arbitration Association within six (6) months after the
grieving party knew or had reason to know of the events giving rise to the
Grievance, and a copy of the arbitration request must be served upon the other
party in accordance with Section 17. The decision of the arbitrator on any
Grievance submitted under this Section 22 will be final and binding on the
parties. The cost of the arbitrator and arbitration proceedings shall be borne
equally by the parties, and the arbitration shall be conducted in Concord, New
Hampshire. The parties agree that the arbitrator shall have no authority to add
to, subtract from or modify in any way, the terms or provisions of this
agreement. The prevailing party in such case shall be entitled to an award of
attorney's fees and costs from the non-prevailing party.
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IN WITNESS WHEREOF, the parties hereto have executed this agreement, all as
of the date first written above.
ROCK OF AGES CORPORATION
_____________________________ By:_____________________________
Witness Kurt M. Swenson, Chairman
and Chief Executive Officer
_____________________________ _________________________________
Witness John Forney
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EXHIBIT 5
To
EMPLOYMENT AGREEMENT
Of
John Forney
INITIAL FRINGE BENEFITS
LIFE INSURANCE. One and one-half times annual salary rounded to nearest
$1,000 (maximum currently $280,000). At retirement, coverage reduces to 50% with
maximum of $60,000. Fully paid by company. See plan for actual details.
MEDICAL INSURANCE. Existing Blue Cross-Blue Shield JY comprehensive family
plan or other plan subsequently adopted for Company officers. Coverage effective
first of month following full month of employment. Fully paid by company.
Company will reimburse any out of pocket expenses incurred by you to retain
coverage from Raymond James & Associates during this waiting period. See plan
for actual details.
VACATION. Four weeks or such greater amount as is determined by you to be
reasonably necessary and is approved by the Chief Executive Officer.
HOLIDAYS. Ten annually.
SICK LEAVE. As reasonably required, paid full salary through qualification
period for long-term disability.
LONG TERM DISABILITY. Provides benefit of 60% of basic monthly earnings
(maximum $8,000) to age 65. Deductible for Social Security offset or other
disability benefits provided. Fully paid by company. See plan for actual
details.
INCENTIVE PLAN. Participation in any plan for similarly situated executives
as may be approved from time to time by the Compensation Committee of the Board
of Directors.
PENSION. Final five year average base salary X .018 plus final five year
average excess social security compensation X .004% X years of service (30
maximum) = monthly benefit payable at normal retirement (age 65), life zero
years certain. Other options actuarially reduced for continuation to
spouse/beneficiary. 100% vesting when employed five years. Early retirement
benefits available at or after age 55 assuming employee has 10 years of service.
Benefit actuarially reduced for early retirement. Eligible after one year of
service per plan. Fully paid by company. See plan for actual details.
401K PLAN. Eligible for participation upon commencement of employment.
Annual employee contribution: up to 17% of salary (1998 maximum $10,000).
Company contribution is discretionary; historical match of 25% of first $1,000
employee contribution and 10% thereafter. Immediate vesting in company
contribution. See plan for actual details.
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CAR. Company car provided by purchase or lease as approved by CEO. All gas,
maintenance, insurance and repairs paid by company. Company follows actual IRS
audit instructions regarding treatment of personal use of car.
BUSINESS EXPENSES. All ordinary and necessary business expenses are
reimbursed in full by the company based on submission of expense reimbursement
forms.
MOVING EXPENSES. Any moving expenses, including the real estate commission
on the sale of Employee's house in Florida, will be reimbursed in full by the
company.
CELL PHONE. A cell phone will be provided and all usage charges paid by the
company.
AIR TRAVEL. Frequent flyer miles earned are retained by the employee.
Employees are expected to fly economy class for domestic flights and personally
pay for additional charges for, or upgrades to, first class or business class.
International flights are by business class. Exceptions to this policy may be
approved by the Chief Executive Officer for special situations.
INCENTIVE STOCK OPTIONS. If applicable, may be granted only subsequent to
execution of employment agreement and commencement of service. Minimum option
grant price shall be no less than closing price on last trading date prior to
date of grant. Options granted in excess of $100,000 may be treated as
non-qualified options. See plan for actual details.
EXPENSES TO VISIT FAMILY. Employee will be separated from his family for
the period from January 1, 1999 to June 30, 1999 (the Separation Period). During
this six month Separation Period, and only during the Separation Period, the
Company will alternate with Employee the payment for Employee's economy class
round trip air fare from Boston, Massachusetts or Manchester, New Hampshire to
Tampa Florida and return. The Company will pay for the first round trip of
Employee coming to work with a return flight which shall not be considered a
part of this program. The Company will not pay more than two trips per month and
all other expenses will be the responsibility of Employee.
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EXHIBIT 6
To
EMPLOYMENT AGREEMENT
Of
John Forney
Incentive Stock Option Agreement
ROCK OF AGES CORPORATION, a Delaware corporation (the "Company") hereby
grants as of this 25th day of January, 1999, to John Forney, an employee of the
Company (the "Employee"), an option to purchase a maximum of 75,000 shares of
its Class A Common Stock, $.01 par value per share ("Common Stock") at a price
of $13.25 per share. To the extent the option granted hereunder is exercisable
pursuant to the terms hereof, such option may be exercised for a period of up to
five (5) years from the date granted. The option granted hereby is subject to
the following terms and conditions:
1. GRANT UNDER 1994 STOCK PLAN. This option is granted pursuant to and is
governed by the Company's 1994 Stock Plan, as amended and restated, (the "Plan")
and, unless the context otherwise requires, terms used herein shall have the
same meaning as in the Plan. Determinations made in connection with this option
pursuant to the Plan shall be governed by the Plan as it exists on this date.
2. GRANT AS INCENTIVE STOCK OPTION; OTHER OPTIONS. This option is
intended to qualify as an incentive stock option under Section 422(b) of the
Internal Revenue Code of 1986, as amended (the "Code") to the full extent
permitted thereunder and is otherwise a Non-Qualified Option. This option is in
addition to any other options heretofore or hereafter granted to the Employee by
the Company, but a duplicate original of this instrument shall not effect the
grant of another option.
3. EXTENT OF OPTION IF EMPLOYMENT CONTINUES. So long as the Employee
continues to be employed by the Company on the following dates, the Employee may
exercise this option for the number of shares set opposite the applicable date:
Prior to January 25, 1999 - No shares
On or after January 25, 1999
and before January 25, 2000 - 15,000 shares
On or after January 25, 2000 - an additional
and before January 25, 2001 15,000 shares
On or after January 25, 2001 - an additional
and before January 25, 2002 15,000 shares
On or after January 25, 2002 - an additional
and before January 25, 2003 15,000 shares
On or after January 25, 2003 - an additional
and before January 25, 2004 15,000 shares
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The foregoing rights are cumulative and, while the Employee continues to be
employed by the Company, such option may be exercised on or before January 26,
2004. All of the foregoing rights are subject to Articles 4 and 5, as
appropriate, if the Employee ceases to be employed by the Company or dies or
becomes disabled while in the employ of the Company.
4. TERMINATION OF EMPLOYMENT. If the Employee ceases to be employed by
the Company no further installments of this option shall come exercisable and,
except as provided in Article 5, this option shall terminate after the passage
of ninety (90) days from the date employment ceases, but in no event later than
the scheduled expiration date. In such a case, the Employee's only rights
hereunder shall be those which are properly exercised before the termination of
the option.
5. DEATH; DISABILITY. If the Employee dies while in the employ of the
Company, this option may be exercised, to the extent of the number of shares
with respect to which the Employee could have exercised it on the date of his
death, by his estate, personal representative or beneficiary to whom this option
has been assigned pursuant to Article 10, at any time within 180 days after the
date of death, but not later than the scheduled expiration date. If the Employee
ceases to be employed by the Company by reason of his disability (as defined in
the Plan), this option may be exercised, to the extent of the number of shares
with respect to which he could have exercised it on the date of the termination
of his employment, at any time within 180 days after such termination, but not
later than the scheduled expiration date. At the expiration of such 180-day
period or the scheduled expiration date, whichever is the earlier, this option
shall terminate and the only rights hereunder shall be those as to which the
option was properly exercised before such termination.
6. PARTIAL EXERCISE. Exercise of this option up to the extent above
stated may be made in part at any time and from time to time within the above
limits, except that this option may not be exercised for a fraction of a share
unless such exercise is with respect to the final installment of stock subject
to this option and, absent the provisions of Article 6, a fractional share would
be required to be issued to permit the Employee to exercise completely such
final installment. Any fractional share with respect to which an installment of
this option cannot be exercise because of the limitation contained in the
preceding sentence shall remain subject to this option and shall be available
for later purchase by the Employee in accordance with the terms hereof. No
fractional share shall be issued under the Plan and the Employee shall receive
from the Company cash in lieu of any fractional share.
7. PAYMENT OF PRICE. The option price is payable in United States dollars
and may be paid: (i) in cash, (ii) by check, (iii) by delivery of shares of the
Company's Common Stock having an aggregate fair market value (as determined by
the Committee in its sole discretion) equal as of the date of exercise to the
option price, (iv) in the sole discretion of the Committee at the time of
exercise, by delivery of the Employee's personal recourse note bearing interest
payable not less than annually at no less than 100% of the lowest applicable
Federal rate, as defined in Section 1274(d) of the Code, or (v) subject to
clause (iv), by any combination of the foregoing, equal in amount to the option
price. Notwithstanding the foregoing, the Employee may not pay any part of the
exercise price hereof by transferring Common Stock to the Company if such Common
Stock is both subject to a substantial risk of forfeiture and not transferable
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within the meaning of Section 83 of the Code. If the Employee delivers a
personal recourse note as provided above, the Employee shall concurrently
execute and deliver to the Company a pledge agreement in a form reasonably
satisfactory 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 in its sole discretion) 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 Employee's obligations under such personal recourse note.
8. AGREEMENT TO PURCHASE FOR INVESTMENT. By acceptance of this option,
the Employee agrees that a purchase of shares under this option will not be made
with a view to their distribution, as that term is used in the Securities Act of
1933, as amended (the "Act"), (unless in the opinion of counsel to the Company,
such distribution is in compliance with or exempt from the registration and
prospectus requirements of the Act, and the Employee agrees to sign a
certificate to such effect at the time of exercising this option and agrees that
the certificate for the shares so purchased may be inscribed with a legend to
ensure compliance with the Act.
9. METHOD OF EXERCISING OPTION. Subject to the terms and conditions of
this Agreement, this option may be exercised by written notice to the Company,
at the principal executive office of the Company at 369 North State Street,
Concord, NH 03301, or to such transfer agent as the Company shall designate.
Such notice shall state the election to exercise this option and the number of
shares in respect of which it is being exercised and shall be signed by the
person or persons so exercising this option. Such notice shall be accompanied by
payment of the full purchase price of such shares, and the Company shall deliver
a certificate or certificates representing such shares as soon as practicable
after the notice shall be received. The certificate or certificates for the
shares as to which this option shall have been so exercised shall be registered
in the name of the person or persons so exercising this option (or, if this
option shall be exercised by the Employee and if the Employee shall so request
in the notice exercising this option, shall be registered in the name of the
Employee and another person jointly, with right of survivorship) and shall be
delivered as provided above to or upon the written order of the person or
persons exercising this option. In the event this option shall be exercised
pursuant to Article 5 hereof by any person or persons other than the Employee,
such notice shall be accompanied by appropriate proof of the right of such
person or persons to exercise this option. All shares that shall be purchased
upon the exercise of this option as provided herein shall be fully paid and
non-assessable.
10. OPTION NOT TRANSFERABLE. Except as expressly permitted in writing by
the Committee, this option is not transferable or assignable except by will or
by the laws of descent and distribution. During the Employee's lifetime, only
the Employee or his or her guardian or legal representative (or assignee or
transferee if this option has been assigned or transferred in compliance with
the immediately preceding sentence) can exercise this option.
14
<PAGE> 15
11. NO OBLIGATION TO EXERCISE OPTION. The grant and acceptance of this
option imposes no obligation on the Employee to exercise it.
12. NO OBLIGATION TO CONTINUE EMPLOYMENT. The Company and any Related
Corporation (as defined in the Plan) are not by the Plan or this option
obligated to continue the Employee in employment.
13. NO RIGHTS AS SHAREHOLDER UNTIL EXERCISE. The Employee shall have no
rights as a shareholder with respect to shares subject to this Agreement until a
stock certificate therefor has been issued to the Employee and is fully paid
for. Except as is expressly provided in the Plan with respect to certain changes
in the capitalization of the Company, no adjustment shall be made for dividends
or similar rights for which the record date is prior to the date such stock
certificate is issued.
14. CAPITAL CHANGES AND BUSINESS SUCCESSIONS. The Plan contains provisions
covering the treatment of options in a number of contingencies such as stock
splits and mergers. Provisions in the Plan for adjustment with respect to stock
subject to options and the related provisions with respect to successors to the
business of the Company are hereby made applicable hereunder and are
incorporated herein by reference. In general, you should not assume that options
necessarily would survive the acquisition of the Company. In particular, without
affecting the generality of the foregoing, it is understood that for the
purposes of Articles 3 through 5 hereof, both inclusive, and the first paragraph
hereof employment by the Company includes employment by a Related Corporation as
defined in the Plan.
15. EARLY DISPOSITION. The Employee agrees to notify the Company in
writing immediately after the Employee makes a Disqualifying Disposition of any
Common Stock received pursuant to the exercise of this option. A Disqualifying
Disposition is any disposition (including any sale) of such Common Stock before
the LATER of (a) two years after the date the Employee was granted this option
or (b) one year after the date the Employee acquired Common Stock by exercising
this option. If the Employee has died before such stock is sold, these holding
period requirements do not apply and no Disqualifying Disposition can occur
thereafter. The Employee also agrees to provide the Company with any information
which it shall request concerning any such disposition. The Employee
acknowledges that he or she will forfeit the favorable income tax treatment
otherwise available with respect to the exercise of this incentive stock option
if he or she makes a Disqualifying Disposition of the stock received on exercise
of this option.
16. WITHHOLDING TAXES. If the Company in its discretion determines that it
is obligated to withhold tax with respect to a Disqualifying Disposition (as
defined in Article 15) of Common Stock received by the Employee on exercise of
this option, the Employee hereby agrees that the Company may withhold from the
Employee's wages the appropriate amount of federal, state and local withholding
taxes attributable to such Disqualifying Disposition. If any portion of this
option is treated as a Non-Qualified Option, the Employee hereby agrees that the
Company may withhold from the Employee's wages the appropriate amount of
federal, state and local withholding taxes attributable to the Employee's
exercise of such Non-Qualified Option. At the Company's discretion, the amount
required to be withheld may be withheld in cash from such wages, or (with
respect to compensation income attributable to the exercise of this option) in
kind from the Common Stock otherwise deliverable to the optionee on exercise of
this Option.
15
<PAGE> 16
The Employee further agrees that, if the Company does not withhold an amount
from the Employee's wages sufficient to satisfy the Company's withholding
obligation, the Employee will reimburse the Company on demand, in cash, for the
amount under withheld.
17. NO EXERCISE OF OPTION IF EMPLOYMENT TERMINATED FOR MISCONDUCT. If the
employment of the Employee is terminated for "Misconduct," this option shall
termination on the date of such termination of employment and shall thereupon
not be exercisable to any extend whatsoever. "Misconduct" is conduct, as
determined by the Board of Directors, involving one or more of the following:
(i) the substantial and continuing failure of the Employee to render services to
the Company in accordance with his or her assigned duties; (ii) a determination
by two-thirds of the members of the Board of Directors that the Employee has
inadequately performed the duties of his or her employment; (iii) disloyalty,
gross negligence, dishonesty or breach of fiduciary duty to the Company; (iv)
the commission of an act of embezzlement, fraud, disloyalty, dishonesty or
deliberate disregard of the rules or policies of the Company which results in
loss, damage or injury to the Company, whether directly or indirectly; (v) the
unauthorized disclosure of any trade secret or confidential information of the
Company; or (vi) the commission of an act which constitutes unfair competition
with the Company or which induces any customer of the Company to break a
contract with the Company. In making such determination, the Board of Directors
shall act fairly and in utmost good faith and shall give the Employee an
opportunity to appear and to be heard at a hearing before the Board of Directors
or any Committee and present evidence on his or her behalf. For the purposes of
this Article 17, termination of employment shall be deemed to occur when the
Employee receives notice that his or her employment is terminated.
18. LOCK-UP AGREEMENT. In the event of an underwritten public offering of
the Company's securities, the Employee (or any permitted transferee pursuant to
Article 10), whether or not such Employee's shares issuable upon exercise of the
option granted herein are included in such registration, hereby agrees not to
effect any public sale or distribution, including any sale pursuant to Rule 144
under the Act, of any equity securities of the Company (other than as part of
such underwritten offering), without the consent of the managing underwriter(s)
for such offering (the "Managing Underwriter"), during a period commencing on
the effective date of such registration and ending 180 calendar days thereafter,
or such lesser period as the Company and the Managing Underwriter shall
reasonably determine is required to effect a successful offering.
19. INCORPORATION OF PLAN. The Plan is hereby incorporated herein by
reference and made a part hereof and the option and this Agreement are subject
to all terms and conditions of the Plan.
20. PROVISIONS OF DOCUMENTATION TO EMPLOYEE. By signing this Agreement,
the Employee acknowledges receipt of a copy of this Agreement and a copy of the
Plan.
21. FAILURE TO ENFORCE NOT A WAIVER. The failure of the Company to enforce
at any time any provision of this Agreement shall in no way be construed to be a
waiver of such provision or of any other provision hereof.
22. GOVERNING LAW. This Agreement shall be governed by and interpreted in
accordance with the laws
16
<PAGE> 17
of the State of Delaware, without regard to the conflicts of laws provisions
thereof.
23. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be an original but all of which shall represent one and the same
agreement.
IN WITNESS WHEREOF, the Company and the Employee have caused this
instrument to be executed, and the Employee whose signature appears below
acknowledges receipt of a copy of the Plan incorporated herein by reference and
acceptance of an original copy of this Agreement.
ROCK OF AGES CORPORATION
By:
Name: Kurt M. Swenson
Title: Chairman of the Board, President
and Chief Executive Officer
Employee:
John Forney
--------------------------------------------
Print Name of Employee
--------------------------------------------
Street Address
--------------------------------------------
City State Zip Code
17
<PAGE> 1
EXHIBIT 21
Subsidiaries of the Company Place of Incorporation
Associated Memorials Inc. Vermont
Autumn Rose Quarry, Inc. Georgia
Childs & Childs Trucking Co. Inc. Georgia
Carolina Quarries, Inc. Delaware
Kabushiki Kaisha Rock of Ages Asia* Japan
Keith Monuments Company LLC Delaware
Childs & Childs Granite Company 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
<PAGE> 1
EXHIBIT 23
The Board of Directors
Rock of Ages Corporation:
We consent to the inclusion of our report dated March 2, 2000, with respect to
the consolidated balance sheets of Rock of Ages Corporation as of December 31,
1999 and 1998, 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, 1999, which report appears in
the December 31, 1999 annual report on Form 10-K of Rock of Ages Corporation.
KPMG LLP
/s/ KPMG LLP
Boston, Massachusetts
March 30, 2000
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<ARTICLE> 5
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<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-END> DEC-31-1998 DEC-31-1999
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<SECURITIES> 0 0
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