UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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x
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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For the fiscal year ended December 31, 2009
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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For the transition period from
to
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Commission file Number: 000-29464
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ROCK OF AGES CORPORATION
(Exact name of registrant as specified in
its charter)
Vermont
(State or other jurisdiction of
incorporation or organization)
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030153200
(I.R.S. Employer
Identification No.)
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560 Graniteville
Road, Graniteville, Vermont 05654
(Address of principal executive offices and zip code)
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(802) 476-3121
(Registrant's telephone number, including area
code)
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Securities registered pursuant to Section 12(b) of the
Act: None
Securities registered pursuant to Section 12(g) of the
Act:
CLASS A COMMON STOCK, NO PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
o
No
x
Indicate by check mark whether the registrant is
not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes
o
No
x
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes
x
No
o
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.
o
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer or
a smaller reporting company. See definition of "large accelerated filer",
"accelerated filer", a "non-accelerated filer" or a smaller
reporting company in Rule 12b-2 of the Exchange Act. (Check one): Large
accelerated filer
o
Accelerated filer
o
Non-accelerated
filer
o
Smaller Reporting Company
x
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes
o
No
x
As of June 30, 2009, the aggregate market
value of the registrant's voting stock held by non-affiliates of the registrant
was $9,902,954. As of March 20, 2010, there were outstanding 4,677,467 shares
of Class A Common Stock and 2,738,596 shares of Class B Common Stock.
TABLE
OF CONTENTS
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PAGE
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PART I
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ITEM 1.
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BUSINESS
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4
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ITEM 1A.
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RISK FACTORS
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8
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ITEM 1B.
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UNRESOLVED STAFF COMMENTS
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13
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ITEM 2.
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PROPERTIES
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13
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ITEM 3.
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LEGAL PROCEEDINGS
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15
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ITEM 4.
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SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
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15
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PART II
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ITEM 5.
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MARKET FOR REGISTRANT'S
COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
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16
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ITEM 6.
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SELECTED FINANCIAL DATA
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16
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ITEM 7.
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MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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16
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ITEM 7A.
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QUANTATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
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24
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ITEM 8.
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FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
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24
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ITEM 9.
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CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
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24
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ITEM 9A(T).
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CONTROLS AND PROCEDURES
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24
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ITEM 9B.
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OTHER INFORMATION
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25
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PART III
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ITEM 10.
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DIRECTORS, EXECUTIVE
OFFICERS AND CORPORATE GOVERNANCE
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25
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ITEM 11.
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EXECUTIVE COMPENSATION
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28
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ITEM 12.
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SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
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32
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ITEM 13.
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CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
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34
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ITEM 14.
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PRINCIPAL ACCOUNTANT FEES
AND SERVICES
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36
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PART IV
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ITEM 15.
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EXHIBITS AND FINANCIAL
STATEMENT SCHEDULES
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37
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SIGNATURES
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71
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INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form
10-K, including "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in Item 7, contains forward-looking
statements that involve risks and uncertainties, as well as assumptions that,
if they never materialize or prove incorrect, could cause the results of Rock
of Ages Corporation ("Rock of Ages" or the "Company") and
events to differ materially from those contained in such statements. All
statements other than statements of historical fact could be deemed
forward-looking statements, and may include projections of revenue, gross
profit, expenses, earnings or losses from operations or other financial items;
any statements of the plans, strategies and objectives of the Company or its
management for future operations; any statements regarding future economic
conditions or performance; any statements of expectation or belief; and any
statements of assumptions underlying any of the foregoing.
The risks, uncertainties
and assumptions may include, but are not limited to, the following:
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our ability to certify adequate
internal controls over our financial reporting;
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our reliance on our line of
credit with the CIT Group to fund our business operations and/or strategy;
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our ability to maintain
compliance with our covenants in our credit facility;
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our ability to form and
maintain strategic alliances with cemeteries, funeral homes and memorial
retailers;
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uncertainties involving
production recovery, quarry yields and demand for Rock of Ages' dimension
stone;
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the impact of the weak economic
conditions and the future impact of such conditions on the granite and granite
memorial industries, and demand for our products;
and
other risks and uncertainties described herein, including, but not limited to
the items discussed in "Risk Factors That May Affect Future Results"
in Item 1A of this report, and that are otherwise described from time to time
in Rock of Ages' reports filed with the Securities and Exchange
Commission after the date of filing of this report.
We assume no obligation to
update these forward-looking statements to reflect actual results or changes in
factors or assumptions affecting such forward-looking statements.
PART I
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ITEM 1.
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BUSINESS
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GENERAL
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Rock
of Ages is a Vermont corporation founded in 1885 and is an integrated granite
quarrier and manufacturer whose principal product is granite memorials used
primarily in cemeteries. We own and operate nine active quarry properties and
five manufacturing and sawing facilities in North America, principally in Vermont and the Province of Quebec. We sell memorials wholesale to approximately 115
independent authorized Rock of Ages retailers in the United States as well as approximately 116 independent retailers in Canada. We sell higher end
memorials with prices in excess of $25,000 to cemeteries, funeral homes,
other retailers or to the consumer. We market and sell our memorials at
various price points:
Square Seal, Round Seal and Signature
. Our
memorials are offered in granites of various colors and are covered by a full
perpetual or a limited perpetual warranty, depending on the particular
granite and brand. We believe the
Rock of Ages
trademark is one of the
oldest and best-known brand names in the granite memorialization industry,
and we actively promote our brand name and place a seal bearing the brand
name on each branded memorial. The Company also sells unbranded memorials.
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On
December 8, 2009, the Company completed the change in its state of
incorporation from Delaware to Vermont (the "Reincorporation"). Pursuant to
an Agreement and Plan of Merger adopted by the Board of Directors and
approved by the stockholders on October 19, 2009, Rock of Ages Corporation, a
Delaware corporation, was merged with and into its wholly-owned subsidiary,
Rock of Ages Corporation (Vermont), with Rock of Ages Corporation (Vermont) as the surviving corporation. The name of the surviving corporation was changed to
"Rock of Ages Corporation." The Board of Directors determined to
reincorporate the Company in Vermont primarily because of its desire to
reduce corporate expenses. As a Delaware corporation the Company was required
to pay approximately $160,000 in annual franchise fees to the State of Delaware. As a Vermont corporation the Company pays a flat filing fee of $35 annually. As a
result of the reincorporation the Company is now governed by the Vermont
Business Corporation Act, Title 11 of the Vermont Statutes Annotated (the
"VBCA").
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Rock
of Ages, Signature, Sealmark, American Black, Barre Gray, Bethel White,
Salisbury Pink, Gardenia White,
Laurentian
Pink
and
Galactic Blue
are trade names or trademarks of the
Company. We rely on both registered and common-law trademarks in the United States and in other countries to protect the goodwill associated with these brands.
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Until
January 17, 2008, we were also engaged in the retail sale of memorials. We
embarked upon our retail strategy in connection with our initial public
offering in 1997 and from 1997 to 2005 we acquired 28 retail monument
companies with approximately 80 locations in 16 states. However, in 2007 our
Board of Directors determined that it was in the best interests of the
Company and its stockholders to exit the retail business, to simplify and
reduce the cost of the existing management infrastructure, and to focus on
our core quarrying and manufacturing business, including our wholesale
memorial distribution system.
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In
December 2007, the Board authorized the sale of the retail division to PKDM
Holdings, Inc. ("PKDM"), a company owned by Richard M. Urbach, the
President and Chief Operating Officer of the retail division, and James
Barnes, the financial manager of the retail division, for approximately $8
million. The sale was completed on January 17, 2008. In connection with the sale, we entered into a five year supply agreement with PKDM and its operating
subsidiary, North American Heritage Services, Inc. ("NAHS"), naming
it as an authorized Rock of Ages retailer in the existing retail territories
formerly serviced by its owned retail stores, and PKDM agreed to minimum
annual memorial purchases from the Company of $3.5 million during each year
of the five year term, excluding private mausoleums. PKDM's minimum purchase obligation under the Supply
Agreement is subject to reduction if PKDM permanently closes or sells stores
that were operated by them on the date of the original Supply Agreement.
Pursuant to the Supply Agreement, the amount of such reduction is equal to
the three year average annual purchases of closed or sold stores. Due to the
closure or sale of a number of locations by PKDM during 2008, effective
January 16, 2009 the parties agreed to revise the minimum purchase
requirements to $1,780,000 for the year of the agreement ending on January
17, 2009 and to $1,210,000 for each of the remaining years of the initial
term and any renewal term. At the time
of the sale in January of 2008, the Company retained $2,125,000 of inventory
located at various retail locations and PKDM is responsible for purchasing
the inventory, at its current book value, as it is sold, with a payment in
full for any inventory remaining due on the tenth anniversary of the
transaction. The balance of consigned inventory with PKDM at December 31, 2009
was $1,900,000.
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VIKA,
Ltd. ("VIKA"), a quarry company located in the Ukraine, in which we had held
a 1/3 equity interest since 2002, experienced continuing operational
difficulties leading to reductions in both the production and sale of
Galactic Blue granite blocks. As a result, our investment in VIKA was fully
written-off in 2007. On June 30, 2009,
the Company agreed to sell its one-third ownership interest in VIKA to the
remaining VIKA shareholder for $170,583 payable in four equal installments of
$42,646 due from July to October 2009. These payments were received in 2009
as agreed. In conjunction with this sale the Company entered into an
exclusive distribution agreement with VIKA pursuant to which the Company has
the exclusive worldwide right to sell and distribute all quarried products of
VIKA including slabs and other finished products through 2012.
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On April 17, 2009, Rock of Ages Canada,
("ROA Canada"), a wholly owned subsidiary of the Company signed an Asset
Purchase Agreement and completed the purchase of the real and personal
property comprising the Polycor Stanstead Quarry, located in Stanstead, Quebec, Canada from Carrieres Polycor, Inc., ("Polycor"). The purchase
price for the quarry, building and inventory was $1.3 million. In connection
with the purchase, Polycor entered into an agreement that limits Polycor from
owning or operating a quarry similar to the Stanstead Gray quarry within
fifty kilometers of Stanstead, Quebec. This agreement also prohibits
Polycor from soliciting ROA Canada's customers for sales of gray granite. In
connection with the purchase, ROA Canada entered into a supply agreement with
Polycor, for 30 years whereby ROA Canada must supply Polycor with standard sized
blocks of up to 300 cubic meters (or 10,594 cubic feet) a month. ROA
Canada also assumed the remaining three years of supply agreements with two
unrelated granite manufacturers. The Company was in compliance with its
obligations under these agreements in 2009.
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During 2009, we had
operations in two business segments: Quarry and Manufacturing. Included
within the business segments are operations that are conducted through
unincorporated divisions of Rock of Ages and other operations that are
conducted by separately incorporated subsidiaries. Financial information by
business segment and geographic area is incorporated herein by reference to
note 14 of the Notes to Consolidated Financial Statements included in this
report. 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."
Risks attendant to foreign operations are also incorporated herein by
reference to "Risk Factors that May Affect Future Results" in Item
1A. Additional information regarding each business segment and Rock of Ages
in general is set forth herein.
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STRATEGY
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We seek to
enhance the overall profitability of the Company's businesses through a
strategy which includes the following principal elements:
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Direct sales of mausoleums
and estate and civic memorials to cemeteries and consumers
. We expect to continue to expand sales of
private mausoleums, and estate and civic memorials directly to the
customer through our mausoleum and special features sales force based at
our Barre, Vermont manufacturing plant.
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Strategic alliances
with cemeteries, funeral homes and memorial retailers to expand our
wholesale distribution in North America.
We have formed and will continue to pursue
strategic alliances with memorial retailers, funeral directors and
cemetery owners to sell mausoleums, estate memorials, features and
granite memorials in cooperation with them as authorized Rock of Ages
retailers or other relationships, in order to increase both pre-need and
at-need sales of granite memorials.
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Enhancing quarry and
manufacturing productivity.
We seek to substantially reduce our costs of quarrying and manufacturing
and enhance our productivity through investments in the most efficient equipment
and technology and maintaining a flexible workforce.
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Branding.
We believe the Rock of Ages brand is one of
the best-known brand names in the memorial industry. We will continue
to promote and support the Rock of Ages brand sold at independent
authorized Rock of Ages retailers.
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Acquisitions of quarries
and distribution rights.
While
we own or control many of the highest quality granite quarries in North
America, we will continue to explore the possibility of acquiring
selected granite quarriers in North America and internationally to
assure we will continue to have the colors and grades of granites sought
by retail purchasers of granite memorials in North America, as well as
exclusive granites for other uses. We will also continue to explore the
acquisition of distribution rights to certain colors and grades of
granites.
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Personalization.
We intend to continue to expand and enhance our
memorial product lines in color, design and style to meet each customer's
personal requirements. Our objective is to provide a full range of memorials
available at various price points.
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Reducing unallocated corporate
overhead and corporate infrastructure.
We continue to seek ways to streamline our operations and cut overhead costs.
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PRODUCTS
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Our principal
products may be classified into two general product lines: granite quarry
products (with limited value added manufacturing performed) and manufactured
granite products, primarily 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. For each of the last two years,
2009 and 2008, revenues derived from the sale of granite quarry products have
accounted for 47% and 51%, respectively, of consolidated revenues; and
revenues derived from the sale of manufactured granite products at wholesale
have accounted for 53% and 49%, respectively, of consolidated revenues.
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Granite Quarry Products
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Our principal quarry
product 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. Our quarry revenues
are also derived, to a lesser degree, from the sale of blocks purchased from
other quarries for resale through our distribution system, and from the sale
of rough or sawn slabs.
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Granite differs from
deposit to deposit by color, grade and/or quality. We quarry and sell blocks
of (i)
Barre Gray
granite from our Barre, Vermont quarries and gray
granite from our Stanstead, Quebec quarry, (ii) black granite from our
American
Black
quarry in Pennsylvania, (iii) pink granites from our
Laurentian
Pink
quarry in Quebec and our
Salisbury Pink
quarry in North
Carolina, and (iv) white granites from our
Bethel White
quarry in
Vermont and our
Gardenia White
quarry in North Carolina. We also sell
black granite with prominent blue feldspar from the
Galactic Blue
quarry in the Ukraine under an exclusive world-wide sales agreement.
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We sell granite blocks for
memorial, building and other uses. While each of our quarries sells granite
for memorial use and for building use, the output of the
Bethel White
quarry, the
Gardenia White
quarry, the
Salisbury Pink
quarry
and the
Galactic Blue
quarry are primarily sold and used for building
granite use (such as building cladding, tiles, pavers, steps, countertops and
other building products) outside North America. The output of the other
quarries is primarily for memorial use in North America.
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A quarry sales force both
in and outside North America sells our granite blocks. The quarry sales force
markets and advertises our granite blocks in various trade publications and
by attending trade shows worldwide. Outside of North America, our quarry
sales force generally sells directly to manufacturing plants or to
independent distributors who buy blocks and resell them.
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Other quarry products
include waste pieces not of a shape or size suitable for manufacturing, which
are sold for erosion control for embankments, bridges or piers, and for other
uses. In certain quarries, we have arrangements with crusher operators who
operate on or near our quarries and sell crushed stone. The revenues and
profits of these products are not material. We have no marketing and
advertising programs for these other quarry products.
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Manufactured Products
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The principal manufactured
product of Rock of Ages is granite memorials, which are sold to retailers of
granite memorials and substantially all of which are placed in cemeteries in
remembrance of the life of a person. Our memorials encompass a wide range of
granites, including granite blocks purchased from others, as well as a wide
array of sizes, styles and shapes ranging from small, inexpensive markers set
flush to the ground, to very elaborate and expensive personal mausoleums
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, conventional
mausoleums and columbaria. We also sell public and civic memorials not placed
in cemeteries, both on a wholesale basis and directly to the customer. 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,
but are classified by us as memorial sales.
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Rock of Ages is widely
recognized for the personalized granite memorials it produces and the very
large memorials it can produce. We have made many large private and public memorials,
including a full size granite replica of a Mercedes-Benz automobile and the
massive Atlantic and Pacific arches of the World War II memorial in Washington DC.
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Our granite memorials are
sold to retailers by our memorial sales force that regularly speak with
customers by phone and make personal visits. Our mausoleums and special
features group sells both to retailers and direct to the customer. We provide
various point of sale materials to independent authorized Rock of Ages
retailers, we advertise in trade publications and attend trade shows in the United States and Canada.
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Rock of Ages also
manufactures certain precision granite products which are made at our Barre, Vermont plant. These products include surface plates, machine bases, bases for coordinate
measuring devices, press rolls and other products manufactured to exacting
dimensions. These products are sold to the manufacturers of precision
measuring devices or end users. A precision products sales force that phones
or visits customers, sells these products. We also advertise our precision
products in various trade publications, provide printed sales materials to
prospective customers and attend industry conventions.
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Retail Products
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On January 17, 2008, we
completed the sale of our retail operations to PKDM and exited the retail
business entirely.
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MANUFACTURING AND RAW
MATERIALS
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Rock of Ages quarries and
manufactures granite in the United States and Canada at the locations
indicated in Item 2 "Properties." We also outsource the
manufacturing of certain memorial products pursuant to supply agreements with
other manufacturers. In connection with the sale of the Lawson
manufacturing plant in Barre, Vermont in 2001, the Company entered into a
Supply Agreement with Adams Granite Co. ("Adams"). The Company
agreed to purchase a minimum of $3,000,000 of monuments from Adams each year for a term of seven years with various stipulations as to variations from
the "minimum order" and pricing agreements. The Supply Agreement
with Adams was amended over the years reducing the minimum order obligation
to $1,200,000 for the final year ending January 10, 2010. The Company
exceeded its minimum order obligation for the final year ending January 10,
2010 and no longer has an obligation to purchase monuments from Adams. There were no plants acquired in 2009. We believe our manufacturing and quarrying
capacity, together with our manufacturing outsourcing arrangements, are
generally sufficient to meet anticipated production requirements for the
foreseeable future.
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The most significant raw
material we use in our manufacturing operations is granite blocks primarily
from our quarries. We believe we have an adequate supply from our quarries to
supply our manufacturing operations. We also purchase certain colors of
granite, primarily red and black, from other quarriers. We believe there is
an adequate supply of memorial granite available from our quarries and
quarries owned by others for the foreseeable future.
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Significant supplies used
in our manufacturing operations include industrial diamond segments for saw
blades and wires, drill steel, drill bits and abrasives. There are a number
of sources for these supplies at competitive prices.
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We had manufacturing
backlogs of $7.4 million and $7.1 million as of December 31, 2009 and 2008,
respectively. These backlogs occurred in the normal course of business. Of
the manufacturing backlog orders as of December 31, 2009, we expect 100% to
be filled during the 2010 fiscal year. We have not historically had a
material backlog of quarry block or slab orders.
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We do not normally maintain
a significant inventory of finished manufactured products in anticipation of
future orders in our manufacturing operations. In connection with the sale of
our retail operations to PKDM on January 17, 2008, we retained finished
memorial inventory which is located at the various retail locations sold to
PKDM and at December 31, 2009 has an aggregate book value of approximately $1.9
million. This inventory has been consigned to PKDM for sale to customers.
Any finished inventory not sold by PKDM within 10 years of the closing date
will be purchased by PKDM at book value at that time. Approximately 75% of
our manufactured product orders are delivered within two to twelve weeks of
the order date, as is customary in the granite memorial industry. The
delivery time depends on the size and complexity of the memorial. Our quarry
operations have inventories of granite blocks.
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RESEARCH AND DEVELOPMENT
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We do not have a research
and development department for any of our products. From time to time, we
conduct 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 we had no expenditures classified
for financial reporting purposes as research in 2009 or 2008.
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COMPETITION
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The dimension stone
industry is highly competitive. We compete with other dimension stone
quarriers, including quarriers of granite, marble, limestone, travertine and
other natural stones. We also compete with manufacturers of so-called
"engineered stone" as well as manufacturers of other building
materials like concrete, aluminum, glass, wood and other materials. The
competition with providers of these materials is based on price, availability
of supply, end-user preference for certain colors, patterns or textures, and
other factors.
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The granite memorial
industry is also highly competitive. We compete with other granite quarriers
and manufacturers in the sale of granite blocks for memorial use, and
finished memorials, on the basis of price, color, quality, geographic
proximity, service, design, production capability, availability of supply and
delivery options. All of our colors of granite are subject to competition
from memorial grade granite blocks of similar color supplied by quarriers
located throughout the world. There are approximately 130 manufacturers of
granite memorials in North America with a majority of them being located in
the Elberton, Georgia area.
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Our quarrying and
manufacturing competitors include both domestic and international companies,
some of which may have greater financial, technical, manufacturing, marketing
and other resources than we have. Foreign competitors may have access to
lower cost labor and extensive commercial deposits of memorial and building
grade granite, and may be subject to less restrictive regulatory
requirements. For example, companies in South Africa, India and China manufacture and export finished granite memorials into North America, which compete
with our products.
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PATENTS, TRADEMARKS AND
LICENSES
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We hold a number of
domestic and foreign patents, trademarks and copyrights, including the
original registered trademark "Rock of Ages," which we first
registered in 1913. We believe the loss of a single patent, trademark or
copyright, other than the "Rock of Ages" trademark, would not have
a material adverse effect on our business, financial condition or results of
operations. See Item 1A - "Risk Factors That May Affect Future
Results."
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EMPLOYEES
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We had approximately 257 employees
as of December 31, 2009. We had approximately 268 employees as of December
31, 2008.
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The collective bargaining
agreements with the Granite Cutters Association and the United Steelworkers
of America which together represent approximately 100 employees in our Vermont manufacturing and quarrying operations were renewed in 2009. The contracts with the
Granite Cutters Association and the United Steelworkers of America for our Vermont manufacturing plant employees will expire on April 29, 2011 and the contract with
the United Steelworkers of America for our Vermont quarry employees will
expire on April 27, 2012. We also renewed in 2009 the agreement with the
United Steelworkers union representing substantially all the production
workforce in our granite quarry and manufacturing plants located in Stanstead, Quebec. The agreement will cover approximately fifty workers, and is for a term
of approximately four years, commencing November 1, 2009 and expiring on
October 31, 2013. We also have a collective bargaining agreement with one
union representing approximately 5 employees in our Laurentian Quarry. This
agreement expired on January 31, 2010. Since this quarry does not operate in
the winter due to weather conditions, we will be negotiating with this union late
in the first quarter of 2010 when the quarry reopens. We expect no problems
with these negotiations and should have a signed agreement by the second
quarter of 2010. See Item 1A - Risk Factors That May Affect Future Results.
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We believe our relations
with our employees are generally good, and recognize that our employees are among
our most important assets.
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SEASONALITY
|
Historically, our
operations have experienced certain seasonal patterns. Generally, our net
sales are highest in the second or 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
|
Our
quarry and manufacturing operations are subject to substantial regulation by
federal, state and foreign governmental agencies and other authorities,
including OSHA, the Mine Safety and Health Administration and similar state
and Canadian authorities. Our operations are also subject to extensive laws
and regulations administered by the United States Environmental Protection
Agency and similar state and Canadian authorities for the protection of the
environment, including those relating to air and water quality, noise levels,
and solid and hazardous waste handling and disposal. These laws and
regulations may require us to fund remedial action or to pay damages
regardless of fault. Environmental laws and regulations may also impose
liability with respect to divested or terminated operations even if the
operations were divested or terminated many years ago. In addition, current
and future environmental or occupational health and safety laws, regulations
or regulatory interpretations may require significant expenditures for
compliance which could require us to modify our operations. We cannot predict
the effect of such laws, regulations or regulatory interpretations on our
business, financial condition or results of operations.
|
|
AVAILABLE
INFORMATION
|
We maintain a website with
the address www.rockofages.com. We are not including the information
contained on our website as a part of, or incorporating it by reference into,
this Annual Report on Form 10-K. We make available free of charge through our
website our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K (in each case without exhibits), and amendments
to these reports (without exhibits) filed as soon as reasonably practicable
after such reports are electronically filed with the Securities and Exchange
Commission.
|
|
ITEM 1A.
|
RISK FACTORS
|
|
Risk
Factors That May Affect Future Results
|
The
risks and uncertainties described below are not the only ones we face.
Additional risks and uncertainties not presently known to us or which are
currently deemed immaterial may also impair our business, financial condition
and results of operations. If any of these risks actually occur, our
business, financial condition and results of operations could be materially
adversely affected.
|
|
If
we or our independent registered public accounting firm are unable to affirm
the effectiveness of our internal control over financial reporting in future
years, the market value of our common stock could be adversely affected.
|
Our
independent registered public accounting firm must audit and report on our
internal controls over financial reporting as of December 31, 2010 and
subsequent fiscal year end dates, respectively, and such report must be
included in our Annual Report on Form 10-K for the year ending December 31,
2010, and in subsequent Annual Reports on Form 10-K for subsequent years,
respectively. In 2007 we disclosed material weaknesses in our internal
control over financial reporting in Item 9A(T) - Controls and Procedures
of the Annual Report on Form 10-K. In 2008 we remediated the weaknesses and
accordingly reported no material weaknesses in our internal control over
financial reporting as of December 31, 2008 and December 31, 2009. However,
we cannot assure you that we or our independent registered public accounting
firm will be able to report that our internal control over financial
reporting are effective as of December 31, 2010 and subsequent fiscal year
end dates. In this event, investors could lose confidence in the reliability
of our financial statements, which could result in a decrease in the market
value of our Class A Common Stock.
|
|
Moreover,
even though we believe we have corrected the material weaknesses reported in
2007, our internal controls may not prevent all potential errors, because any
system of controls and procedures, regardless of its design, can provide only
reasonable, and not absolute, assurance that the objectives of the control
system will be achieved. There are inherent limitations to the effectiveness
of any system of controls and procedures, including the possibility of human
error and the circumvention or overriding of the controls and procedures.
|
|
We
rely on the CIT Group to fund our working capital needs.
|
We
rely on our credit facility for working capital needs. The lead
agent/administrator on the credit facility is the CIT Business Group, a
subsidiary of CIT Group, Inc. ("CIT"). On November 1, 2009, CIT filed for
Chapter 11 bankruptcy protection in a pre-packaged plan of reorganization.
During the months leading up to the bankruptcy filing, CIT continued to fund
all requests for advances on the revolving line of credit. On December 10,
2009, CIT emerged from bankruptcy and was able to restructure its debt
obligations. However, CIT's financial condition remains precarious and there
is no guarantee it will continue to fund our requests or continue to honor
its commitments under the credit facility. If CIT can no longer honor its
commitments, we would be forced to secure other sources of financing to meet
all of our cash needs, which would have a material and adverse impact on the
Company's business.
|
|
Our
financing requirements may increase and we could have limited access to
capital markets.
|
The United States and worldwide capital and credit markets have
recently experienced significant price volatility, dislocations and liquidity
disruptions, which have caused market prices of many stocks to fluctuate
substantially and the spreads on prospective debt financings to widen
considerably. In addition, declining capital ratios of many lending
institutions and the very weak commercial paper market have adversely
impacted various lending institutions including our long-term lender CIT,
which may adversely impact our ability to borrow under our existing lines of
credit. While we believe that our current resources and access to capital
markets are adequate to support operations over the near term and foreseeable
future, we cannot assure you that these circumstances will remain unchanged.
Our need for capital is dependent on operating results and may be greater
than expected. Our ability to maintain our current sources of debt financing
depends on our ability to remain in compliance with covenants contained in
our financing agreements, including, among other requirements, maintaining a
minimum total net worth and minimum cash flow and debt coverage ratios. If
changes in capital markets restrict the availability of funds or increase the
cost of funds, we may be required to modify, delay or abandon some of our
planned expenditures, which could have a material adverse effect on our
business, financial condition, results of operations and cash flows.
|
|
Our
credit facility with CIT includes restrictions on our business operations
that we must comply with, and financial tests that we must meet in order to
continue to borrow under the facility to support our operations.
|
The
terms of our credit facility with CIT restrict our ability to, among other
things, consummate asset sales, participate in mergers, incur additional
debt, pay dividends, repurchase stock or make investments or guarantees
without the prior consent of CIT. The terms also contain covenants that
require us to meet financial tests, including a minimum Fixed Charge Coverage
Ratio and a maximum Total Liabilities to Net Worth Ratio, in order to
continue to borrow under the facility and avoid a default that might lead to
an early termination of the facility. The restrictions in our credit facility
may prevent us from taking actions that we believe would be in the best
interest of the Company and its shareholders and make it difficult to execute
our business strategy successfully. The terms of this credit facility,
including these covenants, are generally described in Item 7 of this report
under the caption "Liquidity and Capital Resources - Credit
Facility."
|
|
As
described under such caption, we were in violation of our credit facility
because we sustained a net loss during 2008, and we failed to meet the Fixed
Charge Coverage Ratio covenant for the four fiscal quarters ending December
31, 2008. These violations were primarily as a result of two non-cash
charges taken during the fourth quarter of 2008. First, we took a $3,930,000
charge for the write-down of second grade block inventory at three of our
export quarries, and second, we took a $1,348,000 charge for the write-down
of our former headquarters building in Barre, Vermont, which was taken out of
service when we consolidated our offices in Barre.
|
We received a waiver from our lenders allowing us to be in
compliance with our credit facility and our lenders agreed to allow us, in
calculating the Fixed Charge Coverage Ratio, to add back the non-cash
write-downs taken with respect to the second grade inventory and the vacated
building for the first three quarters of 2009. At December 31, 2009, we
were in compliance with all existing covenants and expect to remain in
compliance through the remaining term of the credit facility. However, we
cannot provide assurances that we will be able to maintain compliance with the
covenants in our credit facility, Moreover, if we fail to maintain
compliance with such covenants we cannot provide assurances that we will
continue to receive waivers of any non-compliance. If we are unable to
comply with the financial or other covenants of our credit facility, and we
could not obtain waivers of such non-compliance, we will likely be unable to
borrow additional amounts under the facility and amounts owed under the
facility could be accelerated and become due and payable immediately, which
would materially impact our liquidity and financial conditions and could
require us to cease operations or seek protection under state or federal
insolvency or bankruptcy laws.
|
|
Our
business is subject to a number of operating risks that are difficult to
predict and manage.
|
Our
quarry and manufacturing operations are subject to numerous risks and hazards
inherent in those industries, including among others, unanticipated surface
or underground conditions, varying saleable granite recovery rates due to
natural cracks and other imperfections in granite deposits, equipment
failures, accidents and worker injuries, labor issues, weather conditions and
events, unanticipated transportation costs and price fluctuations. These
risks and hazards are generally not predictable. As a result, actual costs
and expenditures, production quantities and delivery dates, as well as
revenues, may differ materially from those anticipated, which could adversely
affect our operating results. During 2009, we experienced production recovery
problems in our Bethel White, Gardenia White and American Black quarries,
which negatively affected results of operations in 2009. These production
recovery issues may persist in 2010, and we cannot assure you that our
substantial continuing efforts to improve production recovery will improve
our quarry segment results for 2010.
|
|
Changes
in the securities laws and regulations have increased, and are likely to
continue to increase, our costs, and may also adversely affect our ability to
attract and retain qualified directors.
|
The
Sarbanes-Oxley Act has required changes in some of our corporate governance,
securities disclosure and compliance practices. Pursuant to the requirements
of that Act, the SEC and the Nasdaq Stock Market have promulgated rules and
listing standards covering a variety of subjects. Compliance with these new
rules and listing standards has increased our legal costs, and significantly
increased our accounting and auditing costs, and we expect these costs to
continue to increase, and to materially impact our financial results. In
particular, we have incurred and will continue to incur substantial expense
in the on-going evaluation and testing of our internal control over financial
reporting as we comply with Section 404 of the Sarbanes-Oxley Act. These
changes in securities laws and regulations may make it more difficult and
more expensive for us to obtain directors' and officers' liability
insurance. Likewise, these developments may make it more difficult for us to
attract and retain qualified members of our board of directors, particularly
independent directors, or qualified executive officers.
|
|
The
pension funding requirements may adversely affect our cash flow.
|
Compliance
with pension funding requirements could adversely affect our cash flow. We
have a qualified defined benefit pension plan which covers eligible employees
as of March 31, 2009. On January 5, 2009, the Company's Board of Directors
approved actions to proceed with amendments to its defined benefit pension
plan by freezing membership and future benefits in the plan. This action was
effective as of March 31, 2009. At December 31, 2009, this plan is
underfunded by $4.8 million,
which means that promised pension benefits could potentially exceed the funds
available. In August 2006, the Pension Protection Act (the
"Act") was signed into law in the U.S. Among other things, the Act is aimed at strengthening pension plans by requiring
most pension plans to become fully funded over a seven-year period. The
Worker, Retiree and Employer Recovery Act of 2008 has provided modest relief
from the market events in 2008 by decreasing short term contribution
requirements. However, without an increase in the
value of the plan assets we could be required to fund the plan with
significant amounts of cash. Additionally, if we are unable to meet the
funding targets imposed by the Act, we may incur significant penalties. See
Item 7 of this report,
Management Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources.
|
|
If we are unable to
maintain our relationships with independent retailers, our sales may not grow
and could decline.
|
We have historically sold
our granite memorials to consumers through independent retailers. We are
dependent in part on our independent retailers for the successful
distribution of our products to the ultimate customer. We have no control
over the independent retailers' operations, including such matters as retail
price, advertising and marketing. We cannot assure you we will be able
to maintain our existing relationships or establish new relationships with
independent retailers. Disruption in our relationships with independent
retailers could impede our sales growth or cause sales to decline, which
would adversely affect our business and financial results.
|
|
Declining general
economic, business, or industry conditions may cause reduced revenues and
profitability.
|
Recently, concerns over
inflation, energy costs, geopolitical issues, the availability and cost of
credit, the U.S. mortgage market and a declining real estate market in the U.S. have contributed to increased volatility and diminished expectations for the global
economy and expectations of slower global economic growth going forward.
These factors, combined with volatile oil prices, declining business and
consumer confidence and increased unemployment, have precipitated a global
recession. If the economic climate in the U.S. or abroad does not improve
from its current condition or continues to deteriorate, our customers or
potential customers could reduce or delay their purchases of our products,
which would adversely impact both our quarrying and manufacturing business
segments.
|
|
Our international
operations may expose us to a number of risks related to conducting business
in foreign countries.
|
|
We derived approximately 40%
of total revenues in fiscal 2009 from sales to customers outside the United States, including approximately 23% from sales in Canada by our Canadian subsidiary and 16%
from sales in China. Foreign sales are subject to numerous risks, including
currency conversion risks, limitations (including taxes) on the repatriation
of earnings, slower and more difficult accounts receivable collection and
greater complication and expense in complying with foreign laws. Our sales of
granite blocks to foreign countries are primarily for building use and are
subject to various cyclical factors in foreign countries, foreign exchange
rate fluctuations, policies of foreign governments and numerous other factors
over which we have no control. While we continue to develop sales to
customers in other countries, we cannot assure you that sales of granite
blocks to our Chinese and other foreign customers will remain at historic
levels.
|
|
Employee strikes and
other labor-related disruptions may adversely affect our operations.
|
|
Our business is labor
intensive, and our workforce includes, among other employees, highly skilled
quarrying and manufacturing personnel such as stone cutters, sand blasters,
sculptors and other skilled artisans. Approximately 60% of our workforce is
unionized. Strikes or labor disputes with our unionized employees may
adversely affect our ability to conduct our business.
|
|
If we lose key
personnel, or are unable to attract and retain additional qualified
personnel, our business could suffer.
|
Our operations and the
implementation of our strategies to enhance overall Company profitability are
management intensive. We are substantially dependent upon the abilities and
continued efforts of our senior management. Our business is also dependent on
our ability to continue to attract and retain a highly skilled quarry and
manufacturing workforce, including stone cutters, sand blasters, sculptors
and other skilled artisans. The loss of the services of our senior management
or other highly skilled personnel could adversely affect our business and
operating results.
|
|
We face intense
competition and, if we are unable to compete successfully, we may be unable to
increase our sales, which would adversely affect our business and
profitability.
|
The dimension stone
industry is highly competitive. We compete with other dimension stone
quarriers, including quarriers of granite, marble, limestone, travertine and
other natural stones. We also compete with manufacturers of so-called
"engineered stone" as well as manufacturers of other building
materials like concrete, aluminum, glass, wood and other materials. We
compete with providers of these materials on the basis of price, availability
of supply, end-user preference for certain colors, patterns or textures, and
other factors.
|
|
The granite memorial
industry is also highly competitive. We compete with other granite quarriers
and manufacturers in the sale of granite blocks for memorial use on the basis
of price, color, quality, geographic proximity, service, design availability,
production capability, and delivery options. All of our colors of
granite are subject to competition from memorial grade granite blocks of
similar color supplied by quarriers located throughout the world. There are
approximately 130 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.
|
|
Our quarrying and
manufacturing competitors include both domestic and international companies,
some of which may have greater financial, technical, manufacturing, marketing
and other resources. Foreign competitors may have access to lower cost labor
and better commercial deposits of granite, and may be subject to less
restrictive regulatory requirements.
|
|
We cannot assure you
domestic or foreign competition will not adversely impact our business.
|
|
The increasing trend toward
cremation, and potential declines in memorialization for other reasons, may
result in decreased sales of our products.
|
There is an increasing
trend toward cremation in the United States. The latest statistics from the
Cremation Association of North America, or CANA, indicate cremation was used
in approximately 37% of the deaths in the United States in 2009, compared to
approximately 29% in 2003. To the extent increases in cremation rates result
in decreases in memorialization rates, this decrease will result in a decline
in our memorial sales, which will adversely affect our business and results
of operations.
|
Our business is also
subject to the risk that memorialization rates may decline over time for
other reasons. Certain cemeteries have in the past and may in the future
limit the use of granite memorials as a memorialization option. To the extent
general memorialization rates or the willingness of cemeteries to accept
granite memorials declines, this decline could adversely affect our business.
|
|
Sales of our products
are seasonal and may cause our quarterly operating results to fluctuate.
|
Historically, our
operations have experienced certain seasonal patterns. Generally, our net
sales are highest in the second or third quarter and lowest in the first
quarter of each year due primarily to weather. Cemeteries in northern regions
generally do not accept granite memorials during winter months when the
ground is frozen because they cannot be properly set. We typically close our Vermont and Canadian quarries from January to late March because of increased operating
costs attributable to weather conditions. We have historically incurred an
aggregate net loss during the first three months of each calendar year. Our
operating results may vary materially from quarter to quarter due to, among
other things, changes in product mix, shipping conditions and limitations on
the timing of price increases, making quarterly year-to-year comparisons less
meaningful.
|
|
Our competitive position
could be harmed if we are unable to protect our intellectual property rights.
|
We believe our tradenames,
trademarks, brands, designs and other intellectual property are of great
value, and we rely on trademark, copyright and other proprietary rights laws
to protect our rights to this valuable intellectual property. Third parties
may, in the future, try to challenge our ownership of our intellectual
property. In addition, our business is subject to the risk of third parties
counterfeiting our products or infringing on our intellectual property
rights. We may need to resort to litigation in the future to protect our
intellectual property rights, which could result in substantial costs and
diversion of resources. Our failure to protect our intellectual property
rights, most notably the Rock of Ages trademark, could have a serious adverse
effect on our business and competitive position.
|
|
Sales of our ancillary
products are cyclical, which may adversely affect our operating
results.
|
The markets for our
industrial precision products, which include machine base and surface plates
that are utilized in the automotive, aeronautic, computer, machine tool,
optical, precision grinding and inspection industries, and granite press
rolls used in the manufacture of paper, are subject to substantial cyclical
variations. Sales of these products are subject to decline as a result of
general economic downturns, or as a result of uncertainties regarding current
and future economic conditions that generally affect such industries. We cannot
assure you changes in the industries to which we sell our precision products
will not adversely affect our operating results.
|
|
Existing stockholders
are able to exercise significant control over us.
|
Kurt M. Swenson and his
brother, Kevin C. Swenson, collectively have 66% of the total voting power of
all outstanding shares of our common stock, and will therefore be in a
position to control the outcome of most corporate actions requiring
stockholder approval, including the election of directors and the approval of
transactions involving a change in control of the Company.
|
|
Our common stock is
thinly traded; therefore, our stock price may fluctuate more than the stock
market as a whole.
|
Although our shares are
traded on the Nasdaq Stock Market, our stock is thinly traded. As a result,
its market price may fluctuate significantly more than the stock market as a
whole or the stock prices of similar companies. Without a larger float, our
common stock will be less liquid than the stock of companies with broader
public ownership, and as a result, the trading prices for our common stock
may be more volatile. Among other things, trading of a relatively small
volume of common stock may have a greater impact on the trading price than
would be the case if the public float were larger.
|
|
We may incur substantial
costs to comply with government regulations.
|
Our quarry and
manufacturing operations are subject to substantial regulation under federal,
state and foreign governmental statutes and by federal, state and foreign
governmental agencies, including the federal Occupational Safety and Health
Act, the Mine Safety and Health Administration and similar state and Canadian
authorities. Our operations are also subject to extensive laws and
regulations administered by the United States Environmental Protection Agency
and similar state and Canadian authorities, for the protection of the
environment, including but not limited to those relating to air and water
quality, and solid and hazardous waste handling and disposal. These laws and
regulations may require parties to fund remedial action or to pay damages
regardless of fault. Environmental laws and regulations may also impose
liability with respect to divested or terminated operations even if the
operations were divested or terminated many years ago. In addition, current
and future environmental or occupational health and safety laws, regulations
or regulatory interpretations may require significant expenditures for
compliance, which could require us to modify or curtail our operations. We
cannot predict the effect of such laws, regulations or regulatory
interpretations on our business, financial condition or results of
operations. Any material non-compliance could adversely affect our business
and results of operations.
|
Provisions of our
corporate organizational documents could delay or prevent a change in control
of the Company, even if it would be beneficial to our stockholders.
Certain provisions
contained in our Articles of Incorporation and By-laws:
-
grant ten votes per share
to each share of Class B Common Stock;
-
divide the Board of
Directors into three classes, each of which will have a different
three-year term;
-
provide that stockholders
may remove directors from office only for cause and by a supermajority
vote;
-
provide that special
meetings of the stockholders may be called only by the Board of
Directors or certain Company officers and not by stockholders;
-
establish certain advance
notice procedures for nomination of candidates for election as directors
and for stockholder proposals to be considered at annual stockholders'
meetings;
-
authorize the issuance of
preferred stock. Accordingly, the Board of Directors is empowered,
without stockholder approval, to issue preferred stock with dividend, liquidation,
conversion, voting or other rights that could materially adversely
affect the voting power or other rights of, or be dilutive to, the
holders of our Common Stock.
Certain of these provisions
may have the effect of discouraging, delaying or preventing a change in
control or unsolicited acquisition proposals a stockholder may consider
favorable.
ITEM 1B.
|
UNRESOLVED STAFF COMMENTS
|
Not applicable.
|
|
|
ITEM 2.
|
PROPERTIES
|
|
Rock of Ages owns the
following quarry and manufacturing properties:
|
|
|
PROPERTY
|
FUNCTION
|
|
|
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
|
|
Rock
of Ages Manufacturing Plant
|
Manufacturing of memorials
and precision products
|
Press
Roll and Saw Plant
|
Manufacturing of granite
press rolls and slabbing of granite blocks
|
Bethel
|
|
Quarry
Property
|
|
Bethel Quarry
|
Quarrying of dimensional
Bethel White granite blocks
|
|
|
CANADA
|
|
Stanstead
, Quebec
|
|
Quarry
Property
|
|
Stanstead
Quarry
|
Quarrying of dimensional
Stanstead Gray granite blocks
|
Stanstead Quarry #
2
|
Quarrying of dimensional
Stanstead Gray granite blocks
|
Manufacturing Properties
|
|
Rock
of Ages Manufacturing Plant
|
Manufacturing of memorials
|
Adru
Manufacturing Plant
|
Manufacturing of memorials
|
|
|
Guenette
, Quebec
|
|
Quarry
Property
|
|
Laurentian
Quarry
|
Quarrying of dimensional
Laurentian Pink granite blocks
|
|
|
PENNSYLVANIA
|
|
St. Peters
|
|
Quarry
Property
|
|
American
Black Quarry
|
Quarrying of dimensional
American Black granite blocks
|
Manufacturing
Property
|
|
Saw
Plant
|
Slabbing
of granite blocks
|
|
|
NORTH CAROLINA
|
|
Salisbury
|
|
Quarry
Property
|
|
Salisbury Pink Quarry
|
Quarrying of dimensional
Salisbury Pink granite blocks
|
Rockwell
|
|
Quarry
Properties
|
|
Gardenia
White Quarry
|
Quarrying of dimensional
Gardenia White granite blocks
|
In
addition, until January 17, 2008 Rock of Ages owned or operated approximately
80 retail sales outlets and 4 associated sand blasting facilities in the
states of Iowa, Illinois, Indiana, Minnesota, Connecticut, Massachusetts,
Rhode Island, Nebraska, Pennsylvania, Ohio, South Dakota, Kentucky,
Tennessee, Vermont, West Virginia and Wisconsin. On January 17, 2008, we sold
all of our retail operations to PKDM Holdings, Inc. and exited the retail
business entirely
|
|
|
The
following table sets forth certain information relating to our principal
quarry properties. Each of the quarries listed below: (i) is an open-pit
quarry; (ii) contains granite suitable for extraction as dimension granite
for memorial or other use; (iii) is serviced by electricity provided by local
utility companies; and (iv) has adequate and modern extraction and other
equipment. We presently have no exploration plans. We own each of the
quarries listed below. In the Rockwell quarry, we own part of the land
comprising the quarry and we also lease an additional 14 acres on which we conduct
quarry operations with 6 years remaining on the lease. We also own the
Laurentian Pink quarry in Guenette, Quebec, which produces dark pink memorial
grade granite. We also have the worldwide distribution rights to the Galactic
Blue quarry in Zhytomyr, Ukraine. The Galactic Blue quarry is under
development and currently produces granite in small commercial quantities. We
do not expect the quarry to achieve significant commercial production
quantities in 2010. We do not consider the Laurentian Pink or Galactic Blue
properties to be currently significant or material to our business.
|
|
|
|
|
|
|
|
|
|
|
QUARRY
|
APPROXIMATE
DATE OF
COMMENCEMENT
OF OPERATIONS
|
PRIOR OWNER
(DATE ACQUIRED)
|
MEANS
OF
ACCESS
|
ORIGINAL COST
OF EACH
PROPERTY
|
ESTIMATED
NET SALEABLE
RECOVERABLE
RESERVES (1)
(CUBIC FEET)
|
ESTIMATED NET
SALEABLE
RECOVERABLE
RESERVES
YEARS (2)
|
|
E.L
. Smith
|
1880
|
E.L
. Smith Quarry Co. (1948)
|
Paved road
|
$7,562,676
|
2,459,534,000
|
4,916
|
|
|
|
|
|
|
|
Adam-Pirie
|
1880
|
J.K
. Pirie Quarry (1955)
|
Paved road
|
$4,211,363
|
984,886,000
|
6,557
|
|
|
|
|
|
|
|
Bethel
|
1900
|
Woodbury Granite Company,
Inc. (1957)
|
Dirt road
|
$
174,024
|
76,529,000
|
271
|
|
|
|
|
|
|
|
Stanstead
|
1920
|
Brodies
Limited and
Stanstead Granite Company (1960)
|
Paved road
|
$
505,453
|
32,563,000
|
155
|
|
|
|
|
|
|
|
Stanstead
# 2
|
1967
|
Carrieres
Polycor, Inc.,
(2009)
|
Dirt Road
|
$1,000,000
|
7,110,000
|
100
|
|
|
|
|
|
|
|
American Black
|
1973
|
Pennsylvania Granite Inc.
(1997)
|
Paved road
|
$2,900,000
|
14,615,000
|
137
|
|
|
|
|
|
|
|
Salisbury
|
1918
|
Pennsylvania Granite Inc.
(1997)
|
Paved road
|
$3,886,592
|
19,344,000
|
100
|
|
|
|
|
|
|
|
Gardenia White*
|
1995
|
J. Greg Faith, Thomas E.
Ebans, Sr.
David S. Hooker, William L. Comolli (1998)
|
Dirt road
|
$4,633,000
|
2,602,000
|
16
|
|
|
|
|
|
|
|
Rockwell White*
|
1993
|
Rockwell Granite Company
(2005)
|
Dirt road
|
$1,930,000
|
5,950,000
|
78
|
|
* The Gardenia White and
Rockwell White quarries are side by side, produce the same type of granite
and are being joined together. For operating purposes we report all granite
extracted and sold from the properties as Gardenia White.
|
|
|
(1)
|
Net saleable recoverable 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 in 1993; and for the Gardenia White quarry, which
are based on an independent assessment by Geomapping Associates in 1997. The
Rockwell White reserves are based on information contained in a report dated
September 1993 by a geologist employed by The Marlin Group. It is impossible
to know the exact percentage of recoverable reserves and a certain amount of
material will not be saleable as a result of natural cracks, seams, color
variations, or other natural defects in the quarry that are not discoverable
through random core drilling samples. Reductions in recovery rates of
saleable stone can dramatically increase the cost of the saleable stone making
the quarry not commercially viable. Accordingly, these quantities are purely
estimates based on observable surface area size times commercially feasible
depths for quarrying granite, adjusted for historic recovery rates. Thus, the
actual quantities and years of net saleable reserves could vary materially
from the estimates set forth in the table.
|
|
|
(2)
|
See Note 1 above. Based on internal Company
estimates using historical and current production levels.
|
|
|
The
estimates of saleable reserves 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 our quarries
are located are large and extend well beyond existing working quarry
perimeters. We have historically expanded quarry perimeters or opened other
quarries in the deposit as necessary to utilize reserves and we believe we
have adequate acreage for expansions as and when necessary. Currently, we
have no reason to believe we will deplete our granite reserves more quickly
than is shown in the table, assuming recovery rates and demand remain at
current levels.
|
|
Dimension granite is not
considered a valuable mineral or commodity such as gold, nor is it traded on
any commodities exchange. The prices we charge to third parties for granite
blocks depend on characteristics such as color of and costs to quarry each
granite block, as well as market conditions. The price per cubic foot we
currently charge for our granite blocks is generally comparable to other
granite suppliers and typically does not exceed $45.
|
|
ITEM 3.
|
LEGAL
PROCEEDINGS
|
|
We are a party to legal
proceedings that arise from time to time in the ordinary course of our
business. While the outcome of these proceedings cannot be predicted with
certainty, we do not expect these matters to have a material adverse effect
on our business or financial condition.
|
|
We carry insurance with
coverage we believe to be customary in our industry. Although there can be no
assurance that such insurance will be sufficient to protect us against all
contingencies, we believe our insurance protection is reasonable in view of
the nature and scope of our operations.
|
|
The U.S. Mine Safety and
Health Administration (MSHA) issued citations in 2009 to one of our
subsidiaries, Pennsylvania Granite, asserting various violations and assessed fines
totaling approximately $280,000. The Company disagrees with the validity of these violations
and how they are characterized. We are appealing these citations. Based on
experience of our legal counsel in settling similar assessments and available
historical MSHA settlement data we estimate our final exposure will be no
greater than $125,000.
|
|
|
ITEM 4.
|
SUBMISSION OF MATTERS
TO A VOTE OF SECURITY HOLDERS
|
|
A special meeting of the
Stockholders of Rock of Ages Corporation (the "Special Meeting") was held on
Thursday, October 15, 2009 at 10:30 a.m., local time, for the purpose of
considering and voting upon the proposal to reincorporate the Company from
the State of Delaware to the State of Vermont (the "Reincorporation
Proposal"). The Reincorporation Proposal was approved by the stockholders at
the Special Meeting, and the Reincorporation was effective as of December 8,
2009.
|
|
A full description of the
Reincorporation Proposal is contained in our proxy statement for the Special
Meeting dated September 17, 2009 and filed with the Commission on September
17, 2009.
Our Class A Common Stock is
entitled to one vote per share and our Class B Common Stock is entitled to
ten votes per share. At the Special Meeting an aggregate of 2,625,511 shares
of Class A Common Stock and an aggregate of Class B Common Stock, totaling
26,012,631 votes, were represented at said meeting. With respect to the
Special Meeting and the Reincorporation Proposal, the results were tabulated
by the Judge of Elections as follows:
TOTAL: 26,012,631
FOR:
25,875,193
AGAINST: 114,079
ABSTAIN: 23,359
|
|
|
|
PART II
|
ITEM 5.
|
MARKET FOR THE
REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
|
|
|
Our Class A Common Stock is
traded on the Nasdaq Global Market under the symbol "ROAC." There
is currently no established public trading market for the Class B Common
Stock, however, the Class B Common Stock is convertible at any time into
shares of Class A Common Stock. The table below sets forth the range of high
and low per share sales prices for the Class A Common Stock as reported on
the Nasdaq Global Market for the periods indicated.
|
|
|
2009
|
|
HIGH
|
LOW
|
|
|
|
First
Quarter...............................................................................................................................
|
$2.48
|
$1.49
|
Second
Quarter.........................................................................................................................
|
2.48
|
1.68
|
Third
Quarter..............................................................................................................................
|
3.88
|
1.85
|
Fourth
Quarter............................................................................................................................
|
3.66
|
2.65
|
|
|
|
2008
|
|
HIGH
|
LOW
|
|
|
|
First
Quarter...............................................................................................................................
|
$5.45
|
$3.98
|
Second Quarter.........................................................................................................................
|
4.33
|
3.27
|
Third
Quarter..............................................................................................................................
|
3.36
|
1.85
|
Fourth
Quarter............................................................................................................................
|
3.39
|
1.29
|
|
|
|
|
|
|
As of February 24, 2010,
based upon information provided by our transfer agent, there were 202 record
holders of Class A Common Stock and 26 record holders of Class B Common
Stock, which numbers do not include stockholders who beneficially own shares
held in street name by brokers.
|
|
|
Holders of the Common Stock
are entitled to receive such dividends as may be legally declared by the
Board of Directors and, in the event of dissolution and liquidation, to
receive the net assets of Rock of Ages remaining after payment of all
liabilities, in proportion to their respective holdings. No dividends were
paid in 2009 or 2008. In October 2007, we renewed our credit facility with
our lenders, which, in relevant part, prohibits the Company from paying
dividends without their prior consent.
|
|
|
RECENT SALES OF
UNREGISTERED SECURITIES
|
|
We made no sales of
unregistered securities during fiscal 2009.
|
|
ISSUER PURCHASES OF
EQUITY SECURITIES
|
|
Neither we nor our
affiliates made any purchases of the Company's equity securities during
fiscal 2009.
|
|
|
ITEM 6.
|
SELECTED FINANCIAL DATA
|
Not required for smaller
reporting companies.
|
|
|
ITEM 7.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
The following discussion
should be read in conjunction with the Consolidated Financial Statements,
including the related Notes, contained elsewhere in this documen
t.
|
|
General
|
Rock of Ages is an
integrated quarrier and manufacturer of granite and products manufactured
from granite. Until January 17, 2008, we were also engaged in the retail sale
of memorials. On January 17, 2008, we sold all of our retail operations and
exited the retail business entirely. Accordingly, during 2009, we had two
business segments: quarry and manufacturing. The quarry division sells
granite blocks to the manufacturing division and to outside manufacturers, as
well as to customers outside North America. The manufacturing division's
principal product is granite memorials and mausoleums used primarily in
cemeteries, although it also manufactures some specialized granite products
for industrial applications. The retail division primarily sold granite
memorials directly to consumers.
|
|
In 2009, revenue from our
quarry division was $22 million, down 24% from $29 million in 2008, however
divisional operating income increased to $2.8 million compared to $1.2
million in 2008. The increase in divisional operating income is solely due
to the effect of the $3.9 million inventory write-down taken in the fourth
quarter of 2008 in our export quarries of Bethel, Salisbury and Gardenia.
Excluding the effect of the inventory write-down, quarry divisional income in
2008 would have been $5.1 million, and 2009 would have had a 45% decrease in
divisional income from the prior year.
|
|
During 2009, demand for our
granites in export markets continued to be strong but domestic demand for our
Barre Gray granite continued to decline slowly. Unfortunately, we experienced
production problems related to the quality of the granite deposits we are
currently working in our Bethel and Gardenia quarries, which had a negative
impact on the Quarry Division's 2009 results on both net revenue and gross
profit. The shortage of saleable blocks in these quarries also negatively
impacted sales of our Salisbury Pink granite. We are continuing to work
through the granite deposits and are engaged in additional quarry development
work in each of those quarries to increase the amount of saleable blocks from
each quarry. The following is a brief analysis of each of the individual
quarries.
-
The Barre Gray quarry saw
a decline in sales of 14% or $1.3 million. This granite is mainly used
for memorials and this percentage decrease is commensurate with the
decrease in manufacturing sales. We believe much of the decrease in
sales is due to the poor economy. However we also believe that imported
granites, which generally are less expensive, are likely being
substituted in the lower end of the memorials market and the color
choices among granites in the memorial markets has reduced the share of
gray granite as a percentage of the market.
-
The Bethel quarry had a
very difficult year. We experienced production problems in the third
quarter of the year, which persisted through the end of the 4
th
quarter of 2009. Due to the lack of enough saleable blocks, sales
suffered greatly. Net sales in this quarry decreased 46% from 2008
levels. However, due to many cost-cutting measures, the gross profit
margin was comparable with 2008 levels (excluding the 2008 inventory
write-down). We continue to work at developing new areas of the quarry
to ensure that future production will satisfy customer demand. Bethel
White is very popular for building purposes and demand for this granite
is still strong with our international customers.
-
The Salisbury Pink quarry
in North Carolina experienced an 18% decline in net sales but maintained
the same gross profit margin percentage (excluding the 2008 inventory
write-down). We believe the demand for this stone is linked closely to
the availability not only of this stone but all of our export blocks,
especially Bethel and Gardenia White since our customer's inspectors
generally visit all of our quarries in one visit. Accordingly, we
believe the lack of available stone in those quarries contributed to the
decrease in sales in Salisbury. This granite is also mainly used for
building purposes and demand remains strong with our international
customers.
-
Our Gardenia and Rockwell
White quarries had a difficult year. During the normal production
process in 2009 we spent a considerable amount of time and money to
convert this quarry from a deep-hole quarry to a drive-in quarry. In the
long term this step will lead to increased quantities of saleable
granite blocks produced annually and reduced costs of extraction, but in
the short-term it resulted in reduced production and higher costs. We
didn't have enough saleable stone to meet demand in 2009 and sales were
down 25%, but we believe the quarry is in good position to increase
production in 2010 and the demand for this stone remains very strong.
-
The American Black quarry
net revenue was down 26% from 2008 because of poor recovery rates. This
is a difficult quarry to operate as it has the lowest recovery rate of
all our quarries. However, we can sell all the saleable blocks we
produce since the stone is very popular with our customers. This is a
full drive-in quarry and we continue to work on the production and recovery
issues.
-
Net sales from our
Canadian quarries increased by 5% over 2008 as a result of the purchase
of the Polycor Quarry in April 2009.
-
On June 30, 2009, the
Company agreed to sell its one-third ownership interest in VIKA to the
remaining VIKA shareholder for $170,583 payable in four equal
installments of $42,646 due from July to October 2009. All payments were
collected by the end of the year. In conjunction with this sale, the
Company entered into an exclusive distribution agreement with VIKA
pursuant to which the Company has the exclusive worldwide right to sell
and distribute all quarried products of VIKA including slabs and other
finished products for a period of five years. Production is still poor
as VIKA continues to develop the quarry.
We
will continue to aggressively market our granite blocks in the U.S. and abroad
and make productivity improvements to control costs and recovery rates.
|
The manufacturing division's
2009 net revenue decreased 12% to $23.9 million compared to $27.2 million in
2008 as a result of sales decreases in memorials, mausoleums and precision
products. Gross margin decreased by 1% and SG&A decreased $450,000. The
entire division was significantly affected by the continued downturn in the
economy. However, our backlog at December 31, 2009 is up $300,000 from
year-end 2008. We will continue to pursue a strategy of focusing on the
mausoleum and large features market where our product is superior and margins
are generally higher, as well as increasing our efforts to expand our
wholesale distribution system to the cemetery, funeral home and traditional
memorial retailers to grow our traditional monument business.
|
|
Critical Accounting
Policies
|
|
General
|
|
Management's Discussion and
Analysis of Financial Condition and Results of Operations is based upon our
Consolidated Financial Statements, which have been prepared in accordance
with accounting principles generally accepted in the United States of America
(U.S. GAAP). The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenue and expenses, and related disclosure of
contingent assets and liabilities. Management bases its estimates on
historical experience and on various other assumptions that are believed to
be reasonable under the circumstances. Management has discussed the
development, selection and disclosure of these estimates with the Audit
Committee and our independent auditor. Actual results may differ from these
estimates.
|
|
An accounting policy is
deemed to be critical if it requires an accounting estimate to be made based
on assumptions about matters that are highly uncertain at the time the
estimate is made, and if different estimates that reasonably could have been
used, or changes in the accounting estimates that are reasonably likely to
occur periodically, could materially impact the financial statements.
|
|
Our critical accounting
policies are as follows: revenue recognition, impairment of long-lived
assets and long-term investments, valuation of deferred tax assets,
accounting for pensions and other post-employment benefits and valuation of
inventory.
|
|
Revenue
Recognition
|
|
Quarry
Division
|
|
The granite we quarry is sold to
outside customers and used by our manufacturing group. Our quarry division
recognizes revenue from sales of granite blocks to outside customers when
persuasive evidence of an arrangement exists, delivery has occurred or the
services have been provided and accepted by the customer, fees are
determinable and collectibility is reasonably assured. We generally provide a 5% discount for domestic customers if payment
is made within 30 days of purchase, except in the case of December terms
described below. Sales to foreign customers are typically secured by a letter
of credit.
|
|
At our Barre, Vermont quarries, we allow
customers to purchase granite blocks and at their request we store the blocks
for them. Many of our customers do not have adequate storage space at their
facilities and want to ensure an adequate supply of blocks, especially when
the Barre quarries are closed from mid-December through March because of
weather. Our quarry division recognizes revenue in accordance with current
accounting literature regarding revenue recognition. Blocks are sold when:
the customer selects and identifies the block at the quarry site, requests
the block be stored and they have significant business reasons to do so. At
that time, the block is removed from our inventory, the customer's name is
printed on the block, and title and risk of loss pass to the buyer. The
customer is invoiced and normal payment terms apply, except in the case of
December terms described below. Granite blocks owned by customers remain on
our property for varying periods of time after title passes to the buyer. We
retain a delivery obligation using our trucks. However, we consider the
earnings process substantially complete because the cost of delivery service
is inconsequential (less than 3%) in relation to the price. Further, under
industry terms of trade, title passes and the payment obligation is
established when the block is identified at the quarry.
|
|
Each December, we offer
special payment terms to our Barre quarries' customers. As noted above, from
approximately mid-December to approximately March, our Barre quarries are
closed due to weather. During this time, manufacturing plants remain open and
many customers prefer to ensure they own blocks of a size and quality
selected by them prior to the quarries' closure. All blocks purchased in December
are invoiced on or about December 31 and, at that time, the blocks are
removed from inventory, the customer's name is printed on the blocks, and
title and risk of loss pass 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 Barre quarries are closed notwithstanding the
customer purchases a three-month supply in December and makes payments over
90 days. Customers need not use these special December terms and may buy from
inventory during the closure period on a first-come, first-served basis with
the normal 30-day payment terms.
|
Manufacturing Division
|
|
We record revenue 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 our facilities or set in the cemetery, if we are responsible for
the setting, which is when risk of ownership transfers, assuming the other
criteria for revenue recognition (persuasive evidence of an arrangement
exists and collectibility is reasonably assured) have been met.
|
|
Impairment of long-lived
assets
|
Our long-lived assets
consist primarily of property and equipment. Long-lived assets are reviewed
for impairment whenever events or changes in circumstances indicate the
carrying amount of such an asset may not be recoverable. Such events or
circumstances include, but are not limited to, a significant decrease in the
fair value of the underlying business or change in utilization of property
and equipment.
|
|
Recoverability of the un-depreciated
cost of property and equipment is measured by comparison of the carrying
amount to estimated future undiscounted net cash flows the assets are
expected to generate. Those cash flows include an estimated terminal value
based on a hypothetical sale at the end of the assets' depreciation period.
Estimating these cash flows and terminal values requires management to make
judgments about the growth in demand for our products, sustainability of
gross margins, and our ability to achieve economies of scale. If assets are
considered to be impaired, the impairment to be recognized is measured as the
amount by which the carrying amount of the long-lived asset exceeds its fair
value.
|
|
Valuation of deferred
tax assets
|
In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not some portion or all of the current and deferred tax assets
will not be realized. The ultimate realization of current and deferred tax
assets depends upon the generation of future taxable income during the periods
in which those temporary differences become deductible. Management considers
the scheduled reversal of deferred tax liabilities, projected future taxable
income and tax planning strategies in making this assessment. This assessment
is made each reporting period. At the end of the second quarter of 2005, we
adjusted our valuation allowance against the deferred tax assets to fully
reserve for the entire net U.S. deferred tax asset. At the end of each of
the subsequent periods we reached a similar conclusion, therefore we have
continued to fully reserve for the entire net U.S. deferred tax asset. We
will continue to assess the valuation allowance on a regular basis and may
reduce the valuation allowance when the Company has sufficient taxable income
from its U.S. operations in the future.
|
|
Accounting for pensions
and other post-employment benefits
|
We provide defined benefit pension and
other post-employment benefit plans for certain employees. Accounting for
these plans requires the use of actuarial assumptions including estimates on
the expected long-term rate of return on assets, discount rates and, to a
lesser extent, the rates of increase in compensation and health care costs
(due to the small number of individuals receiving this benefit). The expected
long-term rate of return has remained the same at 8% and reflects the average
long-term rate of earnings expected on the funds invested or to be invested
to provide for the benefits included in the projected benefit obligation. In
2009, we changed the discount rate used to determine our liability in the
pension plans to 5.9% from 6.3%, the rate used at December 31, 2008. In both
years this rate was determined based on a bond matching model which uses data
on individual high-quality corporate bonds and the timing and amount of the
future benefit payments in our plan to develop a weighted discount rate
specific to our plan. On January 5, 2009, the Company's Board of Directors
approved actions to proceed with amendments to its defined benefit pension
plan by freezing membership and future benefits in the plan. This action was
effective as of March 31, 2009. In order to make informed assumptions, we
rely on outside actuarial experts as well as public market data and general
economic information. Any changes in one or more of these assumptions may
materially affect certain amounts reported on our balance sheet. In
particular, a decrease in the expected long-term rate of return on plan
assets or a decrease in discount rate could result in an increase in our pension
liability and a charge to equity as well as increases in pension expenses
over time.
|
|
Inventory
|
Inventories are valued at
the lower of cost or market. Cost is determined using the specific annual
average cost method for the quarry segment and the specific cost method for
the manufacturing segment. Inventory is reviewed regularly for excess
inventory based on a forecast of product demand. Inventories that are in
excess of expected future demand are written down to their estimated value
based upon projected demand. Demand for our products can be forecasted based
on historical experience, current orders, age of the inventory and
discussions with customers. Although management makes every effort to ensure
the reasonableness of its forecasts of future product demand, any significant
unanticipated changes in demand could have an impact on the level of excess
material in our inventories and operating results could be affected
accordingly.
|
|
Results of Operations
|
The following table sets
forth certain historical statement of operations data as a percentage of net
revenues with the exception of quarry and manufacturing cost of goods sold,
gross profit and selling, general and administrative expenses, which are
shown as a percentage of their respective divisions' net revenues.
|
|
|
|
YEAR ENDED
DECEMBER 31,
|
STATEMENT OF OPERATIONS
DATA:
|
2009
|
|
2008
|
|
Net revenues:
|
|
|
|
|
Quarry
|
47.6%
|
|
51.3%
|
|
Manufacturing
|
52.4%
|
|
48.7%
|
|
Total
net revenues
|
100.0%
|
|
100.0%
|
|
|
|
|
|
|
Cost of goods sold:
|
|
|
|
|
Quarry
|
76.9%
|
|
74.4%
|
|
Quarry inventory
write-down
|
-
|
|
13.7%
|
|
Manufacturing
|
73.7%
|
|
72.5%
|
|
Total
cost of goods sold
|
75.2%
|
|
80.5%
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
Quarry
|
23.1%
|
|
11.9%
|
|
Manufacturing
|
26.3%
|
|
27.5%
|
|
Total
gross profit
|
24.8%
|
|
19.5%
|
|
|
|
|
|
|
Selling, general and
administrative expenses:
|
|
|
|
|
Quarry
|
10.3%
|
|
7.9%
|
|
Manufacturing
|
16.5%
|
|
16.1%
|
|
Corporate overhead
|
6.7%
|
|
6.5%
|
|
Impairment of long
lived asset
|
-
|
|
2.4%
|
|
Effect of pension curtailment
|
0.2%
|
|
-
|
|
Foreign exchange loss
|
0.3%
|
|
-
|
|
Other income, net
|
(0.9%
|
)
|
(0.8%
|
)
|
Total
SG&A expenses
|
19.9%
|
|
20.0%
|
|
|
|
|
|
|
Income (loss) from
continuing operations
|
4.9%
|
|
(0.5%
|
)
|
Interest expense
|
2.5%
|
|
2.4%
|
|
|
|
|
|
|
Income (loss) from
continuing operations before income taxes
|
2.4%
|
|
(2.9%
|
)
|
Provision for income taxes
|
0.6%
|
|
0.7%
|
|
Income (loss) from
continuing operations
|
1.8%
|
|
(3.6%
|
)
|
Discontinued operations
|
-
|
|
(0.3%
|
)
|
Net income (loss)
|
1.8%
|
|
(3.9%
|
)
|
|
|
|
|
|
|
Year Ended December
31, 2009 Compared To Year Ended December 31, 2008
|
|
On a consolidated basis for
all segments for the year ended December 31, 2009 compared to the year ended
December 31, 2008, revenue decreased 19%, gross profit decreased 24%
(excluding the 2008 inventory write-down of $3.9 million) and total selling,
general and administrative ("SG&A") expenses decreased 19% for
reasons discussed in detail in the segment analysis below.
|
|
Quarry Segment Analysis
|
|
Revenues in our quarry
operations for the year ended December 31, 2009 decreased 24% to $21.7
million, compared to $28.7 million in 2008. See the discussion in this Item 7
-
Management Discussion and Analysis of Financial Condition and
Results of Operations -
"General" for a detailed discussion of each
quarry.
|
|
Gross profit decreased 32%
or $2.3 million (excluding the 2008 inventory write-down of $3.9 million). The
decreased sales also drove our gross margin down 2.5 percentage points to
23.1%.
|
|
SG&A expenses in our
quarry segment for 2009 of $2.2 million were down slightly, by $24,000, from
2008.
|
|
Manufacturing Segment
Analysis
|
|
The manufacturing
division's 2009 net revenue decreased by 12% to $23.9 million compared to
$27.2 million in 2008. Mausoleum and memorial sales decreased by about $2
million and sales of industrial products decreased by $1.3 million in 2009
compared to 2008. These decreases are a direct result of the poor economy and
to a lesser extent the decrease in the average foreign exchange rate from
2008 to 2009. At December 31, 2009 the manufacturing backlog is $300,000
greater than at December 31, 2008 and customer deposits on mausoleums or
large civic monuments are $320,000 higher than the prior year.
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|
Gross profit dollars from
the manufacturing group decreased 16% or $1.2 million and gross profit as a
percentage of revenue decreased 1.2 percentage points for the year ended
December 31, 2009 compared to 2008. The decrease in gross profit margin is primarily
due to the decreased sales of higher margin mausoleums and industrial
products.
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|
SG&A expenses for the
manufacturing group were down $450,000 or 10% from the prior year primarily
as a result of decreased bad debt expense, commissions and incentive accruals
and partially due to the decrease in the foreign exchange rate.
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|
Consolidated Items
|
|
Unallocated corporate
overhead decreased 16%, or $594,000 from the prior year. The majority of this
decrease can be attributed to decreased salary and benefit costs, professional
service fees and office expenses due to decreased staff.
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|
Due to the consolidation of
our corporate headquarters in the manufacturing plant's existing offices in
2008, the Company had a change in the use of its corporate headquarters
building located at 772 Graniteville Road, which we concluded to be an event that
triggered an impairment analysis. We determined that the forecasted
undiscounted cash flows related to the building and land was less than its
carrying value. As a result, in 2008 we recorded an impairment charge of
$1,348,000 to reduce the carrying value of the building and land to its
estimated fair value. The estimated fair value was based on a discounted cash
flow analysis and included consultation with an outside professional real
estate appraiser. No assurance can be given that the underlying estimates
and assumptions utilized in our determination of an asset's new carrying value
will materialize as anticipated. As of April 4, 2009, management had made
the decision to sell this building and it has been classified as an asset
held for sale since then.
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|
Foreign exchange losses in
2009 were $131,000 compared to a gain in 2008 of $27,000 resulting from the
effect of the fluctuating value of the US dollar compared to the Canadian
dollar on transactions that are originated in US dollars in our Canadian
operations.
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Total interest expense was
approximately $1.2 million in 2009 as compared to $1.4 million in 2008. Total
interest expense decreased only $200,000 even though we've decreased debt $7.5
million during the year as a result of the increase in our borrowing rates instituted
by our lenders as of March 31, 2009.
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|
The income tax expense for
2009 was $280,000 compared with $395,000 for 2008. The tax expense in 2009 is
made up of taxes at our Canadian subsidiary plus the accrual of the 5%
Canadian withholding tax on a $4 million expected dividend plus the U.S. federal and state taxes on that dividend. Under the rules of the Housing Assistance
Tax Act of 2008, the Company has elected to forgo bonus depreciation and
claim accelerated AMT credit carryforward from tax years beginning before
2006. The Company elected for 2008 and 2009 to benefit from the monetization
of AMT credits and included in the 2009 US provision is $302,000 of tax
benefit. The tax expense in 2008 reflects taxes at our Canadian subsidiary.
|
|
We had a loss from the discontinued
retail operations of $142,000 in 2008. The 2008 loss is made up of $119,000
of operating losses and $23,000 of allocated interest.
|
|
Liquidity and Capital
Resources
|
|
In light of the current economic situation, we evaluated our
future liquidity needs, both from a short-term and long-term (i.e. more than
one year) basis. We believe cash on hand plus cash generated from operations
along with cash available under credit lines will be sufficient in 2010 to
service debt, finance capital expenditures, fund operations and fund the
pension plan. To provide for long-term liquidity, we believe we can generate
substantial positive cash flow, as well as obtain additional capital, if
necessary, from the use of subordinated debt or equity. In the event that our current capital resources are
not sufficient to fund requirements, we believe our access to additional
capital resources would be sufficient to meet our needs, although the
financing terms available could be significantly different than our current
terms.
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|
Historically, we have met
our short-term liquidity requirements primarily from cash generated by
operating activities and periodic borrowings under the commercial credit
facilities described below. Our credit facility with our Lenders was renewed
on October 27, 2007 for a term of five years.
|
In January 2008, we
received $7.6 million in net proceeds from the sale of the retail division.
We applied $4.5 million of these proceeds to the long-term debt and $3.1
million to the revolving credit facility. During 2009 we generated $10.5
million in cash from operations and applied $7.2 million to the revolving
credit facility and $261,000 to long-term debt.
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|
Due to the significant
worldwide decline that began in 2008 in equity prices and the value of other
financial investments, the fair value of the assets held by our defined
benefit pension plan decreased by $5.4 million in 2008. While the asset
values have recovered by approximately $3 million in 2009, the plan is still
under-funded by $4.8 million as of December 31, 2009. We have historically
contributed between $750,000 and $1.0 million per year to the plan. We
contributed $1.0 million for 2009 and expect to contribute approximately the
same amount in 2010. We will continue the process
of funding the unfunded liability which, we believe, we will be able
to fund either from cash from operations or borrowing under our credit
facilities. See Item 1A, Risk Factors and note 8 of the Notes to Consolidated
Financial Statements.
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|
Our primary need for
capital will be to maintain and improve our quarrying and manufacturing facilities.
We have approximately $2 million budgeted for capital expenditures in 2010.
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|
Cash Flow
|
|
At December 31, 2009, we had
cash and cash equivalents of approximately $1.7 million and working capital
of approximately $21 million, compared to approximately $888,000 million of
cash and cash equivalents and working capital of approximately $21 million at
December 31, 2008.
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|
Cash from Operations.
Net cash provided by operating activities was $10.5
million in 2009 compared to
$2.3 million in 2008. The $10.5 million is
made up mainly of net income of $802,000, depreciation of $2.5 million, a
decrease in accounts receivable of $6.2 million and a decrease in inventory
of $2.4 million offset by a decrease in payables and pension liabilities of
$1.5 million. The $2.2 million net loss in 2008 is adjusted by the non-cash
impairment charges of $5.3 million and depreciation of $2.4 million and
offset by a large increase in accounts receivable along with decreases in
accounts payable, customer deposits and pension liabilities.
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|
Cash from Investing
Activities.
Cash flows used in
investing activities were $2.5 million in 2009 compared to cash flows provided
by investing activities of $4.9 million in 2008. In 2009 our capital spending
was $1.7 million for property, plant and equipment (PP&E) and $1.1
million for a quarry in Stanstead, Quebec compared to $3.1 million for
PP&E in 2008. In 2009 proceeds from sales of PP&E totaled $462,000
compared to $473,000 in 2008. In 2008, proceeds from the sale of the retail division
totaled $7.7 million.
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|
Cash from Financing
Activities
. Financing activities
used $7.5 million in 2009 compared to $8.0 million in 2008. In 2009 our line
of credit was reduced by $7.2 million and $261,000 was paid on our long-term
debt. In 2008 our line of credit was reduced by $3.1 million and $5.0 million
was paid on our long-term debt.
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Credit Facility
|
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We have a credit facility
with the CIT Group/Business Credit and Chittenden Trust Company
("Lenders") that is scheduled to expire in October 2012 and is
secured by substantially all assets of the Company located in the United States. The facility consists of an acquisition term loan line of credit of up to
$30.0 million and a revolving credit facility of up to another $20.0 million
based on eligible accounts receivable, inventory and certain fixed assets.
Amounts outstanding were $214,446 and $13,885,960 as of December 31, 2009 and
$7,428,085 and $14,106,939 as of December 31, 2008, on the revolving credit
facility and the term loan line of credit, respectively. Unused availability
under the revolving credit facility was $10,745,414 as of December 31, 2009.
The term loan line of credit is available to pay for the acquisition of
quarries or manufacturers and items incidental to the acquisitions subject to
various restrictions. The weighted average interest rate was 5.3% and 4.7% on the revolving credit
facility in 2009 and 2008, respectively. The credit facility loan agreement
places restrictions on our ability to, among other things, sell assets,
participate in mergers, incur debt, pay dividends, make capital expenditures,
repurchase stock and make investments or guarantees, without pre-approval by
the Lenders. The credit facility agreement also contains certain covenants
for a Minimum Fixed Charge Coverage Ratio and a limit on the Total
Liabilities to Net Worth Ratio of the Company.
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|
Minimum Fixed Charge
Coverage Ratio
. The facility
requires the ratio of the sum of earnings before interest, taxes,
depreciation and amortization (EBITDA), to the sum of income taxes paid,
capital expenditures, interest and scheduled debt repayments be at least 1.10
for any trailing twelve-month period at the end of a quarter. As of December
31, 2009 we were in compliance with the Minimum Fixed Charge Coverage Ratio. Due
to the non-cash impairment charges on the write-down of inventory and the
corporate building in 2008 we were in violation of the covenant at December
31, 2008. We received a waiver of this covenant from the Lenders and amended
the agreement effective March 31, 2009. As a result of the amendment the
unused line fee went from .25% to .50% and the existing interest rate pricing
grid was changed as follows:
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Revolving Credit Facility
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Term Loan
|
|
|
|
Previous Rate Formula
|
Prime or Libor +2%
|
Prime + .25% or Libor +2.25%
|
Amended Rate Formula
|
Prime + 3% or Libor + 4%
|
Prime + 3.5% or Libor + 4.5%
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Total Liabilities to Net
Worth Ratio.
Our credit facility
also requires that the ratio of our total liabilities to net worth (the
"Leverage Ratio") not exceed 2.0. The Leverage Ratio excludes from
the calculation the change in tangible net worth directly resulting from the
Company's compliance with accounting rules regarding unfunded retirement
liabilities, up to $6.0 million. In relevant part, this rule required us to
place on our books certain unrecognized and unfunded retirement liabilities
as of December 31, 2006. As of December 31, 2009, we were in compliance with
the Leverage Ratio covenant.
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Interest Rates.
We can elect the interest rate structure under the
credit facility based on the prime rate or LIBOR for both the revolving
credit facility and the term loan with a LIBOR floor of 2.0%.
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The rates in effect as of
December 31, 2009 were as follows:
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|
|
Amount
Outstanding
|
|
Formula
|
|
Effective Rate
|
|
|
|
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|
|
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Revolving Credit Facility
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$
|
214,000
|
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Prime + 3.0%
|
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6.25%
|
Term Loan A
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13.9 million
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Prime + 3.5%
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6.75%
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Canadian Credit Facility
|
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The Company's Canadian
subsidiary has a line of credit agreement with the Royal Bank of Canada that is renewable annually in December. Under the terms of this agreement, a maximum
of $2.5 million CDN may be advanced based on eligible accounts receivable,
eligible inventory, and tangible fixed assets. The line of credit bears
interest at the Canadian prime rate plus 0.5%.
The Canadian subsidiary
also has a non-revolving term loan which cannot exceed $4,000,000 CDN bearing
interest at the Canadian prime rate plus 0.95%. Amortization of the loan is
based on 72 months but the interest rate is negotiated yearly. There was
nothing outstanding on either loan at December 31, 2009 or December 31, 2008.
However, in the first quarter of 2010, Rock of Ages Canada borrowed $4
million on their term loan and paid a dividend of $4 million to Rock of Ages
Corporation. The Company did this to take advantage of the historically high
exchange rates, the difference in interest rates under its credit facilities
with the Royal Bank of Canada and the CIT Group, and to take advantage of
current income tax deductions in Canada.
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Off-Balance Sheet
Arrangements
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With the exception of our
operating leases, we do not have any off-balance sheet arrangements, and we
do not have, nor do we engage in, transactions with any special purpose
entities.
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Seasonality
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Historically, the Company's
operations have experienced certain seasonal patterns. Generally, our net
sales have been highest in the second or 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 under those conditions.
In addition, we typically close certain of our Vermont and Canadian quarries
during these months because of increased operating costs attributable to
adverse weather conditions. As a result, we have historically incurred a net
loss during the first three months of each calendar year.
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Recent Accounting
Pronouncements
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In December 2008, the
FASB issued an amendment to the
Compensation
topic regarding employer's
disclosures about postretirement benefit plan assets. This guidance requires
more detailed disclosures about plan assets of a defined benefit pension or
other postretirement plan, including investment strategies; major categories
of plan assets; concentrations of risk within plan assets; inputs and
valuation techniques used to measure the fair value of plan assets; and the
effect of fair-value measurements using significant unobservable inputs on
changes in plan assets for the period. It is effective for fiscal years
ending after December 15, 2009, with earlier application permitted. The
adoption of this amended guidance did not have a material effect on our
financial position or results of operations but did result in expanded
financial statement disclosures (see note 8).
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In May 2009, the FASB
issued the
Subsequent Events
topic which establishes standards under
which an entity shall recognize and disclose events that occur after a
balance sheet date, but before the related financial statements are issued or
are available to be issued. The guidance is effective for fiscal years and
interim periods ending after June 15, 2009. The Company has evaluated and
disclosed subsequent events through the date of this filing. See note 18 for
a discussion of subsequent events.
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In January 2010, the FASB issued accounting guidance to enhance
fair value measurement disclosures by requiring the reporting entity to
disclose separately the amounts of significant transfers in and out of Level
1 and Level 2 fair value measurements and describe the reason for the
transfers. Furthermore, activity in Level 3 fair value measurements should
separately provide information about purchases, sales, issues and settlements
rather than providing that information as one net number. These new
disclosures are effective for interim and annual reporting periods beginning
after December 15, 2009, with the exception of the enhanced Level 3
disclosures, which are effective for interim and annual reporting periods
beginning after December 15, 2010. The Company does not expect that
application of this guidance will have a material impact on our financial position
or results of operations.
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ITEM 7A.
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QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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Not required for smaller
reporting companies.
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ITEM 8.
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FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
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The information required
for this item is included in this Annual Report on Form 10-K on Pages 43
through 72, inclusive, and is incorporated herein by reference.
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ITEM 9.
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CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
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None.
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ITEM 9A(T).
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CONTROLS AND
PROCEDURES
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Evaluation of Disclosure
Controls and Procedures
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The Company, with the
participation of our Chief Executive Officer and Chief Financial Officer, has
evaluated the effectiveness of our disclosure controls and procedures, as
such term is defined under Rules 13a-15(e) and 15d-15(e) promulgated
under the Securities Exchange Act of 1934, as amended, as of December 31,
2009. Based on this evaluation, our Chief Executive Officer and Chief
Financial Officer have determined, that such disclosure controls and procedures are effective to ensure that information required
to be disclosed in our filings under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms. Disclosure
controls and procedures include controls and procedures designed to reasonably ensure that such
information is accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure. Management has concluded that
the consolidated financial statements in this Form 10-K fairly present, in
all material respects, the Company's financial position, results of
operations and cash flows for the periods and dates presented.
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Management's Report on
Internal Control Over Financial Reporting.
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Management is responsible
for establishing and maintaining adequate internal control over financial
reporting (as defined in Rule 13a-15(f) under the Securities Exchange
Act of 1934, as amended). Management assessed the effectiveness of our
internal control over financial reporting as of December 31, 2009. In
making this assessment, management used the framework in "Internal
Control-Integrated Framework" issued by the Committee of Sponsoring
Organizations of the Treadway Commission ("COSO"). Based on these criteria,
management has concluded that, as of December 31, 2009, the Company's
internal control over financial reporting is effective.
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This annual report does not
include an attestation report of our independent registered public accounting
firm regarding internal control over financial reporting. Management's report
was not subject to attestation by our independent registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only management's report in this annual
report.
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Changes in Internal
Control over Financial Reporting
|
There have been no changes in
our internal controls over financial reporting that has occurred during our
fiscal quarter ended December 31, 2009 that has materially affected, or is
reasonably likely to materially affect our internal control over financial
reporting.
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ITEM 9B.
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OTHER INFORMATION
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As
previously disclosed in its current report on Form 8-K filed with the
Commission on February 22, 2010, at its regular meeting held on February 18, 2010,
our Board of Directors set the date for the Company's Annual Meeting of
Shareholders for Thursday, August 12, 2010 at 10:30 a.m., EDT. The meeting
will be held at our Visitors Center located at 560 Graniteville Road, Graniteville, Vermont. The Board set the record date for the Annual Meeting of
Stockholders for June 4, 2010. We decided to move the annual meeting about 60
days from the middle of June to August 12 so as to be able to publicly
discuss our results through June 30, 2010 with our shareholders at the
meeting.
Because
the Annual Meeting will be delayed by more than 30 calendar days from the
date of last year's Annual Meeting, the following revised dates apply to
shareholder proposals:
Under
the rules and regulations of the Securities and Exchange Commission,
proposals of shareholders intended to be presented in the Company's proxy
statement and forms of proxy for the Company's 2010 Annual Meeting of
Shareholders must be received by the Company at its principal executive
offices no later than March 1, 2010, and must otherwise satisfy the
conditions established by the Securities and Exchange Commission to be
considered for inclusion in the Company's proxy statement and proxy cards for
that meeting.
Under
our By-Laws, proposals of shareholders intended to be submitted for a formal
vote (other than proposals to be included in the Company's proxy statement
and forms of proxy) at the Company's 2010 Annual Meeting of Shareholders may
be made only by a shareholder of record who has given notice of the proposal
to the Secretary of the Company which is received at the Company's principal
executive offices not later than May 14, 2010. The notice must contain
certain information as specified in our By-Laws. Any such proposal received
after May 14, 2010 will not be considered "timely" under the
federal proxy rules for purposes of determining whether the proxies
designated by the Company for such meeting may use discretionary authority to
vote on such proposal.
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ITEM 10.
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DIRECTORS, EXECUTIVE
OFFICERS AND CORPORATE GOVERNANCE
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Certain information
concerning our directors and executive officers is set forth below. Our
executive officers serve for a term of one year (and until his or her
successor is duly elected and qualified) at the discretion of the Board of
Directors.
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Our Articles of
Incorporation provide that our Board of Directors shall be comprised of not
less than three and not more than fifteen members. Our Board of Directors is
currently comprised of seven directors.
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Our Articles further
provide that at the next annual shareholders' meeting, which has been set for
August 12, 2010 (the "2010 Annual Meeting"), the initial Board of Directors
will be divided into three classes (Classes I, II and III), each class
consisting, as nearly as possible, of one-third of the total number of
directors constituting the entire Board of Directors. At the 2010 Annual
Meeting, the Class I directors will stand for election for a term that
expires at the next annual shareholders meeting after such election; the
Class II directors will stand for election for a term that expires at the
second annual shareholders meeting after such election; and the Class III
directors will stand for election for a term that expires at the third annual
shareholders' meeting after such election. At each succeeding annual
shareholders' meeting, successors to the class of directors whose term
expires at that annual meeting will stand for election for three-year terms.
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Unless otherwise indicated,
none of the companies or organizations referred to below is a parent,
subsidiary or affiliate of the Company.
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|
NAMES OF DIRECTORS
AND EXECUTIVE OFFICERS
|
AGE
|
POSITIONS WITH THE
COMPANY
|
James L. Fox
|
58
|
Director
|
Paul H. Hutchins
|
54
|
Vice President/Administration
|
Richard C. Kimball
|
69
|
Director and Vice Chairman
|
Donald M. Labonte
|
48
|
Director, President and Chief
Executive Officer
|
Laura A. Plude
|
52
|
Vice President, Chief
Financial Officer, Treasurer and Assistant Secretary
|
Pamela G. Sheiffer
|
63
|
Director
|
Kurt M. Swenson
|
65
|
Chairman of the Board of
Directors
|
Charles M. Waite
|
77
|
Director
|
Frederick E. Webster Jr.
|
72
|
Director
|
|
|
|
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James L. Fox has been a
director of the Company since October 1997. Since January 2007, he has been
President and Chief Executive Officer, and from October 2005 to December 2006,
he was Executive Vice President and Chief Operating Officer of FundQuest,
Inc., a global provider of turnkey, open architecture wealth management
programs and services for financial institutions and advisors. From September
2003 to October 2005, he was Executive Vice President and Chief Financial
Officer of The BISYS Group, Inc. He was President of Fund Services Division
of The BISYS Group, Inc. from April 2003 to September 2003. From August 2001
to April 2003, he was President and Chief Executive Officer of govOne
Solutions, L.P., an electronic government payment service. From June 2000 to
August 2001, he was Vice President-Corporate Development and Chief Financial
Officer of Gomez, Inc., a research and consulting firm specializing in
Internet quality measurement. Prior to joining Gomez, Mr. Fox had been Vice
Chairman of PFPC Inc., a division of the PNC Financial Services Group, Inc.
from December 1999 to June 2000. Before joining PFPC, Inc., Mr. Fox had an
eleven year career with the Investor Services Group of First Data
Corporation, a provider of processing and mutual fund and retirement services
for mutual fund complexes, banks, insurance companies and advisory firms,
including serving as President and Chief Executive Officer (1999) and Chief
Operating Officer (1997-1999). Mr. Fox has also been a director of Pegasus
Solutions, Inc., a global provider of third-party marketing and reservation
services to the travel industry, since June 2006. Mr. Fox's current term as a
director of the Company expires at the Company's 2010 Annual Meeting.
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Mr. Fox brings extensive executive
management experience in both public and private companies, including
knowledge and experience in managing financial and accounting matters and
working with independent outside accounting firms in his capacity as Chief
Financial Officer and Chief Executive Officer in a number of large companies.
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|
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Richard C. Kimball has been
a director of the Company since 1986, and Vice Chairman since 1993. From 1993
to January 2001, he was Chief Operating Officer - Memorials Division of the
Company and from January 2001 to December 2004, he was Chief Strategic and
Marketing Officer. Prior to joining the Company, Mr. Kimball served as a
director, principal and President of The Bigelow Company, Inc., a strategic
planning and investment banking firm from 1972 until 1993. Mr. Kimball
retired as an employee of the Company on December 31, 2004 and served as a consultant to the Company during 2005 and 2006. He returned to The Bigelow
Company, Inc. in 2006, where he presently serves as a Senior Advisor. Mr.
Kimball's current term as a director expires at the Company's 2010 Annual
Meeting.
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Mr. Kimball has extensive
experience in investment banking and strategic consulting for many different
businesses and provides the Board with valuable expertise and insight in
evaluating the Company's strategic business development. He is also a former
executive officer of the Company and as such provides institutional and
industry knowledge.
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Paul H. Hutchins has been
Vice President/Administration of the Company since October 2004. From
September 1993 to October 2004, he was Manager of Administration. Mr.
Hutchins has held numerous other positions during his 27 year career at Rock
of Ages, including Director of Information Services (June 1989 - September
1993), Production Manager (Rock of Ages Canada, Inc., October 1987 - June
1989), Purchasing and Transportation Manager (June 1984 - October 1987) and
Staff Engineer (December 1981 - June 1984).
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|
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Donald
Labonte has been
a director of the Company since 2008. He has been President and Chief
Executive Officer since July 2008 and was Chief Operating Officer from
February 2008 to June 2008. He was President and Chief Operating Officer/Quarry
Division from December 2007 to February 2008, and President and Chief
Operating Officer/Manufacturing Division from August 2002 to February 2008.
Mr. Labonte has been President of Rock of Ages Canada, Inc., a wholly owned
subsidiary of the Company, since 1999. From January 2002 to July 2002, he was
Vice President of the Manufacturing Division of the Company. From 1998 to
1999, he was Vice President/General Manager of Rock of Ages Canada, Inc. From
1993 to 1998, Mr. Labonte was Director of Operations of Rock of Ages Canada,
Inc. From 1980 to 1993, Mr. Labonte held various positions in the
manufacturing plant at Rock of Ages Canada, Inc. Mr. Labonte's current term expires
at the Company's 2010 Annual Meeting.
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|
|
|
Mr. Labonte is one of the
most experienced, knowledgeable and effective executives in the granite
industry, and he provides unique and necessary perspective on the Company's
current operations and strategic focus, as well as extensive industry
knowledge.
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Laura
Plude has been Vice President and CFO of the Company since August 2007. She
served briefly as Vice President/Finance from July 2007 to August 2007. Ms.
Plude was Director of Finance of the Company from August 2004 to July 2007.
She was a staff accountant at the Company from August 1999 to August 2004.
Prior to joining the Company, Ms. Plude was a self-employed CPA.
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|
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Pamela G. Sheiffer has been
a director of the Company since June 2004. Since 1997, she has been President
of P. Joyce Associates, Inc., a consulting firm specializing in retail and
apparel sectors, and providing services to the investment community. Prior to
that, Ms. Sheiffer held various senior management positions in the retail and
apparel industry including Senior Vice President of May Department Stores. She
has been a director of New York & Company (NYSE: NWY), a specialty
retailer of fashion oriented, moderately priced women's apparel, since August
2006, and a Trustee of the American Management Association since June 2007.
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She is currently Vice Chairman of Learning Lenders, New York
City's largest educational nonprofit with over 12,000 volunteers in New York
City schools. Ms. Sheiffer's current term as a director expires at the Company's 2010
Annual Meeting.
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|
Ms. Sheiffer has extensive
executive management experience with companies engaged in the design and
retail sales of products (included branded products) marketed primarily to
women. Since the large majority of granite memorials sold in North America are purchased by women, Ms. Sheiffer brings a unique and helpful perspective
to the sales and marketing programs for our branded memorials.
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Kurt M. Swenson has been
Chairman of the Board of Directors of the Company since 1984. From 1984 to
June 30, 2008 he was President and Chief Executive Officer of the Company.
Prior to the Company's initial public offering in 1997, Mr. Swenson had been
the Chief Executive Officer and a director of Swenson Granite Company, Inc.
from 1974 to September of 1997. Mr. Swenson currently serves as non-executive
Chairman of the Board of Swenson Granite Company, LLC, a Delaware limited
liability company engaged in the granite curb and landscaping business.
Swenson Granite Company, LLC may be deemed an affiliate of the Company. He is
also a director of the National Building Granite Quarries Association, an
industry association of United States-based dimension granite quarriers. Mr.
Swenson's current term as a director expires at the Company's 2010 Annual
Meeting.
|
|
Mr. Swenson has over 36
years of experience in the granite industry. He provides extensive industry
knowledge and contacts, and as a former executive officer, also provides
institutional continuity and Company knowledge to the Board.
|
|
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 expires at the Company's 2010 Annual Meeting.
|
|
Mr. Waite brings a strong
sense of executive management and leadership to the Board. He is a graduate
of the Harvard Business School, and has extensive experience, as an executive
running business operations as well as a consultant to numerous companies
with both domestic and overseas operations.
|
|
|
Frederick E. Webster Jr.,
Ph.D. has been a director of the Company since October 1997. He was Professor
of Management at the Amos Tuck School of Business Administration of Dartmouth College from 1965 until 2002, and is now the Charles Henry Jones Professor of
Management Emeritus. He is also a management consultant and lecturer, and is
the Jon Underwood Distinguished Research Fellow in Marketing at the Eller
College of Management, University of Arizona. Mr. Webster's current term as a
director expires at the Company's 2010 Annual Meeting.
|
|
Mr. Webster is nationally
recognized as an expert in marketing. In addition to his academic
accomplishment, he has served as a consultant to a wide number of companies.
Mr. Webster brings to the Board expertise in marketing branded products,
managing channel conflicts, marketing through exclusive territories, pricing
policy and implementing customer-driven initiatives.
|
|
|
SECTION 16(A) BENEFICIAL
OWNERSHIP REPORTING COMPLIANCE
|
|
Section 16(a) of the
Exchange Act requires directors, certain officers and beneficial owners of
more than 10% of our Common Stock to file reports of initial beneficial
ownership and changes in beneficial ownership of our Class A Common Stock
with the Securities and Exchange Commission. Based solely upon a review of
reports filed pursuant to Section 16(a) of the Exchange Act and written
representations by directors and such officers, the Company believes that
during 2009 such persons made all required filings, except that Mr. Hutchins
and Mrs. Plude filed on a timely basis a Form 5 (Annual Statement of Changes
In Beneficial Ownership) reporting the grant on February 19, 2009 of 5,000
and 10,000 options, respectively, to purchase shares of Class A Common Stock.
The grants should have been reported on Form 4, but such reports were not
timely filed due to inadvertent clerical error.
|
|
AUDIT COMMITTEE
|
|
Rock of Ages has a
separately designated standing Audit Committee established in accordance with
Section 3(a)(58)(A) of the Exchange Act. The members of the Audit Committee
are James L. Fox (Chairman), Richard C. Kimball and Frederick E. Webster Jr.
The Board of Directors has determined that James L. Fox, Chairman of the
Audit Committee is an audit committee financial expert as defined by Item
407(d)(5) of Regulation S-K of the Exchange Act, and is independent under
Rule 10A-3(b)(1) under the Exchange Act and as independence is defined for
audit committee members in the listing standards of The Nasdaq Stock Market,
Inc.
|
|
|
BOARD LEADERSHIP
STRUCTURE AND ROLE IN RISK OVERSIGHT
|
With the streamlining of our management
structure after the sale of our retail division in 2007, and the retirement of
Kurt M. Swenson, our former Chief Executive Officer ("CEO") in June 2008, our
Board of Directors determined it would be in the best interests of the Company
and its shareholders to separate the roles of Chairman and CEO. Accordingly,
Mr. Swenson, who served as Chairman of the Board and CEO from 1984 until June
2008, now serves as the non-executive Chairman of the Board.
|
|
As Chairman, he organizes the Board's activities to enable it
to effectively provide guidance to, and oversight and accountability of, our
management. As directors continue to have more oversight responsibilities than
ever before, we believe it is beneficial to have a non-executive Chairman
whose sole job is to lead the Board, serve as a resource to the CEO, and
advise the CEO as to the Board's needs, interests and opinions. The CEO's
responsibility is to run the day to day operations of the Company. We believe
having a non-executive Chairman is beneficial to the CEO and allows him to
focus his entire energy on his numerous responsibilities running both our
quarry and manufacturing operations. The Board of Directors continually
evaluates our leadership structure and could in the future decide to combine
the Chairman and CEO positions if it determines that doing so would serve the
best interests of the Company.
|
|
Our Audit Committee is
primarily responsible for overseeing our risk management processes on behalf
of the full Board. The Audit Committee receives and reviews periodic reports
from management, auditors, legal counsel and others, as considered
appropriate regarding the Company's assessment of risks. In addition, the
Audit Committee reports regularly to the full Board, which also considers our
risk profile. The Audit Committee and the full Board focus on the most
significant risks facing the Company and the Company's general risk
management strategy. While the Board oversees the Company's risk management,
management is responsible for day to day risk management processes. We
believe this division of responsibilities is the most effective approach for
addressing the risks facing the Company.
|
|
CODE OF ETHICS
|
|
On October 20, 2008, the
Board of Directors adopted a revised code of business ethics for directors,
officers (including Rock of Ages' principal executive officer and principal
financial and accounting officer) and employees. The revised code of business
ethics is available on Rock of Ages' website at www.rockofages.com. Shareholders
can also request a free copy by making such request in writing to Rock of
Ages Corporation, PO Box 482, Barre, Vermont 05641, attn: Vice President of
Administration. We intend to satisfy the disclosure requirement under Item
5.05 of Form 8-K regarding an amendment to, or a waiver from, a provision of
our code of ethics that applies to our principal executive officer, principal
financial officer, or principal accounting officer or controller by
disclosing such information on our website in accordance with Item 5.05 of
Form 8-K.
|
|
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
|
|
SUMMARY
COMPENSATION TABLE
|
The following table sets forth compensation
information concerning the compensation of our Chief Executive Officer and
our other two most highly compensated executive officers who served in such
capacities during the year ended December 31, 2009 (the "Named Executive
Officers").
|
|
|
|
|
|
|
|
|
|
|
Name and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock Awards
($)
|
Option Awards
($)
|
Non-Equity Incentive Plan Compensation
(1)
|
Nonqualified Deferred Compensation Earnings
($)
|
All Other Compensation ($)
|
Total ($)
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
Donald M. Labonte,
President/CEO
|
2009
2008
|
$238,950 (2)
$253,800 (2)
|
-
$40,000 (3)
|
-
-
|
-
$7,947
|
$19,238
-
|
-
-
|
$31,575 (4)
$33,537 (5)
|
$289,763
$335,284
|
Paul H. Hutchins,
Vice President
Administration
|
2009
2008
|
$125,004
$125,004
|
-
$10,000 (7)
|
-
-
|
$3,350
$467
|
$9,375
-
|
-
-
|
$5,608(6)
$1,385(6)
|
$143,337
$136,856
|
Laura A. Plude, CFO
Vice President Finance
|
2009
2008
|
$100,841
$100,008
|
-
$10,000 (7)
|
-
-
|
$6,700
$14,550
|
$7,563
-
|
-
-
|
$4,678(6)
$1,750 (6)
|
$119,782
$126,308
|
|
|
(1)
|
Incentive payments earned
under the 2009 Annual Incentive Plan were accrued in 2009 but paid in 2010.
|
|
|
(2)
|
For 2009 and 2008, Mr.
Labonte was paid an annual base salary of $270,000 CDN. For the purposes of
this table, to calculate his 2009 and 2008 annual base salary in U.S.
dollars, we used a currency conversion rate of $.885 and $.94 U.S. to $1.00 CDN, respectively which represents the average of the exchange rates as of
each month during fiscal 2009 and 2008, as published in the Wall Street
Journal.
|
|
|
|
|
(3)
|
Discretionary bonus of $40,000
($42,554 CDN) paid in 2009 for 2008 performance. To calculate the amounts
paid in U.S. dollars, we used a currency conversion rate of $.94 U.S. to $1.00 CDN, which represents the average of the exchange rates as of the end of each
month during fiscal 2008, as published in the Wall Street Journal.
|
|
|
(4)
|
Includes $19,470 ($22,000
CDN) paid by the Company to Mr. Labonte's self-directed retirement account
under the Retirement Plan for Salaried Employees of Rock of Ages Canada, Inc.
and $788 ($890 CDN) paid for a life insurance policy on Mr. Labonte's life,
payable to his heirs. Rock of Ages Canada paid $11,317 ($12,787 CDN) into the
supplemental retirement plan for Mr. Labonte for 2009. For the purposes of
this table, to calculate the amounts paid in 2009 for Mr. Labonte's
retirement arrangements, we used a currency conversion rate of $.885 USD to
$1.00 CDN, which represents the average of the exchange rates as of each
month during fiscal 2009, as published in the Wall Street Journal. See
"Narrative to Summary Compensation Table" and "PENSION AND
POST-RETIREMENT BENEFITS - Canadian Retirement Plans" at page 35 of this
report.
|
|
|
|
|
(5)
|
Includes $19,740 ($21,000
CDN) paid by the Company to Mr. Labonte's self-directed retirement account
under the Retirement Plan for Salaried Employees of Rock of Ages Canada, Inc.
and $837 ($890 CDN) paid for a life insurance policy on Mr. Labonte's life,
payable to his heirs. Rock of Ages Canada paid $12,960 ($13,787 CDN) into the
supplemental retirement plan for Mr. Labonte for 2008. For the purposes of
this table, to calculate the amounts paid in 2008 for Mr. Labonte's
retirement arrangements, we used a currency conversion rate of $.94 USD to
$1.00 CDN, which represents the average of the exchange rates as of each
month during fiscal 2008, as published in the Wall Street Journal. See
"Narrative to Summary Compensation Table" and "PENSION AND
POST-RETIREMENT BENEFITS - Canadian Retirement Plans" at page 35 of this
report.
|
|
|
|
|
(6)
|
For 2009 and 2008,
respectively, amount represents Company match on 401(k) deferrals.
|
|
|
|
|
(7)
|
Discretionary bonus paid in
2009 for 2008 performance.
|
Narrative
to Summary Compensation Table
The
Compensation Committee of the Board of Directors (the "Compensation
Committee") is primarily responsible for reviewing, approving, and
overseeing the Company's compensation plans and practices, and works with
management to establish the Company's executive compensation programs. Our
executive compensation program consists of four key components: base salary,
annual bonus awards, equity based incentives in the form of stock options,
and retirement benefits.
Base
Salary
The
Compensation Committee annually reviews the Chief Executive Officer's
("CEO") salary and the CEO's recommendations with regard to the
base salaries of our other executive officers. The Compensation Committee did
not increase the rate of base salaries for executive officers in 2009 and
again decided that it would not increase base salaries for executive officers
in 2010 except for the Chief Financial Officer who received a $10,000
increase.
Non-Equity
Incentive Plans and Cash Bonuses
Our
executive officers, including the Named Executive Officers, participated in
the 2009 Annual Incentive Plan, which was adopted by the Compensation
Committee and set forth corporate and divisional performance measures for
each participating employee, as well as target award values. Performance
under the Incentive Plan is measured by the achievement of certain levels of
earnings before interest and taxes ("EBIT"), net of incentive
payments, cash flow from operations and return on assets. The following
named executive officer's incentive targets are set at the corporate level
only. The target award values for 2009 for the named executive officers under
the Incentive Plan as a percentage of base salary are set forth below:
|
|
|
Target Award Values (% of Base Salary)
|
Threshold
|
Target
|
Maximum
|
Donald M. Labonte,
President and CEO
|
10%
|
15%
|
25%
|
|
|
|
|
Paul H. Hutchins, Vice
President of Administration
|
10%
|
15%
|
25%
|
|
|
|
|
Laura A. Plude, CFO and
Vice President of Finance
|
10%
|
15%
|
25%
|
The Compensation
Committee may also pay discretionary bonuses to officers if, in the
Compensation Committee's sole discretion, a participant has achieved
corporate, divisional or personal goals worthy of reward.
The Compensation
Committee did not award discretionary bonuses for 2009 performance to the
Named Executive Officers.
Stock
Options
Our
2005 Stock Plan was established to provide certain employees with an
opportunity to share, along with our stockholders, in our long-term
performance. Historically, we have granted stock options which vest based
upon continued employment, typically over a three to five year period. All
options are granted with maximum terms that expire ten years after the date
of grant (or upon earlier termination of the option holder's employment).
Typically, we have granted options to executive officers when they are first
appointed. In 2009, the Compensation Committee determined it would be
appropriate to grant options to certain individuals, including the Named
Executive Officers. See the information concerning option holdings among our
Named Executive Officers at page 30 of this report under the caption
"OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END."
Retirement
Benefits
|
We
maintain a defined benefit plan (the "DB Plan") for non-union
employees who were vested in the DB Plan on March 31, 2009. Due to the
recent significant worldwide decline in equity prices and the value of other
financial investments, the fair value of the assets held by the DB Plan
decreased by $5.4 million in 2008. As a result, the plan was significantly
under-funded, and we decided to terminate participation in the DB Plan and
the future accrual of benefits. As an alternative to the DB Plan, we increased
the Company match for our 401K plan to 4%. We have entered into salary
continuation agreements (the "SC Agreements") with certain individuals
who are not Named Executive Officers. We also have a deferred salary plan
(the "DS Plan") for certain management and highly compensated
employees. At the present time, there are no current employees participating
in the DS Plan. Our CEO, who is a Canadian citizen, is not eligible to
participate in these plans. Accordingly, we provide retirement benefits to
our CEO and our Canadian employees through separate retirement plans
sponsored by Rock of Ages Canada, Inc, our Canadian subsidiary. For further
information on our retirement programs please see the information at page 30
of this report under the caption "PENSION AND POST-RETIREMENT
BENEFITS."
|
|
Employment
Agreements
|
The
CEO is the only Named Executive Officer that currently has an employment
agreement with the Company. This agreement generally provides for the
payment of base salary, severance, and change in control payments and is
described in greater detail at page 32 of this report under the caption
"EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS."
|
|
|
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR END
|
The following table sets forth information concerning
options to purchase Class A Common Stock held by the Named Executive Officers
at December 31, 2009.
|
|
|
Option Awards
|
Stock Awards
|
Name
|
Number of Securities Underlying Unexercised Options
Exercisable
|
Number of Securities Underlying Unexercised Options
Unexercisable
|
Equity Incentive Plan Awards: Number of Securities
Underlying Unexercised Unearned Options
|
Option Exercise Price
($)
|
Option Expiration Date
|
Number of Shares or Units of Stock That Have Not
Vested
|
Market Value of Shares or Units of Stock That Have
Not Vested
($)
|
Equity Incentive Plan Awards: Number of Unearned
Shares, Units or Other Rights That Have Not Vested
|
Equity Incentive Plan Awards: Market or Payout Value
of Unearned Shares, Units or Other Rights That Have Not Vested
($)
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
Donald M. Labonte
|
15,000
|
-
|
-
|
$5.98
|
2/8/2012
|
-
|
-
|
-
|
-
|
|
17,000
|
68,000
|
-
|
$2.63
|
8/7/2018
|
-
|
-
|
-
|
-
|
Paul H. Hutchins
|
15,000
|
-
|
-
|
$5.98
|
2/8/2012
|
-
|
-
|
-
|
-
|
|
1,000
|
4,000
|
-
|
$2.63
|
8/7/2018
|
-
|
-
|
-
|
-
|
|
|
5,000
|
-
|
$2.63
|
2/19/2019
|
-
|
-
|
-
|
-
|
Laura A. Plude
|
10,000
|
15,000
|
-
|
$5.93
|
8/14/2017
|
-
|
-
|
-
|
-
|
|
|
10,000
|
-
|
$2.63
|
2/19/2019
|
-
|
-
|
-
|
-
|
|
Each
of the options shown above vest over five years in equal 20% increments, and
expire ten years after the date of grant.
|
|
OPTION
EXERCISES AND STOCK VESTED
|
|
|
During
2009 none of the Named Executive Officers exercised any stock options or
became vested in any restricted stock.
|
|
|
PENSION
AND POST-RETIREMENT BENEFITS
|
|
|
Defined
Benefit Pension Plan
|
|
|
We maintain a
qualified defined benefit pension plan (the "DB Plan") for non-union employees
of Rock of Ages Corporation. The DB Plan is noncontributory and provides
benefits based upon a formula calculated by reference to length of service and
final average earnings. The DB Plan provides an annual life annuity at age 65
equal to 1.8% per year of a participant's highest consecutive five year
average compensation (excluding bonus) during the last ten years of
employment" ("Final Average Compensation"), plus 0.4% per year of a
participant's Final Average Compensation in excess of social security covered
compensation times the years of service, up to a maximum of 30 years.
Participants who have attained the age of 55 and who have at least 10 years of
service may elect to receive early retirement benefits under the DB Plan.
In the case of early retirement, the amount of the monthly pension benefit
will be equal to the monthly accrued pension benefit, determined as of the
early retirement date, reduced actuarially for each month that the early
retirement date precedes the normal retirement date.
|
As of March 31, 2009 the DB Plan was amended by freezing
membership and future benefits in the plan. The total annual retirement
benefits payable upon normal retirement under the DB Plan for the Named
Executive Officers will not change in the future except to be reduced for
early retirements.
|
|
The
Vice President of Administration and the CFO are the only named executive
officers participating in the DB Plan. The VP of Administration has 27 years
of service and the CFO has 9 years of service and their annual retirement
benefits will be $66,500 and $14,600, respectively. The current CEO, a
Canadian citizen, is not eligible to participate in the DB Plan.
|
|
|
Salary
Continuation Agreements
|
|
In
addition to the DB Plan, we have salary continuation agreements ("SC
Agreements") which provide for supplemental pension benefits to certain
former officers of the Company. No Named Executive Officers are covered by
an SC Agreement.
|
|
Deferred
Salary Plan
|
|
We
established the Rock of Ages Key Employees Deferred Salary Plan (the "DS
Plan") for certain management and highly compensated employees.
Participation in the DS Plan is limited to those employees designated by the
Board of Directors in its sole discretion, and who satisfy the following
criteria: (1) the employee has attained the age of 55; (2) the employee is
an executive officer; (3) the employee has completed a minimum of ten years
of continuous service with the Company; and (4) the employee's annual base
salary, fringe benefits and other non-cash compensation exceeds $200,000
(subject to adjustment each year to reflect the average percentage change in
the base salaries of all officers of the Company). No executive officers currently
participate in the DS Plan.
|
|
|
Participants
may make an irrevocable election to defer up to $100,000 annually under the
DS Plan. Any amounts deferred are reflected in deferred salary accounts
created by the Company. Interest at the rate of 12% per annum is credited on
a monthly basis to each Participant's deferred salary account. The aggregate
account balances remain part of the general unrestricted assets of the
Company. Participants do not have any right or claim to any specific assets
of the Company, but only a claim against the Company as a general, unsecured
creditor to the extent of the undistributed portion of their deferred salary
account. Benefits under the DS Plan are paid upon the retirement, death or
disability of the participant or other termination of participation, subject
to certain procedures relating to distribution. Each year prior to making a
deferral, participants must elect the method of distribution that will apply
to that deferral upon retirement under the DS Plan. Participants have three
distribution options: (i) Interest only on the undistributed account balance
at 12% per annum, payable monthly, quarterly or annually for the life of the
participant or his/her spouse, with distribution of the remaining account
balance payable upon the death of the participant or his/her spouse,
whichever is later; (ii) as provided in (i) above, but subject to a term
certain of not less than 10 nor more than 20 years with respect to the
payment of interest only; or (iii) level payment amortization of the
participant's account balance as of the commencement of payments, plus
interest on the undistributed account balance at 12% per annum, over any of
the time periods available under (i) or (ii) above.
|
|
|
|
Canadian
Retirement Plans
|
|
Our
Canadian subsidiary, Rock of Ages Canada, Inc. ("ROA Canada"), has a
retirement plan for our Canadian employees, the Retirement Plan for Salaried
Employees of Rock of Ages Canada, Inc. (the "Basic Canadian Retirement
Plan") which is registered with the Province of Quebec and the
Government of Canada. All salaried, non-union employees of ROA Canada are
participants in the Basic Canadian Retirement Plan, including our President
and CEO, Mr. Labonte. Pursuant to the Basic Canadian Retirement Plan, ROA
Canada contributes 8% of a participant's monthly compensation each month to
each participant's account. The investments in the account are self-directed
by each participant with a range of investment options. ROA Canada may, in
its discretion, make an additional contribution to a participant's account,
up to a maximum aggregate amount of 13% of a participant's salary per year
(including amounts previously contributed during the year). For 2009,
Canadian law allowed a maximum contribution per individual to the Basic
Canadian Retirement Plan of $22,000 CDN.
|
|
|
In
2009, we contributed $19,470 (the full $22,000 CDN allowable under Canadian
law) and in 2008, we contributed $19,740 (the full $21,000 CDN allowable
under Canadian law) to Mr. Labonte's self-directed retirement account under
the Basic Canadian Retirement Account. Effective in 2007 ROA Canada
established a supplemental retirement plan for Mr. Labonte ("Canadian
Supplemental Plan"). The Canadian Supplemental Plan is funded as a
retirement compensation arrangement as defined in Article 248 of the Canadian
Income Tax Act. The only participant in the Canadian Supplemental Retirement
Plan is Mr. Labonte. Each year, ROA Canada may make a contribution to the
Canadian Supplemental Plan equal to 13% of Mr. Labonte's base salary, less
any amounts paid to the Basic Canadian Retirement Plan for Mr. Labonte. We
made contributions to the Canadian Supplemental Plan equal to $11,317 ($12,787
CDN) and $12,960 USD ($13,787 CDN) in 2009 and 2008, respectively. We may
make additional contributions to the Canadian Supplemental Retirement Plan at
our discretion. Normal retirement age under the Canadian Supplemental Plan is
65 years however the participant may elect early retirement at age 55, or may
elect to postpone normal retirement to not later than age 71. Upon early,
normal or postponed retirement, Mr. Labonte is entitled to a lump sum equal to
the value of the contributions made to the Canadian Supplemental Plan, plus
accrued earnings of the Plan, or he may elect to be paid in installments over
5 years from the retirement date.
|
Post
Employment Health Care Policy
|
|
It
is our policy to provide post-employment health care coverage to our
executive officers and their spouses who retire at age 55 or older. The form
and type of benefits to be provided is the coverage that is in effect for
active employees from time to time, and the retiree pays his or her portion
of the premium for such coverage, as the same may be set from time to time.
We reserve the right, in our sole discretion, to change or amend such
coverage, the retiree's share of the premium and/or such other terms of the
coverage as we deem necessary or advisable, or to cease providing such
coverage altogether. Coverage is provided to executive officers who retire
at age 55 or older and to their spouses until they reach age 65, provided,
however, that health care coverage for a spouse terminates when the executive
officer reaches (or would have reached) age 68, regardless of whether the
spouse has reached age 65.
|
|
|
EMPLOYMENT AGREEMENTS AND
CHANGE IN CONTROL ARRANGEMENTS
|
|
Labonte Employment Agreement
|
|
The
Company has an employment agreement with the CEO, Mr. Labonte (the
"Labonte Employment Agreement"), for retention of his services as
President and Chief Executive Officer of the Company. The term of the Labonte
Employment Agreement commenced on July 1, 2008, the date he began his duties
as Chief Executive Officer, and continues until the fifth anniversary thereof
unless extended or terminated. The Labonte Employment Agreement provides for
continued payment of salary and benefits for an additional twelve months if
Mr. Labonte's employment is terminated by the Company without Cause (as
defined in the Labonte Employment Agreement). If Mr. Labonte's employment is
terminated by the Company within twelve months after a Change in Control (as
defined in the Labonte Employment Agreement) then the Company will pay Mr.
Labonte a lump sum in cash within 15 days after the date of termination equal
to one times the then current Annual Base Salary.
|
|
NON-EMPLOYEE DIRECTOR Compensation
|
|
For the 2009 fiscal year, directors who are not also employees
of the Company were paid annual directors' retainers of $30,000. Audit
Committee members were paid an additional annual retainer fee of $2,000 and
members of other committees are paid additional annual retainers of $1,000
for each committee. The non-executive Chairman receives an annual retainer
that is at least $20,000 higher than the highest paid non-employee director,
or such other fee as determined by the Compensation Committee or the full
board (excluding the Chairman) in its sole discretion. Directors are also
eligible for grants under the 2005 Stock Plan. We reimburse our non-employee
directors for travel and lodging expenses that they incur in connection with
their attendance of directors' meetings and meetings of shareholders of the
Company.
|
|
|
Actual Fiscal 2009 Non-Employee
Director Compensation
|
|
|
The following table shows the
compensation paid to our non-employee directors for the 2009 fiscal year:
|
|
|
|
|
|
|
|
|
Name
|
Fees Earned or Paid in Cash ($)
|
Stock Awards ($)
|
Option Awards ($)
|
Non-Equity Incentive Plan
Compensation ($)
|
Non-
qualified Deferred Compensation
Earnings
|
All Other Compensation ($)
|
Total ($)
|
James
L. Fox
|
32,500
|
-
|
-
|
-
|
-
|
-
|
32,500
|
Richard
C. Kimball
|
32,500
|
-
|
-
|
-
|
-
|
-
|
32,500
|
Pamela
G. Sheiffer
|
32,000
|
-
|
-
|
-
|
-
|
-
|
32,000
|
Kurt
M. Swenson
|
50,000
|
-
|
-
|
-
|
-
|
-
|
50,000
|
Charles
M. Waite
|
32,500
|
-
|
-
|
-
|
-
|
-
|
32,500
|
Frederick
E. Webster, Jr.
|
32,000
|
-
|
-
|
-
|
-
|
-
|
32,000
|
|
|
ITEM 12.
|
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
|
|
The following table sets
forth, as of March 20, 2010, certain information with respect to the
beneficial ownership of our Common Stock by each (i) director, (ii) Named
Executive Officer (iii) beneficial owner of more than 5% of either class of
the outstanding Common Stock known to us, 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. This information is based
upon information received from or on behalf of the individuals or entities
named below, except as otherwise noted. 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. Beneficial ownership has been determined in
accordance with the rules of the Securities
|
and Exchange Commission. Except as indicated in the footnotes
below, we believe, based on the information furnished or otherwise available
to us, the persons and entities named in the table below have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to applicable community property laws.
Ownership percentages are based upon 4,812,342 shares of Class A Common Stock
and 2,603,721 shares of Class B Common Stock outstanding as of March 22, 2010.
|
|
In computing the number of
shares of Common Stock beneficially owned by a person and the percentage
ownership of such person, shares of Class A Common Stock subject to options
held by that person that are currently exercisable or exercisable within 60
days of March 20, 2009 were deemed to be outstanding. Such shares were not
deemed to be outstanding, however, for the purpose of computing the
percentage ownership of any other person.
|
|
|
|
|
|
|
|
SHARES OF CLASS B
COMMON STOCK
BENEFICIALLY OWNED
|
|
SHARES OF CLASS A
COMMON STOCK
BENEFICIALLY OWNED
|
NAME AND ADDRESS OF
BENEFICIAL OWNER (1)
|
|
NUMBER
|
|
PERCENT OF
CLASS
|
|
NUMBER (2)
|
|
PERCENT OF
CLASS (2)
|
|
|
|
|
|
|
|
|
|
North Star Investment
Management Corp.(3)
20 North Wacker Drive,
Suite 1416
Chicago, IL 60606
|
|
-
|
|
-
|
|
718,473
|
|
14.9%
|
|
|
|
|
|
|
|
|
|
Kuby Gottlieb Special
Value Fund, LP(4)
20 North Wacker Drive, Suite1416
Chicago, IL 60606
|
|
-
|
|
-
|
|
423,986
|
|
8.8%
|
|
|
|
|
|
|
|
|
|
Dimensional Fund Advisors,
Inc (5)
1299 Ocean Avenue
Santa Monica, CA 90401
|
|
-
|
|
-
|
|
312,531
|
|
6.5%
|
|
|
|
|
|
|
|
|
|
Kurt M. Swenson (6) **
|
|
1,005,000
|
|
38.6%
|
|
1,135,000
|
|
19.5%
|
Kevin C. Swenson (7)
Willougby Colby Rd.
Warner, NH 03278
|
|
1,023,489
|
|
39.3%
|
|
1,023,489
|
|
17.5%
|
Robert Pope
46 Grand View Farm Road
Barre, VT 05641-8335
|
|
144,875
|
|
5.3%
|
|
159,875
|
|
3.2%
|
Richard C. Kimball **
|
|
29,126
|
|
1.1%
|
|
72,126
|
|
1.5%
|
Charles M. Waite**
|
|
29,126
|
|
1.1%
|
|
45,000
|
|
*
|
James L. Fox**
|
|
-
|
|
-
|
|
5,000
|
|
*
|
Frederick E. Webster Jr.**
|
|
-
|
|
-
|
|
5,000
|
|
*
|
Donald Labonte (8)**
|
|
-
|
|
-
|
|
35,000
|
|
*
|
Pamela G. Sheiffer**
|
|
-
|
|
-
|
|
5,000
|
|
*
|
Paul H. Hutchins(9)**
|
|
-
|
|
-
|
|
29,200
|
|
*
|
Laura A. Plude (10) **
|
|
-
|
|
-
|
|
15,000
|
|
*
|
All directors and
executive officers as a group (9 persons)
|
|
1,063,252
|
|
38.8%
|
|
1,346,326
|
|
22.9%
|
** Named Executive
Officer and/or Director
* Less than 1%
(1)
|
The business address of
each director and executive officer of the Company is c/o Rock of Ages
Corporation, 560 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) the
number of Class A shares owned outright or under outstanding vested options
and 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 22,
2010 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 Form 4 dated
March 17, 2010, Northstar Investment Management Corp., in its capacity as
an investment advisor or manager, may be deemed to be the beneficial owner of
the listed shares.
|
|
|
|
|
(4)
|
According to a Schedule 13G
dated January 8, 2009, Kuby Gottleib Special Value Fund, LP in its capacity
as an investment advisor or manager, may be deemed to be the beneficial owner
of the listed shares that are held of record by certain investment companies,
trusts or other accounts it advises or manages.
|
|
|
(5)
|
According to a
Schedule 13G dated February 10, 2010, 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 that are held of record by certain
investment companies, trusts or other accounts it advises or manages.
|
|
|
|
|
(6)
|
Kurt M. Swenson is the
brother of Kevin C. Swenson. Includes 1,005,000 shares of Class B Common
Stock and 130,000 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.
|
|
|
|
|
(7)
|
Kevin C. Swenson is the
brother of Kurt M. Swenson.
|
|
|
|
|
(8)
|
Includes 32,000 shares of
Class A Common Stock subject to currently exercisable stock options.
|
|
|
|
|
(9)
|
Includes 17,000 shares of
Class A Common Stock subject to currently exercisable options.
|
|
|
(10)
|
Includes 12,000 shares of
Class A Common Stock subject to currently exercisable options.
|
Equity Compensation Plan Information
|
The following table sets
forth information regarding the Company's equity compensation plan as of
December 31, 2009.
|
Plan Category
|
|
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
|
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
|
|
Number of securities
remaining available for future
issuance under equity
compensation plans (excluding
securities reflected in column(a))
|
|
|
(a)
|
|
(b)
|
|
(c)
|
|
|
|
|
|
|
|
Equity compensation plans
approved by security holders
|
|
314,000
|
|
$4.08
|
|
330,833
|
|
|
|
|
|
|
|
Equity compensation plans
not approved by security holders
|
|
None
|
|
None
|
|
None
|
|
|
|
|
|
|
|
Total
|
|
314,000
|
|
$4.08
|
|
330,833
|
|
|
|
|
|
|
|
(1)
|
On June 22, 2005 at our Annual Meeting of Stockholders, the stockholders approved the Rock of Ages Corporation 2005 Stock
Plan (the "2005 Plan"). The 2005 Plan permits awards of stock
options (including both incentive stock options and nonqualified stock options)
and restricted stock. A maximum of 550,000 shares of Class A Common Stock may
be issued under the 2005 Plan. The 2005 Plan is administered by the
Compensation Committee, which has the authority to determine the recipients
of awards under the 2005 Plan and, subject to the 2005 Plan, the terms and
condition of such awards. The 2005 Plan replaces the Rock of Ages Corporation
1994 Stock Plan (the "1994 Plan") which expired in November 2004.
Although grants made under the 1994 Plan prior to its expiration remain
outstanding, no further grants may be made under the 1994 Plan.
|
|
|
ITEM 13.
|
CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|
|
Transactions with
Related Persons, Promoters and Certain Control Persons
|
|
Transactions With
Related Persons
|
|
In connection with and
prior to its initial public offering in 1997, 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, and his brother Kevin C.
Swenson, each own approximately 31% of Swenson Granite LLC. Certain other
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 5% of the Class B Common Stock, is Swenson LLC's President and
Chief Executive Officer, and including shares owned by his wife and children,
owns approximately 12% of Swenson LLC. Neither Kurt M. Swenson nor any other
officer or director of the Company, receives salary, bonus, expenses or other
compensation from Swenson LLC, except for any pro rata share of earnings
attributable to their ownership interest in Swenson LLC.
|
|
Swenson LLC owns two
granite quarries: one in Concord, New Hampshire and another in Woodbury, Vermont. Both have been owned by Swenson LLC (or its predecessor Swenson Granite)
for more than 40 years. Because of the proximity of the Woodbury quarry to Barre, Vermont, the Company provides, and may continue to provide, certain maintenance
services and parts to the Woodbury quarry and is reimbursed for the cost of
such services. During 2009, the Company received approximately $6,100 for
such maintenance services and parts. Both the Company and Swenson LLC have
the right to terminate these services at any time. The Company also purchases
Concord blocks and other products from Swenson LLC at market prices. The
Company's purchases of granite and other products provided by Swenson LLC in
2009 were approximately $73,000. Swenson LLC also purchases granite blocks
and slabs and miscellaneous services from the Company. Such purchases
amounted to approximately $53,000 in 2009. The Company believes these
arrangements with Swenson LLC are not material and that they are on terms as
favorable, or more favorable, to the Company than would be available from an
unrelated party for comparable granite products. Both of Swenson LLC 's
quarries produce gray granite primarily for curb and landscape use. Although
Rock of Ages' gray granite from its Barre and Stanstead quarries is used
primarily for memorial use, it may be in competition with Swenson LLC in some
markets, including the supply of its gray granites for other than memorial
use. Swenson LLC has supplied its Woodbury granite to manufacturers of
government grave markers made for the Veterans' Administration for many years
and Rock of Ages has not been in the business of selling or manufacturing its
gray granites for use in Veterans markers.
|
|
The determination to sell
the retail operations in 2008 was reached after our Board engaged in a
lengthy process of fully exploring strategic alternatives with the assistance
of Covington Associates, LLC, a Boston-based investment banking firm selected
by a special committee of non-employee directors and retained by the Company
in 2006. The sale to PKDM was recommended to the Board by this special
committee following the solicitation of bids from interested parties, and
Covington Associates delivered a favorable opinion to the Board with respect
to the fairness to the Company, from a financial point of view, of the consideration
to be received by the Company in the transaction.
|
|
In connection with the sale
of our retail division to PKDM Holdings, Inc. in 2008, a corporation owned by
Richard M. Urbach, the former President and Chief Operating Officer of the
retail division, and James Barnes, the financial manager of the retail
division, we entered into a five year supply agreement with PKDM and its
operating subsidiary, North American Heritage Services, Inc. ("NAHS"),
naming it as an authorized Rock of Ages retailer in the existing retail
territories formerly serviced by its owned retail stores, and PKDM agreed to
minimum annual memorial purchases from the Company of $3.5 million during
each year of the five year term, excluding private mausoleums. PKDM's minimum purchase obligation under the Supply
Agreement is subject to reduction if PKDM permanently closes or sells stores
that were operated by them on the date of the original Supply Agreement.
Pursuant to the Supply Agreement, the amount of such reduction is equal to the
three year average annual purchases of closed or sold stores. Due to the
closure or sale of a number of locations by PKDM during 2008, effective
January 16, 2009 the parties agreed to revise the minimum purchase
requirements to $1,780,000 for the year of the agreement ending on January
17, 2009 and to $1,210,000 for each of the remaining years of the initial
term and any renewal term.
|
|
Review, Approval or
Ratification of Transactions with Related Persons
|
Upon the recommendation of
the Audit Committee, in March 2007 the Company's Board of Directors adopted a
written policy under which related person transactions must be pre-approved
by the Audit Committee. Under the policy, generally a related person
transaction is any transaction, arrangement or relationship involving an
amount exceeding $75,000 between the Company and any executive officer,
director or 5% stockholder (and their family members), or any entity in which
any such person is an executive officer, director, general partner, managing
member or person in a similar position, has a 5% or greater ownership
interest, or of which such person is an employee who will receive a direct
economic benefit from the transaction. Prior to the Company entering into a
related person transaction, the Company's management must submit the proposed
transaction to the Audit Committee for consideration at a meeting. The Audit
Committee considers all of the relevant facts and circumstances available to
it, including (if applicable) but not limited to: the benefits to the
Company; the impact on a director's independence in the event the person in
question is a director, an immediate family member of a director, or an
entity in which a director is an equity holder or of which a director is an
executive officer, general partner, managing partner or a person in a similar
position; the availability of other sources for comparable products or
services; the terms of the proposed transaction; and the terms available to
unrelated third parties or to employees generally. No member of the Audit
Committee may participate in any review, consideration or approval of any
related person transaction with respect to which such member of any of his or
her immediate family members is the related person. The Audit Committee will
approve only those related person transactions that are in, or not
inconsistent with, the best interests of the Company and its stockholders.
Approval by a majority of the members of the Audit Committee (or by the
Chairman of the Audit Committee in the circumstances described below) will be
sufficient to approve a related person transaction.
|
|
As described above, the written policy
provides that proposed related person transactions would normally be
considered by the Audit Committee at a meeting. However, the policy
includes procedures to address situations when approvals need to be sought
between scheduled Audit Committee meetings. The policy provides that in
those instances in which the Company's general counsel, in consultation with
the Company's Chief Executive Officer and the Chairman of the Audit Committee,
determines that it is not practical or desirable for the Company to delay
seeking approval of a related person transaction until the next scheduled
|
Audit Committee, or until a special meeting
of the Audit Committee can be convened, the management shall submit the
proposed related person transaction to the Chairman of the Audit Committee,
who will have delegated authority to consider and act on behalf of the
Committee with respect to the proposed related person transaction. In
that event, the Chairman of the Audit Committee will consider all of the
relevant facts and circumstances available to the Chairman, including (if
applicable) but not limited to those described above which would be considered
by the Audit Committee at a meeting at which the proposed related person
transaction was being considered. If a related person transaction is
approved in this manner by the Chairman of the Audit Committee, such approval
will be reported to the Audit Committee at its next meeting.
|
|
Director Independence
|
|
The
Board of Directors has determined that each of our directors, other than Mr.
Swenson and Mr. Labonte, is independent under the listing standards of The
Nasdaq Stock Market, Inc. Mr. Swenson serves as our Chairman, and until June
30, 2008, served as our CEO and Mr. Labonte currently serves as our CEO. Therefore,
the Board of Directors determined that they are not independent under the
listing standards of the Nasdaq Stock Market, Inc. In making its independence
determinations, the Board of Directors reviewed transactions and
relationships, if any, between the directors or any member of his or her
immediate family and us or one or more of our subsidiaries or affiliates
based on information provided by the directors, Company records and publicly
available information.
|
|
|
ITEM 14.
|
PRINCIPAL ACCOUNTANT
FEES AND SERVICES
|
|
The
following table shows the fees paid by Rock of Ages for the audit and other
services provided by Grant Thornton LLP and its affiliates for fiscal 2009
and 2008. The Audit Committee considered all of these services rendered by
Grant Thornton LLP and its affiliates to be compatible with the maintenance
of Grant Thornton LLP's and its affiliates' independence.
|
|
The Audit Committee did not
utilize the de minimis exception to the pre-approval requirements to approve
any services provided by Grant Thornton LLP and its affiliates during fiscal
2009.
|
|
|
2009
|
|
2008
|
Audit Fees (1)
|
$
|
291,643
|
$
|
410,950
|
Tax Fees (2)
|
|
78,260
|
|
81,830
|
All Other Fees
|
|
-
|
|
-
|
Total
|
$
|
369,903
|
$
|
492,780
|
|
|
|
|
|
The Audit Committee has
delegated to the Chair of the Audit Committee the authority to pre-approve
audit-related and non-audit services not prohibited by law to be performed by
Rock of Ages' independent auditors, provided the Chair shall report any
decisions to pre-approve such audit-related or non-audit services and fees to
the full Audit Committee at its next regular meeting and the Audit Committee
ratifies the approval of such non-audit services by the Chair.
|
|
|
(1)
|
Audit fees represent fees
for professional services provided in connection with the audit of our
financial statements and review of our quarterly financial statements and
audit services provided in connection with other statutory or regulatory
filings, including out of pocket expenses.
|
|
|
|
|
(2)
|
For 2008, tax fees included
$9,000 for tax consultations related to the filing of the IRS Form 338(h)(10)
election which was an election to treat the stock sale of the retail division
as an asset sale for tax purposes.
|
PART
IV
ITEM 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
|
|
|
|
(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.
|
All schedules for which
provision is made in the applicable accounting regulations of the Securities
and Exchange Commission are not required under the related instructions or
are inapplicable and therefore have been omitted.
|
|
|
|
|
|
|
3.
|
The exhibits listed in the
Exhibit Index filed as part of this Annual Report on Form 10- K.
|
EXHIBIT INDEX
EXHIBIT
NUMBER
|
DESCRIPTION
|
|
|
|
|
2.1
|
Agreement and Plan of
Merger dated October 21, 2009 by and between Rock of Ages Corporation (a
Delaware corporation) and Rock of Ages Corporation (Vermont) (incorporated
herein by reference to Exhibit 2.1 to the Company's Current Report on Form
8-K filed with the Securities and Exchange Commission on December 8, 2009).
|
|
|
|
|
3.1
|
Articles of Incorporation
of the Company (incorporated herein by reference to Exhibit 3.1 to the
Company's Current Report on Form 8-K filed with the Securities and Exchange
Commission on December 8, 2009).
|
|
|
|
|
3.2
|
By-laws of the Company
(incorporated herein by reference to Exhibit 3.2 to the Company's Current
Report on Form 8-K and filed with the Securities and Exchange Commission on December
8, 2009).
|
|
|
|
|
3.3
|
Articles of Merger filed
with the Vermont Secretary of State dated December 7, 2009 (incorporated
herein by reference to Exhibit 3.3 to the Company's Current Report on Form
8-K filed with the Securities and Exchange Commission on December 8, 2009).
|
|
|
|
|
3.4
|
Certificate of Merger filed
with the Delaware Secretary of State dated December 7, 2009 (incorporated
herein by reference to Exhibit 3.4 to the Company's Current Report on Form
8-K filed with the Securities and Exchange Commission on December 8, 2009).
|
|
|
|
|
4.1
|
Specimen Certificate
representing the Class A Common Stock (incorporated herein by reference to
Exhibit 4.1 to the Company's Amendment No. 2 to Registration Statement on
Form 8-A (Commission File No. 0-2964) filed with the Securities and Exchange
Commission on December 15, 2009).
|
|
|
|
|
10.1*
|
First Amendment and
Restatement of Rock of Ages Corporation Key Employees Deferred Salary Plan
dated April 6, 2006 (incorporated herein by reference to Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the year ended December 31, 2006 and
filed with the Securities and Exchange Commission on April 2, 2007).
|
|
|
|
|
10.2*
|
Rock of Ages 2005 Stock
Plan (incorporated herein by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K and filed with the Securities and Exchange
Commission on June 23, 2005).
|
|
|
10.3*
|
Amendment to Salary
Continuation Agreement of Kurt M. Swenson dated April 20, 2006 (incorporated
herein by reference to Exhibit 10.7 to the Company's Quarterly Report on Form
10-Q for the quarterly period ended July 1, 2006 and filed with the
Securities and Exchange Commission on August 14, 2006).
|
|
|
10.4*
|
Retirement Agreement of
Kurt M. Swenson dated April 28, 2008 (incorporated herein by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the
Securities and Exchange Commission on April 29, 2008).
|
|
|
|
|
10.5*
|
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).
|
|
|
|
|
10.6
|
Form of Collective
Bargaining Agreement between Rock of Ages Corporation - Quarry Division and
the United Steelworkers of America, AFL_CIO_CLC on behalf of Amalgamated
Local #4 (incorporated by reference to Exhibit 10.4 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended July 4, 2009 and
filed with the Securities and Exchange Commission on August 14, 2009).
|
|
|
|
|
10.7
|
Form of Collective
Bargaining Agreement between Rock of Ages Corporation - Manufacturing
Division and the United Steelworkers of America, AFL_CIO_CLC on behalf of
Amalgamated Local #4 (incorporated by reference to Exhibit 10.5 to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended July
4, 2009 and filed with the Securities and Exchange Commission on August 14,
2009).
|
|
|
|
|
10.8
|
Form of Collective
Bargaining Agreement between Rock of Ages Corporation - Manufacturing
Division and the Granite Cutter's Association (incorporated by reference to
Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q for the quarterly
period ended July 4, 2009 and filed with the Securities and Exchange
Commission on August 14, 2009).
|
|
|
|
|
10.9
|
Credit Facility dated as of
October 26, 2009 between Royal Bank of Canada and Rock of Ages Canada, Inc.
|
|
|
10.10
|
Supply Agreement dated as
of January 11, 2002 by and between Rock of Ages Corporation and Adams Granite
Co., Inc. (incorporated herein by reference to exhibit 10.15 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2001 and
filed with the Securities and Exchange Commission on April 1, 2002).
|
|
|
|
|
10.11
|
Amendment to Supply
Agreement dated as of January 1, 2004 by and between Rock of Ages Corporation
and Adams Granite Co., Inc. (Incorporated by reference to Exhibit 10.2 to the
Company's annual Report on Form 10-K for the fiscal year ended December 31,
2006 and filed with the Securities and Exchange Commission on April 2, 2007).
|
|
|
|
|
10.12
|
Amendment No. 2 to Supply
Agreement dated as of January 16, 2007 by and between Rock of Ages
Corporation and Adams Granite Co., Inc. (incorporated by reference to Exhibit
10.21 to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2006 and filed with the Securities and Exchange Commission on
April 2, 2007)
|
|
|
|
|
10.13
|
Stock Purchase Agreement
dated as of January 17, 2008 by and between PKDM Holdings, Inc. and Rock of
Ages Corporation (incorporated herein by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K and filed with the Securities and
Exchange Commission on January 23, 2008).
|
|
|
|
|
10.14
|
Termination Agreement and
General Release dated January 17, 2008 by and between Richard M. Urbach and
the Company (incorporated by
reference to Exhibit 10.25 to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2007 and filed with the Securities and Exchange Commission on March 31, 2008).
|
|
|
|
|
10.15
|
Authorized Retailer Supply
and License Agreement dated January 17, 2008 by and between the Company, PKDM
Holdings, Inc., North American Heritage Services, Inc., Keith Monument
Company, LLC, and Sioux Falls Monument Co., LLC (incorporated by reference to Exhibit 10.26 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2007 and filed with the Securities and
Exchange Commission on March 31, 2008).
†
|
|
|
|
|
10.16
|
Amendment No. 1 to Supply
Agreement dated as of January 16, 2009 (executed and delivered March 10,
2009) by and between Rock of Ages Corporation and PKDM Holdings, Inc.
(incorporated by reference to Exhibit 10.1 to the Company's Current Report on
Form 8-K filed with the Securities and Exchange Commission on March 11, 2009).
|
|
|
|
|
10.17
|
Amended and Restated
Financing Agreement dated October 24, 2007 by and between The CIT
Group/Business Credit, Inc. and Carolina Quarries, Inc., Pennsylvania Granite
Corp., Keith Monument Company, LLC, Rock of Ages Memorials, Inc., Sioux Falls
Monument Co., and the Company (incorporated herein by reference to Exhibit
10.1 to the Company's Current Report on Form 8-K and filed with the
Securities and Exchange Commission on October 25, 2007).
|
|
|
|
|
|
|
10.18
|
First Amendment to Amended
and Restated Financing Agreement dated March 30, 2009 by and between The CIT
Group/Business Credit, Inc. and Carolina Quarries, Inc., Pennsylvania Granite
Corp., and the Company (incorporated herein by reference to Exhibit 10.1 to
the Company's Current Report on Form 8-K and filed with the Securities and
Exchange Commission on March 31, 2009).
|
|
|
10.19
|
Letter from The CIT
Group/Business Credit, Inc. to Carolina Quarries, Inc., Pennsylvania Granite
Corp., Keith Monument Company, LLC, Rock of Ages Memorials, Inc., Sioux Falls
Monument Co., and the Company consenting to sale of the Company's retail
division (incorporated by
reference to Exhibit 10.28 to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2007 and filed with the Securities and Exchange Commission on March 31, 2008).
|
|
|
|
|
10.20
|
Consent and Assumption
Agreement dated December 7, 2009 by and among the Company, Rock of Ages
Corporation (a Delaware corporation), The CIT Group/Business Credit, Inc. and
Peoples United Bank (incorporated herein by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K filed with the Securities and Exchange
Commission on December 8, 2009).
|
|
|
|
|
10.21
|
Supplemental Retirement
Plan for Donald Labonté
dated as of January 1, 2007 (incorporated by reference to Exhibit 10.29 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2007 and filed with the Securities and
Exchange Commission on March 31, 2008)
|
|
|
10.22
|
Employment Agreement of Donald
M. Labonte dated as of July 1, 2008 (executed and delivered on August 26,
2008) (incorporated herein by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K and filed with the Securities and Exchange
Commission on August 28, 2008)
|
|
|
|
|
10.23
|
Asset Purchase Agreement
dated April 17, 2009 by and between Rock of Ages Canada, Inc., a wholly-owned
subsidiary of the Company, and Carrieres Polycor, Inc., for the purchase of
real and personal property comprising the Polycor Stanstead Quarry, located
in Stanstead, Quebec (incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarterly period ending April
4, 2009 and filed with the Securities and Exchange Commission on May 19,
2009). This exhibit is the original contract written in French.
|
|
|
|
|
10.24
|
English translation of the
Asset Purchase Agreement dated April 17, 2009 by and between Rock of Ages
Canada, Inc., a wholly-owned subsidiary of the Company, and Carrieres
Polycor, Inc., for the purchase of real and personal property comprising the
Polycor Stanstead Quarry, located in Stanstead, Quebec (incorporated by
reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for
the quarterly period ending April 4, 2009 and filed with the Securities and
Exchange Commission on May 19, 2009).
|
|
|
|
|
11.
|
Statement re: computation
of per share earnings (incorporated herein by reference to Note (1)(n) of the
Company's consolidated financial statements (filed herewith))
|
|
|
|
|
21.
|
Subsidiaries of the Company
|
|
|
|
|
23.1
|
Consent of Grant Thornton
LLP
|
|
|
|
|
31.1
|
Certification of CEO
pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act
of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
31.2
|
Certification of CFO pursuant
to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
32.1
|
Certification of CEO
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes Oxley Act of 2002.
|
|
|
|
|
32.2
|
Certification of CFO
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes Oxley Act of 2002.
|
* This exhibit is a
management contract or compensatory plan or arrangement.
† Portions of this exhibit have been omitted and
filed separately with the Securities and Exchange Commission pursuant to a
request for confidential treatment.
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 2009 and 2008
(With Report of Independent Registered Public
Accounting Firm Thereon)
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Table of Contents
|
PAGE
|
|
|
Report of Independent
Registered Public Accounting Firm
|
42
|
|
|
|
|
Consolidated Balance Sheets
|
43
|
|
|
|
|
Consolidated Statements of
Operations
|
45
|
|
|
|
|
Consolidated Statements of
Stockholders' Equity and Comprehensive Income (Loss)
|
46
|
|
|
Consolidated Statements of
Cash Flows
|
47
|
|
|
Notes to Consolidated
Financial Statements
|
49
|
|
|
Supplementary Information:
|
|
|
|
|
|
Schedule
II-Valuation and Qualifying Accounts and Reserves
|
70
|
|
|
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
|
|
|
The Board of Directors and
Stockholders
|
Rock of Ages Corporation:
|
|
|
We have audited the
accompanying consolidated balance sheets of Rock of Ages Corporation (a Vermont
Corporation) and subsidiaries (collectively, the "Company") as of
December 31, 2009 and 2008 and the related statements of operations,
stockholders' equity and comprehensive income (loss), and cash flows for the
years then ended. Our audits of the basic financial statements included the
financial statement schedule listed in the index appearing under Item 15
(a)(2). These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedule
based on our audits.
|
|
|
We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. The Company is not required to have, nor
were we engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and the
disclosures in the financial statements, 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, 2009 and 2008 and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
Also in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
|
/s/ Grant Thornton LLP
Boston, Massachusetts
March 31, 2010
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2009 and 2008
|
|
2009
|
|
|
2008
|
ASSETS
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and
cash equivalents
|
$
|
1,712,760
|
|
$
|
888,099
|
Trade
receivables, less allowance for doubtful accounts of
$324,446 in 2009 and $342,039 in 2008
|
|
7,241,144
|
|
|
13,314,324
|
Inventories
|
|
15,076,775
|
|
|
16,839,448
|
Income
taxes receivable
|
|
429,281
|
|
|
135,682
|
Other
current assets
|
|
1,191,124
|
|
|
1,425,065
|
Assets held for sale
|
|
758,501
|
|
|
477,274
|
Total
current assets
|
|
26,409,585
|
|
|
33,079,892
|
|
|
|
|
|
|
Property, plant and
equipment:
|
|
|
|
|
|
Granite
reserves and development costs
|
|
17,636,252
|
|
|
16,300,376
|
Land
|
|
3,917,749
|
|
|
3,963,610
|
Buildings
and improvements
|
|
11,215,557
|
|
|
10,950,292
|
Machinery
and equipment
|
|
28,411,977
|
|
|
27,304,228
|
Furniture
and fixtures
|
|
931,912
|
|
|
965,006
|
Construction-in-process
|
|
7,333
|
|
|
292,029
|
|
|
62,120,780
|
|
|
59,775,541
|
Less
accumulated depreciation, depletion and amortization
|
|
31,562,227
|
|
|
29,777,079
|
Net
property, plant and equipment
|
|
30,558,553
|
|
|
29,998,462
|
|
|
|
|
|
|
Other assets:
|
|
|
|
|
|
Cash
surrender value of life insurance policies
|
|
136,792
|
|
|
132,184
|
Identified
intangible assets, net
|
|
476,144
|
|
|
570,954
|
Goodwill
|
|
387,156
|
|
|
387,156
|
Debt
issuance costs, net
|
|
105,978
|
|
|
143,381
|
Deferred tax asset
|
|
39,534
|
|
|
-
|
Other
long-term assets
|
|
338,303
|
|
|
130,833
|
Total
other assets
|
|
1,483,907
|
|
|
1,364,508
|
|
|
|
|
|
|
Total
assets
|
$
|
58,452,045
|
|
$
|
64,442,862
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
ROCK
OF AGES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2009 and 2008
|
|
2009
|
|
|
2008
|
LIABILITIES AND
STOCKHOLDERS' EQUITY
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Borrowings
under line of credit
|
$
|
214,446
|
|
$
|
7,428,085
|
Current
maturities of long-term debt
|
|
800,616
|
|
|
517,113
|
Trade
payables
|
|
1,285,295
|
|
|
1,334,125
|
Accrued
expenses
|
|
1,264,287
|
|
|
2,225,986
|
Salary
continuation and other post-employment liabilities
|
|
690,654
|
|
|
567,274
|
Customer
deposits
|
|
773,717
|
|
|
453,595
|
Current deferred tax
liabilities
|
|
236,000
|
|
|
-
|
Total
current liabilities
|
|
5,265,015
|
|
|
12,526,178
|
|
|
|
|
|
|
Long-term debt, net of
current maturities
|
|
13,361,451
|
|
|
13,904,214
|
Salary continuation
liabilities, net of current portion
|
|
5,386,090
|
|
|
5,381,913
|
Accrued pension cost
|
|
4,809,907
|
|
|
9,025,673
|
Accrued post-employment
benefit cost
|
|
1,621,954
|
|
|
1,622,671
|
Other liabilities
|
|
1,503,701
|
|
|
1,523,338
|
Deferred tax liabilities
|
|
-
|
|
|
27,421
|
Total
liabilities
|
|
31,948,118
|
|
|
44,011,408
|
|
|
|
|
|
|
Commitments and
contingencies (Note 4)
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
|
Preferred
stock - No par value;
2,500,000 shares authorized; none issued
|
|
-
|
|
|
-
|
Common
stock - Class A, No par value;
30,000,000 shares authorized; 4,812,342
shares issued and
outstanding as of
December 31, 2009 and 2008
|
|
48,124
|
|
|
48,124
|
Common Stock -
Class B, No par value;
15,000,000 shares authorized; 2,603,721
shares issued and
outstanding as of
December 31, 2009 and 2008
|
|
26,037
|
|
|
26,037
|
Additional paid-in capital
|
|
65,750,600
|
|
|
65,688,524
|
Accumulated deficit
|
|
(34,745,545
|
)
|
|
(35,547,869)
|
Accumulated other comprehensive loss
|
|
(4,575,289
|
)
|
|
(9,783,362)
|
Total
stockholders' equity
|
|
26,503,927
|
|
|
20,431,454
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
$
|
58,452,045
|
|
$
|
64,442,862
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 2009 and 2008
|
|
2009
|
|
2008
|
Net revenues:
|
|
|
|
|
Quarry
|
$
|
21,682,316
|
$
|
28,685,500
|
Manufacturing
|
|
23,838,831
|
|
27,183,365
|
Total
net revenues
|
|
45,521,147
|
|
55,868,865
|
|
|
|
|
|
Cost of goods sold:
|
|
|
|
|
Quarry
|
|
16,670,187
|
|
21,332,267
|
Quarry
inventory write-down
|
|
-
|
|
3,929,686
|
Manufacturing
|
|
17,571,473
|
|
19,715,534
|
Total
cost of goods sold
|
|
34,241,660
|
|
44,977,487
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
Quarry
|
|
5,012,129
|
|
3,423,547
|
Manufacturing
|
|
6,267,358
|
|
7,467,831
|
Total
gross profit
|
|
11,279,487
|
|
10,891,378
|
|
|
|
|
|
Selling, general and
administrative expenses:
|
|
|
|
|
Quarry
|
|
2,242,915
|
|
2,266,873
|
Manufacturing
|
|
3,933,555
|
|
4,382,813
|
Corporate
overhead
|
|
3,042,110
|
|
3,635,699
|
Impairment of long-lived
assets
|
|
-
|
|
1,348,253
|
Effect of pension
curtailment
|
|
95,136
|
|
-
|
Foreign exchange loss
(income)
|
|
131,161
|
|
(27,071)
|
Other income, net
|
|
(405,385)
|
|
(424,555)
|
Total
selling, general and administrative expenses
|
|
9,039,492
|
|
11,182,012
|
|
|
|
|
|
Income (loss) from
operations
|
|
2,239,995
|
|
(290,634)
|
|
|
|
|
|
Interest expense, net
|
|
1,157,808
|
|
1,367,564
|
|
|
|
|
|
Income (loss)
from continuing operations before income taxes
|
|
1,082,187
|
|
(1,658,198)
|
|
|
|
|
|
Provision for income taxes
|
|
279,863
|
|
394,980
|
|
|
|
|
|
Income (loss)
from continuing operations
|
|
802,324
|
|
(2,053,178)
|
|
|
|
|
|
Discontinued operations
|
|
-
|
|
(142,311)
|
|
|
|
|
|
Net income
(loss)
|
$
|
802,324
|
$
|
(2,195,489)
|
|
|
|
|
|
Net income (loss) per share
- basic and diluted:
|
|
|
|
|
Income (loss)
from continuing operations
|
$
|
0.11
|
$
|
(0.28)
|
Discontinued
operations
|
|
-
|
|
(0.02)
|
Net
income (loss) per share
|
$
|
0.11
|
$
|
(0.30)
|
Weighted average number of
common shares outstanding
|
|
|
|
|
Basic and diluted
|
|
7,416,063
|
|
7,416,063
|
See
accompanying notes to consolidated financial statements.
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Consolidated Statements of
Stockholders' Equity and Comprehensive Income (Loss)
Years ended December 31, 2009 and 2008
|
|
CLASS A
COMMON
STOCK
|
|
CLASS B
COMMON
STOCK
|
|
ADDITIONAL
PAID-IN
CAPITAL
|
|
ACCUMULATED
DEFICIT
|
|
ACCUMULATED
OTHER
COMPREHENSIVE
LOSS
|
|
TOTAL
STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
$
|
46,775
|
$
|
27,386
|
$
|
65,656,658
|
$
|
(33,352,380)
|
$
|
(1,907,703)
|
$
|
30,470,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
-
|
|
-
|
|
-
|
|
(2,195,489)
|
|
-
|
|
(2,195,489)
|
Cumulative
translation adjustment
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(2,020,538)
|
|
(2,020,538)
|
Net unrealized loss on
securities available for sale
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(94,600)
|
|
(94,600)
|
Pension
liability adjustment, net
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(5,760,521)
|
|
(5,760,521)
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
(10,071,148)
|
Stock compensation expense
|
|
-
|
|
-
|
|
31,866
|
|
-
|
|
-
|
|
31,866
|
Conversion of common stock
|
|
1,349
|
|
(1,349)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
$
|
48,124
|
$
|
26,037
|
$
|
65,688,524
|
$
|
(35,547,869)
|
$
|
(9,783,362)
|
$
|
20,431,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
-
|
|
-
|
|
-
|
|
802,324
|
|
-
|
|
802,324
|
Cumulative
translation adjustment
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1,522,897
|
|
1,522,897
|
Net unrealized gain on securities available for sale
|
|
-
|
|
-
|
|
-
|
|
-
|
|
25,800
|
|
25,800
|
Pension
liability adjustment, net
|
|
-
|
|
-
|
|
-
|
|
-
|
|
3,659,376
|
|
3,659,376
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
6,010,397
|
Stock compensation expense
|
|
-
|
|
-
|
|
62,076
|
|
-
|
|
-
|
|
62,076
|
Balance at December 31, 2009
|
$
|
48,124
|
$
|
26,037
|
$
|
65,750,600
|
$
|
(34,745,545)
|
$
|
(4,575,289)
|
$
|
26,503,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial
statements.
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2009 and 2008
|
|
2009
|
|
|
2008
|
Cash flows from operating
activities:
|
|
|
|
|
|
Net income (loss)
|
$
|
802,324
|
|
$
|
(2,195,489)
|
Adjustments to reconcile
net income (loss) to net cash provided by
operating activities:
|
|
|
|
|
|
Impairment of long-lived
asset
|
|
-
|
|
|
1,348,253
|
Write-down of inventory
|
|
-
|
|
|
3,929,686
|
Other than temporary
impairment on investment
|
|
-
|
|
|
93,640
|
Gain
on sale of assets
|
|
(229,925
|
)
|
|
(197,061)
|
Depreciation, depletion and amortization
|
|
2,497,502
|
|
|
2,399,793
|
Deferred
taxes
|
|
164,686
|
|
|
(21,327)
|
Stock compensation
expense
|
|
62,076
|
|
|
31,866
|
Cash
surrender value of life insurance policies
|
|
(4,609
|
)
|
|
54,271
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
Decrease
(increase) in trade receivables
|
|
6,243,419
|
|
|
(1,942,652)
|
Decrease
(increase) in inventories
|
|
2,399,448
|
|
|
11,623
|
Decrease
(increase) in other current assets
|
|
(59,658
|
)
|
|
106,555
|
Decrease
(increase) in other assets
|
|
(171,017
|
)
|
|
(88,203)
|
Increase
(decrease) in trade payables and accrued expenses
|
|
(1,073,763
|
)
|
|
(657,309)
|
Increase
(decrease) in customer deposits
|
|
320,123
|
|
|
(293,014)
|
Increase
(decrease) in salary continuation, pension and post-employment liabilities
|
|
(445,185
|
)
|
|
(497,180)
|
Increase
(decrease) in other liabilities
|
|
(19,638
|
)
|
|
200,865
|
Net cash provided by operating activities
|
|
10,485,783
|
|
|
2,284,317
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
Purchases
of property, plant and equipment
|
|
(1,778,841
|
)
|
|
(3,088,531)
|
Purchase
of intangible asset
|
|
-
|
|
|
(179,197)
|
Purchase
of quarries
|
|
(1,136,943
|
)
|
|
-
|
Proceeds
from sale of assets
|
|
461,823
|
|
|
473,032
|
Proceeds
from sale of retail division
|
|
-
|
|
|
7,716,604
|
Net cash (used in) provided by investing activities
|
|
(2,453,961
|
)
|
|
4,921,908
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
Net
repayments under line of credit
|
|
(7,213,639
|
)
|
|
(3,070,301)
|
Principal
payments on long-term debt
|
|
(260,819
|
)
|
|
(4,923,910)
|
Debt
issuance costs
|
|
-
|
|
|
(24,101)
|
Net cash used in financing activities
|
|
(7,474,458
|
)
|
|
(8,018,312)
|
|
|
|
|
|
|
Effect of exchange rate
changes on cash and cash equivalents
|
|
267,297
|
|
|
(260,326)
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
824,661
|
|
|
(1,072,413)
|
|
|
|
|
|
|
Cash and cash equivalents,
beginning of year
|
|
888,099
|
|
|
1,960,512
|
|
|
|
|
|
|
Cash and cash equivalents,
end of year
|
$
|
1,712,760
|
|
$
|
888,099
|
|
|
|
|
|
|
See accompanying notes to consolidated financial
statements.
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash
Flows, continued
Years ended December 31, 2009 and 2008
|
|
2009
|
|
2008
|
Supplemental cash flow
information:
|
|
|
|
|
Cash paid during the
year for:
|
|
|
|
|
Interest
|
$
|
1,204,512
|
$
|
1,405,359
|
Income taxes
|
|
392,675
|
|
550,772
|
|
|
Supplemental non-cash
investing and financing activities:
|
|
|
The Company recorded an
adjustment due to an increase in the funded status of the pension plans of $3,659,376
in 2009. In 2008, the Company recorded an adjustment due to a decrease in the
funded status of the pension plans of $5,760,521.
|
|
See accompanying notes to consolidated financial
statements.
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial
Statements
December 31, 2009 and 2008
|
|
(1)
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
|
|
|
|
|
In
this report, the terms "Company," "we," "us,"
or "our" mean Rock of Ages Corporation and all subsidiaries
included in our consolidated financial statements. Rock of Ages was founded
in 1885 and is an integrated granite quarrier and manufacturer whose
principal product is granite memorials used primarily in cemeteries. We own
and operate nine active quarry properties and five manufacturing and sawing
facilities in North America, principally in Vermont and the Province of Quebec. Until the retail division was sold on January 17, 2008, we marketed and distributed our memorials on a retail basis through approximately eighty
Company-owned retail sales outlets in sixteen states. We sell memorials
wholesale to approximately 115 independent authorized Rock of Ages retailers
in the United States as well as approximately 116 retailers in Canada.
|
|
|
|
|
|
|
|
(a)
|
PRINCIPLES OF
CONSOLIDATION
|
|
|
The
accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant inter-company
balances and transactions have been eliminated in consolidation.
|
|
|
|
|
(b)
|
CASH AND CASH
EQUIVALENTS
|
|
|
We
consider financial instruments that are both readily convertible to cash and
so near their maturity that they present insignificant risk of changes in
value because of changes in interest rates to be cash equivalents.
|
|
|
|
|
|
The
Company had approximately $1,699,000 and $873,000 of cash and cash
equivalents in foreign banks at December 31, 2009 and 2008, respectively.
|
|
|
|
|
(c)
|
INVENTORIES
|
|
|
Inventories
are stated at the lower of cost or market. Cost is determined using the
specific annual average cost method for the quarry segment and the specific
cost method for the manufacturing segment.
|
|
|
|
|
(d)
|
PROPERTY,
PLANT AND EQUIPMENT
|
|
|
The
Company capitalizes significant purchases of items having expected useful
lives in excess of one year. 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 improvements
|
10
to 40 years
|
|
|
Leasehold
improvements
|
Shorter
of the estimated useful life or lease term
|
|
|
Machinery
and equipment
|
3
to 20 years
|
|
|
Furniture
and fixtures
|
5
to 12 years
|
|
|
|
|
|
Depreciation
expense amounted to $2,251,372 and $2,117,274 in 2009 and 2008, respectively.
|
|
|
|
|
|
Cost
depletion and amortization of granite reserves and development costs are
charged to operations based on cubic feet produced in relation to estimated
reserves of the property. Cost depletion and amortization charged to
operations amounted to $78,939 and $126,124 in 2009 and 2008, respectively.
|
|
|
|
|
(e)
|
GOODWILL
AND IDENTIFIED INTANGIBLE ASSETS
|
|
|
Identified
intangible assets (those intangible assets with definite estimated useful
lives) are recorded at fair value at the date of acquisition and are
amortized, using the straight-line method, over their estimated useful lives.
Such intangible assets are reviewed for impairment as set forth in note 1
(l).
|
|
|
|
|
|
Goodwill is
recorded when consideration paid for a business acquisition exceeds the fair
value of the net tangible and identifiable intangible assets acquired. The
Company tests goodwill for impairment annually and when an event occurs or
circumstances change that would more likely than not reduce the fair value of
a reporting unit below its carrying value. Goodwill is tested for impairment
using a two-step process. The first step is to determine if there is an
impairment based on the estimated fair value of the Quarry reporting unit
compared to its carrying value and the second step, if necessary, is to
determine the amount of the impairment.
|
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial
Statements
December 31, 2009 and 2008
|
|
During the
fourth quarter of 2009, based on a combination of factors, including the
Company's market capitalization being less than consolidated shareholders'
equity, the Company concluded that there were sufficient indicators to
require the Company to perform an interim goodwill impairment analysis as of
December 31, 2009. Accordingly, the Company performed a step 1 impairment
assessment of its goodwill and determined that the estimated fair value of
the Quarry reporting unit exceeded its carrying value. The estimated fair
value of the reporting unit was determined using a discounted cash flow as
the best evidence of fair value. There can be no assurance that goodwill will
not become impaired in future periods. The Company performs its annual
impairment test in the first quarter.
|
|
|
|
|
(f)
|
DEBT
ISSUANCE COSTS
|
|
|
The
Company amortizes debt issuance costs using the straight-line method over the
term of the related borrowing. Amortization expense was $37,404 and $36,543
in 2009 and 2008, respectively, and is reported with interest expense in the
accompanying consolidated statements of operations.
|
|
|
|
|
(g)
|
FOREIGN
CURRENCY TRANSLATION
|
|
|
The
functional currency of the Company's Canadian subsidiary is the Canadian
dollar. The Company translates the accounts of its foreign subsidiary in
accordance with the accounting literature regarding 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 included in accumulated other
comprehensive loss, which is included in stockholders' equity in the
accompanying consolidated financial statements. All realized and unrealized
transaction gains and losses are separately reported in the statements of
operations.
|
|
|
|
|
(h)
|
INCOME
TAXES
|
|
|
The Company
files its U.S. Federal income tax return on a consolidated basis. Rock of
Ages Canada, Inc., a wholly owned subsidiary, is responsible for income taxes
in Canada. Max Mining, a wholly owned subsidiary, is responsible for income
taxes in Luxembourg.
|
|
|
|
|
|
We recognize
deferred tax assets and liabilities for the future tax consequences
attributable to the difference between the financial statement carrying
amounts of existing assets and liabilities and their respective tax basis.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
|
|
|
|
|
|
The ultimate
realization of deferred tax assets depends upon the generation of future
taxable income during the periods in which those temporary differences become
deductible. In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will be realized. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income and tax
planning strategies in making this assessment. This assessment is made each
reporting period.
|
|
|
|
|
|
The Company is
allowed to claim percentage depletion for tax purposes under IRS Code Section
613 based upon income derived from quarrying operations.
|
|
|
|
|
|
The Company
follows the FASB guidance on accounting for uncertain tax positions formerly
known as FIN 48. This guidance clarifies accounting for income taxes by
prescribing the minimum threshold a tax position is required to meet before
being recognized in the financial statements. It also provides guidance on
derecognition, measurement, classification, interest and penalties,
accounting in interim periods, disclosure and transition. We have no
unrecognized tax benefits or liabilities related to uncertain tax positions.
|
|
|
|
|
(i)
|
STOCK-BASED EMPLOYEE
COMPENSATION
|
|
|
The Company accounts for
share-based payments in accordance with the requirement that all share-based
payments to employees, including grants of employee stock options, be
recognized in the financial statements based on their fair values.
|
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial
Statements
December 31, 2009 and 2008
|
|
|
|
(j)
|
PENSION AND OTHER
POST-EMPLOYMENT PLANS
|
|
|
|
|
|
The Company maintains 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 Company's funding policy is to annually
contribute amounts sufficient to meet minimum funding requirements as set
forth in employee benefit and tax laws plus such additional amounts, if any,
as we may determine to be appropriate. In 2009, the Company approved a freeze
of membership and benefits in this plan.
|
|
|
|
|
|
|
|
|
We have salary continuation
plans that cover certain employees described in more detail in Note 9. We
measure the cost of our obligations based on actuarial estimates and
recognize net periodic costs as employees render the necessary services to
earn the benefits.
|
|
|
|
|
|
The Company also sponsors a
post-employment health care plan for certain early retirees and executive
officers and post-employment group life insurance plans for all Vermont-based
union and non-union employees. We measure the cost of our obligations based
on actuarial estimates and recognize net periodic costs as employees render
the services necessary to earn the post-employment benefits.
|
|
|
|
|
(k)
|
USE OF ESTIMATES
|
|
|
The preparation of
financial statements in conformity with accounting principles generally
accepted in the United States of America 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. Material estimates that are particularly susceptible to
significant change are the estimated useful lives of property, plant and
equipment, the deferred tax asset valuation allowance, actuarial assumptions
affecting pension and other post-employment plan accounting, inventory
valuation, the allowance for doubtful accounts receivable and long-lived
asset impairments.
|
|
|
|
|
(l)
|
IMPAIRMENT OF LONG-LIVED
ASSETS
|
|
|
The Company accounts for
long-lived assets in accordance with accounting guidance which requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate the carrying
amount of an asset may not be recoverable. We measure recoverability of
assets to be held and used by a comparison of the carrying amount of an asset
to estimated, undiscounted future cash flows expected to be generated by the
asset. If the carrying amount of an asset exceeds its estimated future cash
flows, an impairment charge is recognized for the amount by which the
carrying amount of the asset exceeds its fair value.
|
|
|
|
|
(m)
|
REVENUE RECOGNITION
|
|
|
Quarry
|
|
|
|
|
|
The granite we quarry is
sold to outside customers and used by our manufacturing group. Our quarry
division recognizes revenue from sales of granite blocks to outside customers
when persuasive evidence of an arrangement exists, delivery has occurred or
the services have been provided and accepted by the customer, fees are
determinable and collectibility is reasonably assured. We generally provide a
5% discount for domestic customers if payment is made within 30 days of
purchase, except in the case of December terms described below. Sales to
foreign customers are typically secured by a letter of credit.
|
|
|
|
|
|
At our Barre, Vermont quarries, we allow customers to purchase granite blocks and, at their request, we
store the blocks for them. Many of our customers do not have adequate storage
space at their facilities and want to ensure an adequate supply of blocks,
especially when the Barre quarries are closed from mid-December through
mid-March because of weather. Blocks are sold when the customer selects and
identifies the block at the quarry site, requests the block be stored and
they have significant business reasons to do so. At that time, the block is
removed from inventory, the customer's name is printed on the block, and
title and risk of ownership passes to the buyer. The customer is invoiced and
normal payment terms apply, except in the case of December terms described
below. Granite blocks owned by customers remain on our property for varying
periods of time after title passes. We retain a delivery obligation using our
trucks. However, we consider the earnings process substantially complete
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
at the quarry.
|
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial
Statements
December 31, 2009 and 2008
|
|
Each December, we offer
special payment terms to customers of our Barre quarries. As noted above,
from approximately mid-December to approximately mid-March, our Barre
quarries are closed due to weather. During this time, manufacturing plants
remain open and many customers prefer to ensure they own blocks of a size and
quality selected by them prior to the quarries' closure. All blocks purchased
in December are invoiced on or about December 31 and, at that time, the
blocks are removed from inventory, the customer's name is printed on the
blocks, and title and risk of ownership passes 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 Barre quarries are closed
notwithstanding the customer purchases a three-month supply in December and
makes payments over 90 days. Customers need not use these special December
terms and may buy from inventory during the closure period on a first-come,
first-served basis with the normal 30-day payment terms.
|
|
|
|
|
|
Manufacturing
|
|
|
|
|
|
We record revenue 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 our facilities or set in a cemetery, if we are responsible for
the setting, which is when risk of ownership transfers to the customer,
persuasive evidence of an arrangement exists and collectibility is reasonably
assured.
|
|
|
|
|
|
Freight
|
|
|
|
|
|
Freight and handling fees
charged to customers for shipping product are included in revenues and the
related costs are classified in cost of sales.
|
|
|
|
|
(n)
|
NET INCOME (LOSS) PER
SHARE
|
|
|
Net income (loss) per
share, or basic earnings (loss) 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 (loss) per share - diluted, or
diluted earnings (loss) 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
under stock based compensation programs had been issued. Potential common
shares are not included in the diluted income (loss) per share calculations
when the effect of their inclusion would be antidilutive, such as when the
Company incurs a net loss.
|
|
|
|
|
(o)
|
ACCUMULATED OTHER
COMPREHENSIVE LOSS
|
|
|
Other comprehensive loss
consists of the following components, which are presented in the consolidated
statements of stockholders' equity and comprehensive loss.
|
|
|
Foreign Currency
Translation
|
|
|
Unfunded
Pension
Liability
|
|
|
Investment
Available
For
Sale
|
|
|
Accumulated Other
Comprehensive
Loss
|
Balance at December 31, 2007
|
$
|
3,525,745
|
|
$
|
(5,467,848
|
)
|
$
|
34,400
|
|
$
|
(1,907,703)
|
Other comprehensive loss
|
|
(2,020,538
|
)
|
|
(5,760,521
|
)
|
|
(94,600
|
)
|
|
(7,875,659)
|
Balance at December 31, 2008
|
$
|
1,505,207
|
|
$
|
(11,228,369
|
)
|
$
|
(60,200
|
)
|
$
|
(9,783,362)
|
Other comprehensive income
|
|
1,522,897
|
|
|
3,659,376
|
|
|
25,800
|
|
|
5,208,073
|
Balance at December 31, 2009
|
$
|
3,028,104
|
|
$
|
(7,568,993
|
)
|
$
|
(34,400
|
)
|
$
|
(4,575,289)
|
|
|
|
|
|
Included in other
comprehensive income/loss was a reclassification adjustment of $86,000 in
2008 for the investment available for sale. Included in other comprehensive
income/loss was a reclassification adjustment of $482,000 and $345,000 in 2009
and 2008, respectively, for the unfunded pension liability.
|
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial
Statements
December 31, 2009 and 2008
|
(p)
|
INVESTMENTS
|
|
|
|
|
|
Through its wholly owned
subsidiary, Max Mining, the Company had a 1/3-equity interest in VIKA, Ltd.,
a Ukrainian closed stock company that owns the rights to quarry stone known
as "Galactic Blue" on certain property located in the Ukraine. As of December 31, 2007, the Company wrote-off its investment in VIKA and as of
December 31, 2009 the Company sold its shares to the remaining stockholder
for $170,583. In conjunction with this sale the Company entered into an
exclusive distribution agreement with VIKA pursuant to which the Company has
the exclusive worldwide right to sell and distribute all quarried products of
VIKA including slabs and other finished products for five years.
|
|
|
|
|
|
|
|
|
The Company owns common
stock of a public company, representing an equity interest of less than 20%,
where we do not exercise significant influence over the operating and
financial policies of the investee. This investment is accounted for as
available for sale and is carried at fair market value with unrecognized gain
or loss recorded in accumulated other comprehensive loss. As of December 31,
2008 the Company determined that the stock had experienced an impairment in
value that was other than temporary and as a result the Company recorded a
loss of $94,000.
|
|
|
|
|
(q)
|
ADVERTISING
EXPENSES
|
|
|
|
|
|
Advertising costs are
expensed as incurred, and amounted to $179,000 and $173,000 in 2009 and 2008,
respectively.
|
|
|
|
|
|
|
|
(r)
|
WARRANTY
|
|
|
|
|
|
Our memorials are covered
by a full perpetual or a limited perpetual warranty depending on the
particular granite. The Company estimates probable warranty costs at the time
revenue is recognized. The Company exercises judgment in determining its
accrued warranty liability and considers factors that may affect warranty
liability, including historical and anticipated rates of warranty claims. To
date, warranty obligations have not been significant.
|
|
|
|
|
|
|
|
(s)
|
ASSET RETIREMENT
OBLIGATIONS
|
|
|
|
|
|
The Company regularly evaluates legal
obligations associated with the retirement of tangible long-lived assets that
result from acquisition, construction, development or normal operation of a
long-lived asset. Based on the most current analysis of such obligations, we
determined the related liability to be insignificant. Many of our permits to
quarry, especially in Vermont and Canada, pre-date the current remediation
regulations, therefore pre-date any retirement obligations related to these
quarries.
|
|
|
|
|
|
|
|
(t)
|
ACCOUNTS RECEIVABLE AND
ALLOWANCE FOR DOUBTFUL ACCOUNTS
|
|
|
Receivables
relate to amounts due from customers of each of our segments. The Company
generally requires collateral in the form of a deposit, the amount of which
depends upon the length of the relationship with the customer, past payment
history of the customer and other factors. In the case of most foreign
transactions, a letter of credit securing payment is required. To reduce
credit risk, credit assessments are performed prior to accepting an initial
order from most quarry and manufacturing customers. Trade accounts receivable
are recorded at the invoiced amount and do not bear interest.
|
|
|
|
|
|
|
|
|
The estimated
allowance for doubtful accounts receivable is based, in large part, upon
judgments and estimates of inherent losses. The Company determines the
allowance based on a specific evaluation of delinquent accounts and considers
a number of factors, including the length of time trade accounts receivable
are past due and previous loss experience. Accounts receivable determined to
be losses are written off against the allowance; any recoveries of
receivables previously written off are credited to the allowance when
received.
|
|
|
|
|
|
|
|
(u)
|
FAIR VALUE MEASUREMENTS
|
|
|
|
|
|
The Company accounts for
its financial assets and liabilities in accordance with current accounting
guidance which establishes a framework for measuring fair value and expands
disclosure requirements. It defines fair value as the price that would be
received to sell an asset, or paid to transfer a liability, in an orderly
transaction between market participants.
|
|
|
|
|
|
|
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial
Statements
December 31, 2009 and 2008
|
|
The valuation techniques
are based on observable or unobservable inputs. Observable inputs reflect
market data obtained from independent sources, while unobservable inputs
reflect the Company's market assumptions. These two types of inputs have
created the following fair value hierarchy:
-
Level 1- Quoted prices
for identical instruments in active markets.
-
Level 2 - Quoted prices
for similar instruments in active markets; quoted prices for identical
or similar instruments in markets that are not active; and model-derived
valuations in which significant value drivers are observable.
-
Level 3 - Valuations
derived from valuation techniques in which significant value drivers are
unobservable.
|
|
|
|
|
|
The carrying
value of cash and cash equivalents, accounts receivable and accounts payable
approximates fair value because of the short-term nature of these
instruments. Investment securities are carried at fair value using level one
inputs. The long-term and short-term debt instruments bear interest at
variable rates, which at December 31, 2009 we estimated to be at market. At
December 31, 2008 we estimated the interest rates to be below market. If this
debt was at market rates we estimated the carrying value would be
approximately $1.8 million more.
|
|
|
|
|
(v)
|
RECENT ACCOUNTING
PRONOUNCEMENTS
|
|
|
|
|
|
In December 2008, the
FASB issued an amendment to the
Compensation
topic regarding employer's
disclosures about postretirement benefit plan assets. This guidance requires
more detailed disclosures about plan assets of a defined benefit pension or
other postretirement plan, including investment strategies; major categories
of plan assets; concentrations of risk within plan assets; inputs and
valuation techniques used to measure the fair value of plan assets; and the
effect of fair-value measurements using significant unobservable inputs on
changes in plan assets for the period. It is effective for fiscal years
ending after December 15, 2009, with earlier application permitted. The
adoption of this amended guidance did not have a material effect on our
financial position or results of operations but did result in expanded
financial statement disclosures (see note 8).
|
|
|
|
|
|
In May 2009, the FASB
issued the
Subsequent Events
topic which establishes standards under
which an entity shall recognize and disclose events that occur after a
balance sheet date, but before the related financial statements are issued or
are available to be issued. The guidance is effective for fiscal years and
interim periods ending after June 15, 2009. The Company has evaluated and
disclosed subsequent events through the date of this filing. See note 18 for
a discussion of subsequent events.
|
|
|
|
|
|
In January 2010,
the FASB issued accounting guidance to enhance fair value measurement
disclosures by requiring the reporting entity to disclose separately the
amounts of significant transfers in and out of Level 1 and Level 2 fair value
measurements and describe the reason for the transfers. Furthermore, activity
in Level 3 fair value measurements should separately provide information
about purchases, sales, issues and settlements rather than providing that
information as one net number. These new disclosures are effective for
interim and annual reporting periods beginning after December 15, 2009,
with the exception of the enhanced Level 3 disclosures, which are effective
for interim and annual reporting periods beginning after December 15,
2010. The Company does not expect that application of this guidance will have
a material impact on our financial position or results of operations.
|
|
|
(2)
|
GOODWILL AND IDENTIFIED INTANGIBLE ASSETS
|
|
|
|
Goodwill and identified intangible assets
consist of the following at December 31, 2009 and 2008:
|
|
ESTIMATED
USEFUL LIFE
|
|
2009
|
|
|
2008
|
Goodwill
|
Indefinite
|
$
|
387,156
|
|
$
|
387,156
|
|
|
|
|
|
|
|
Customer lists
|
5 -10 Years
|
$
|
617,875
|
|
$
|
617,875
|
Less
accumulated amortization
|
|
|
(238,965
|
)
|
|
(176,567)
|
|
|
|
378,910
|
|
|
441,308
|
|
|
|
|
|
|
|
Covenants
not to compete
|
5 Years
|
$
|
342,123
|
|
$
|
342,123
|
Less
accumulated amortization
|
|
|
(244,889
|
)
|
|
(212,477)
|
|
|
|
97,234
|
|
|
129,646
|
Total other identified intangible assets
|
|
$
|
476,144
|
|
$
|
570,954
|
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial
Statements
December 31, 2009 and 2008
Amortization expense was $129,787
and $119,854 in 2009 and 2008, respectively.
|
|
Estimated future
amortization expense related to identified intangible assets is as follows:
|
Year Ending December 31
|
|
|
|
|
|
2010
|
$
|
129,787
|
2011
|
|
129,787
|
2012
|
|
129,787
|
2013
|
|
36,531
|
2014
|
|
31,000
|
Thereafter
|
|
19,252
|
(3)
|
INVENTORIES
|
|
|
|
Inventories consist of the
following at December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
2009
|
|
2008
|
Raw
materials
|
$
|
10,401,787
|
$
|
11,610,189
|
Work-in-process
|
|
1,056,541
|
|
1,165,909
|
Finished
goods and supplies
|
|
3,618,447
|
|
4,063,350
|
|
$
|
15,076,775
|
$
|
16,839,448
|
|
|
|
|
|
|
The finished goods and
supplies inventory includes $1,905,000 and $2,075,000 of retail display
inventory as of December 31, 2009 and December 31, 2008, respectively, that
is located at various retail locations and is consigned to PKDM Holdings
Inc., ("PKDM") the owners of the Company's former retail division. PKDM is
responsible for purchasing this inventory at the Company's book value as it
is sold plus any inventory remaining after the tenth anniversary of the
transaction (January 2018).
|
|
|
|
|
|
During the fourth quarter
of 2008, the Company reevaluated the current quantities of second grade or
"B" block inventory at its export quarries, Bethel, Salisbury and Gardenia.
Due to escalating freight costs, which can account for up to 50% of the selling
price of blocks, as well as the continued downturn in the global economy,
fewer customers were willing to purchase "B" blocks. Based on these
circumstances the Company estimated approximately $3.9 million of this
inventory to be excessive as of December 31, 2008 and, accordingly, recorded
the write-down during the fourth quarter of 2008.
|
|
|
(4)
|
COMMITMENTS AND
CONTINGENCIES
|
|
|
|
Leases
|
|
|
|
The Company has several
non-cancelable operating leases for land and vehicles. Rental expense for all
operating leases was $201,516 and $204,142 in 2009 and 2008, respectively.
|
|
|
|
|
|
Future minimum lease
payments under non-cancelable operating leases (with initial or remaining
lease terms in excess of one year) are as follows:
|
|
|
|
Year Ending December 31,
|
|
|
2010
|
$
|
198,425
|
2011
|
|
187,959
|
2012
|
|
181,448
|
2013
|
|
167,489
|
2014
|
|
130,477
|
Thereafter
|
|
134,392
|
|
$
|
1,000,190
|
|
|
|
|
The Company also is the
lessor of certain parcels of land and buildings. The leases expire at various
times through 2028. Rental income was $128,234 and $148,228 in 2009 and 2008,
respectively. Future minimum rentals to be received under non-cancelable
leases are as follows:
|
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial
Statements
December 31, 2009 and 2008
Year Ending December 31
|
|
|
2010
|
$
|
123,617
|
2011
|
|
117,926
|
2012
|
|
97,904
|
2013
|
|
102,980
|
2014
|
|
41,146
|
Thereafter
|
|
520,253
|
|
$
|
1,003,826
|
|
Purchase Commitment
|
|
In connection with the sale
of the Lawson manufacturing plant in Barre, Vermont ("Lawson") in
2001, the Company entered into a Supply Agreement with Adams Granite Co.
("Adams"). The Company agreed to purchase a minimum of $3,000,000
of monuments from Adams each year for a term of seven years with various
stipulations as to variations from the "minimum order" and pricing
agreements. If orders over a two-year period were less than the "minimum
order," then the Company would at its sole option, either place orders
for monuments in the amount of the deficiency or pay Adams the gross margin that
Adams would have realized had such orders been placed and filled. The gross
margin used in this calculation would be Adams' average gross margin on sales
of monuments to the Company over the prior two-year period.
|
|
|
|
The Supply Agreement with Adams was amended over the years reducing the minimum order obligation to $1,200,000 for
the final year ending January 10, 2010. The Company exceeded its minimum
order obligation for the final year ending January 10, 2010 and no longer has
an obligation to purchase monuments from Adams.
|
|
|
|
Litigation
|
|
The Company is 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 based on its discussions with legal counsel, does not
expect any of these matters to have a material adverse effect on the
Company's financial condition, results of operations or cash flows.
|
|
|
|
Regulatory Matters
|
|
The U.S. Mine Safety and
Health Administration (MSHA) issued citations in 2009 to one of our
subsidiaries, Pennsylvania Granite, asserting various violations and assessed fines
totaling approximately $280,000. The Company disagrees with the validity of these
violations and how they are characterized. We are appealing these citations.
Based on experience of our legal counsel in settling similar assessments and
available historical MSHA settlement data, we estimate our final exposure will be
no greater than $125,000.
|
|
|
|
Other commitments
|
|
|
|
The
Company has an employment agreement with its chief executive officer that
includes a change in control provision providing for the lump-sum payment of
an amount equal to one year's salary and certain other benefits in the event
of a change in control of the Company.
|
|
|
(5)
|
CREDIT
FACILITY
|
|
In October 2007, the
Company entered into a credit facility (the "Facility") with its existing
lenders, the CIT Group/Business Credit and Chittenden Trust Company
("Lenders") that is scheduled to expire in October 2012 and is
secured by substantially all assets of the Company located in the United States. The Facility consists of an acquisition term loan line of credit of up to
$30.0 million and a revolving credit facility of up to another $20.0 million
based on eligible accounts receivable, inventory and certain fixed assets
less standby letters of credit. Amounts outstanding were $214,446 and $13,885,960
as of December 31, 2009 and $7,428,085 and $14,106,939 as of December 31,
2008, on the revolving credit facility and the term loan line of credit,
respectively. Availability under the revolving credit facility was $10,745,414
as of December 31, 2009. The term loan line of credit is available to pay for
the acquisition of quarries or manufacturers and items incidental to the
acquisitions subject to various restrictions. The weighted average interest
rate was 5.3% and 4.7% on the revolving credit facility in 2009 and 2008,
respectively. The Facility places restrictions on our ability to, among other
things, sell assets, participate in mergers, incur debt, pay dividends, make
capital expenditures, repurchase stock and make investments or guarantees,
without pre-approval by the Lenders.
|
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial
Statements
December 31, 2009 and 2008
|
Minimum Fixed Charge
Coverage Ratio
. The facility
requires the ratio of the sum of earnings before interest, taxes,
depreciation and amortization (EBITDA), to the sum of income taxes paid,
capital expenditures, interest and scheduled debt repayments be at least 1.10
for any trailing twelve-month period at the end of a quarter. As of December
31, 2009 we were in compliance with the Minimum Fixed Charge Coverage Ratio.
Due to the non-cash impairment charges on the write-down of inventory and the
corporate building in 2008 we were in violation of the covenant at December
31, 2008. We received a waiver of this covenant from the Lenders and amended
the agreement effective March 31, 2009. As a result of the amendment the
unused line fee went from .25% to .50% and the existing interest rate pricing
grid was changed as follows:
|
|
|
|
|
Revolving Credit Facility
|
Term Loan
|
Previous Rate Formula
|
Prime or Libor +2%
|
Prime + .25% or Libor +2.25%
|
Amended Rate Formula
|
Prime + 3% or Libor + 4%
|
Prime + 3.5% or Libor + 4.5%
|
|
|
|
Total Liabilities to Net
Worth Ratio.
The Facility also
requires that the ratio of our total liabilities to net worth (the
"Leverage Ratio") not exceed 2.0. The Leverage Ratio excludes from
the calculation the change in tangible net worth directly resulting from the
Company's compliance with accounting rules regarding unfunded retirement
liabilities, up to $6 million. As of December 31, 2009, we were in compliance
with the Leverage Ratio covenant.
|
|
|
|
|
|
Interest Rates.
We can elect the interest rate structure under the
credit facility based on the prime rate or LIBOR for both the revolving
credit facility and the term loan with a LIBOR floor of 2.0%.
|
|
The rates in effect as of
December 31, 2009 were as follows:
|
|
|
|
|
|
|
|
Formula
|
|
Effective Rate
|
Revolving Credit Facility
|
|
Prime + 3.0 %
|
|
6.25%
|
Term Loan
|
|
Prime + 3.5 %
|
|
6.75%
|
|
|
|
The Company's Canadian
subsidiary has a line of credit agreement with the Royal Bank of Canada that is renewable annually in December. Under the terms of this agreement, a maximum
of $2.5 million CDN may be advanced based on eligible accounts receivable,
eligible inventory, and tangible fixed assets. The line of credit bears
interest at the Canadian prime rate plus 0.5%.
|
|
|
|
The Canadian subsidiary
also has a non-revolving term loan which cannot exceed $4,000,000 CDN bearing
interest at the Canadian prime rate plus 0.95%. Amortization of the loan is
based on 72 months but the interest rate is negotiated yearly. There was
nothing outstanding on either loan at December 31, 2009 or December 31, 2008.
See note 18 "Subsequent Events" for additional information.
|
|
|
(6)
|
LONG-TERM DEBT
|
|
|
|
Long-term debt at December
31, 2009 and 2008 consists of the following:
|
|
|
2009
|
|
2008
|
Term loan - interest at
6.75% and 3.50% at December 31, 2009 and December 31, 2008, respectively (see
note 5), due October 2012, secured by substantially all assets of the Company
|
$
|
13,885,960
|
$
|
14,106,939
|
|
|
|
|
|
Note payable - Former
employee, interest at 8%, payable in monthly payments of $2,593, unsecured,
due January 2021
|
|
227,146
|
|
239,546
|
Note payable - Vehicles,
interest at 0.0%, monthly payments ranging from $330 to $800
|
|
48,961
|
|
74,842
|
|
|
|
|
|
Less current
maturities
|
|
14,162,067
|
|
14,421,327
|
Long-term debt, net of current maturities
|
|
800,616
|
|
517,113
|
|
$
|
|
$
|
|
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial
Statements
December 31, 2009 and 2008
Scheduled maturities of
long-term debt as of December 31, 2009 are as follows:
|
|
|
|
|
|
Year Ending December 31
|
|
|
|
|
|
|
|
2010
|
$
|
42,115
|
|
2011
|
|
32,505
|
|
2012
|
|
13,904,026
|
|
2013
|
|
17,058
|
|
Thereafter
|
|
166,363
|
|
|
$
|
14,162,067
|
|
|
Income (loss) from
continuing operations before income taxes, classified by source, for
the years ended December 31, 2009 and 2008 is as follows:
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
U.S.
|
$
|
(179,683)
|
|
$
|
(3,026,508)
|
Foreign
|
|
1,261,870
|
|
|
1,368,310
|
Loss from continuing
operations before income taxes
|
$
|
1,082,187
|
|
$
|
(1,658,198)
|
|
|
|
|
|
|
A
summary of the significant components of the provision (benefit) for income
taxes for the years ended December 31, 2009 and 2008 is as follows:
|
|
|
2009
|
|
|
2008
|
Current:
|
|
|
|
|
|
Federal
|
$
|
(303,385)
|
|
$
|
-
|
State
|
|
-
|
|
|
-
|
Foreign
|
|
418,562
|
|
|
416,307
|
|
|
115,177
|
|
|
416,307
|
Deferred:
|
|
|
|
|
|
Federal
|
|
59,000
|
|
|
-
|
State
|
|
-
|
|
|
-
|
Foreign
|
|
105,686
|
|
|
(21,327)
|
|
|
164,686
|
|
|
(21,327)
|
|
|
|
|
|
|
Total provision for income
taxes
|
$
|
279,863
|
|
$
|
394,980
|
There are no income taxes,
current or deferred, included in either discontinued operations or other
comprehensive income (loss) in 2009 and 2008.
|
|
A reconciliation of
differences between the statutory U.S. federal income tax rate on the income
(loss) from continuing operations before income taxes and the Company's
effective tax rate follows:
|
|
2009
|
|
2008
|
U.S. statutory rate
|
34.0%
|
|
(34.0%)
|
Change in valuation
allowance
|
34.4%
|
|
588.8%
|
Loss on sale of retail
division
|
-
|
|
(560.1%)
|
Canadian repatriation
|
21.8%
|
|
-
|
Monetization of AMT credits
|
(28.1%)
|
|
-
|
Other, including tax
depletion
|
(36.2%)
|
|
29.1%
|
Effective tax rate
|
25.9%
|
|
23.8%
|
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial
Statements
December 31, 2009 and 2008
The tax effects of
temporary differences that give rise to significant portions of the deferred
tax assets and deferred tax liabilities at December 31, 2009 and 2008 are
presented below:
|
|
|
2009
|
|
|
2008
|
Deferred tax assets:
|
|
|
|
|
|
Accrued
pension, postretirement benefits and deferred compensation
|
$
|
3,526,000
|
|
$
|
5,008,000
|
Allowance
for doubtful accounts
|
|
52,000
|
|
|
63,000
|
Accrued
expenses
|
|
91,000
|
|
|
93,000
|
Inventories
|
|
1,108,000
|
|
|
1,236,000
|
Deferred
revenue
|
|
-
|
|
|
8,000
|
Names
and reputations
|
|
224,000
|
|
|
280,000
|
Alternative
minimum tax credits
|
|
2,630,000
|
|
|
2,932,000
|
Foreign
tax credits
|
|
2,097,000
|
|
|
2,097,000
|
Charitable contribution limitation
|
|
52,000
|
|
|
67,000
|
State
net operating loss carryforward
|
|
3,229,000
|
|
|
3,528,000
|
Federal
net operating loss carryforward
|
|
11,456,000
|
|
|
12,784,000
|
Property
and equipment
|
|
327,534
|
|
|
-
|
Impairment charges
|
|
375,000
|
|
|
375,000
|
Accrued warranty
|
|
30,000
|
|
|
19,000
|
Cash surrender value
|
|
24,000
|
|
|
25,000
|
Total
gross deferred tax assets
|
|
25,221,534
|
|
|
28,515,000
|
Less
valuation allowance
|
|
(24,918,000)
|
|
|
(28,155,000)
|
Total
net deferred tax asset
|
|
303,534
|
|
|
360,000
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
Quarry
development
|
|
(238,000)
|
|
|
(268,000)
|
Other
liabilities
|
|
(26,000)
|
|
|
(8,000)
|
Property
and equipment
|
|
-
|
|
|
(111,421)
|
Foreign unremitted
earnings
|
|
(236,000)
|
|
|
-
|
Total
gross deferred tax liabilities
|
|
(500,000)
|
|
|
(387,421)
|
|
|
|
|
|
|
Net
deferred tax liability
|
$
|
(196,466)
|
|
$
|
(27,421)
|
|
|
|
|
|
|
|
|
Deferred
tax assets include significant alternative minimum tax credit carry-forwards,
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. Deferred tax
assets also include federal and state net operating loss carry-forwards,
which have been fully reserved due to uncertainties regarding sufficient
future taxable income to utilize such carryforwards.
|
|
|
|
During 2005, based on taxable income and projections
for future taxable income, the Company believed it was not more likely than
not that it would generate the required taxable income to fully realize the
benefit of the net U.S. deferred tax assets. As such, we adjusted our
valuation allowance against the deferred tax assets to fully reserve for the
entire net U.S. deferred tax asset. Since 2005, we have continued to fully
reserve for the entire net U.S. deferred tax asset. We continue to assess the
valuation allowance on a regular basis and may reduce the valuation allowance
if and/or when the Company has taxable income from its U.S. operations. Gross deferred tax assets decreased $3,293,466 during 2009. The valuation
allowance decreased $3,237,000 in order to maintain our fully reserved
position.
|
|
As
of December 31, 2009, the Company has U.S. federal net operating loss
carryforwards of approximately $57 million which will be available to offset
future taxable income. If not used, these carryforwards will expire in 2024
through 2029. The use of our federal net operating loss carryforwards may be
restricted if there is a change in control of the Company as defined by Internal
Revenue Code Section 382.
|
|
Deferred
taxes have, historically, 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 such earnings will be
reinvested indefinitely. Additional taxes could be due if these earnings were
distributed. In 2009, we determined that $4,000,000 of undistributed earnings
would not be reinvested indefinitely as the subsidiary was most likely going
to pay the parent a $4,000,000 dividend in 2010. Therefore the 5% Canadian
withholding tax of $200,000 CDN and incremental U.S. taxes of $59,000 were
accrued in 2009.
|
|
|
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial
Statements
December 31, 2009 and 2008
|
As
permitted by the Housing Assistance Tax Act of 2008, the Company has elected
to forgo bonus depreciation and claim accelerated AMT credit carryforward
from tax years beginning before 2006. The Company elected for 2008 and 2009 to
benefit from the monetization of AMT credits and included in the 2009 tax
provision is $302,059 of related tax benefits.
|
|
|
|
|
|
The
Company applies a "more likely than not" threshold to the recognition and
derecognition of income tax positions. The Company recorded no unrecognized
tax benefits or liabilities related to uncertain tax positions at December
31, 2009 and 2008. Interest would be recognized as interest income or expense
and penalties would be included in selling, general and administrative
expenses. We do not anticipate a material change in our tax positions within
the next twelve months. The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company is no
longer subject to U.S. federal income tax examinations by tax authorities for
years before 2006 or Canadian tax authorities for years before 2004. However,
even though the tax years are closed the tax attributes may remain open to
adjustment.
|
|
|
|
|
(8)
|
PENSION
AND OTHER BENEFIT PLANS
|
|
The
Company sponsors a qualified defined benefit pension plan for eligible Vermont based non-union employees. The plan is noncontributory and provides benefits based
upon a formula calculated by reference to length of service and final average
earnings. On January 5, 2009, the Company's Board of Directors approved actions
to proceed with amendments to its defined benefit pension plan by freezing
membership and future benefits in the plan. This action was effective as of
March 31, 2009. As a replacement of this benefit management increased
contributions to the existing 401(k) plan to 4%.
|
|
|
|
The
Company has entered into nonqualified salary continuation agreements with
certain officers and former executives. These agreements provide for
supplemental pension benefits to be paid beginning at age 55 and continuing
through the life of the retired employee and his surviving spouse.
|
|
|
|
The
Company provides post-employment health care to executive officers who retire
at age 55 or older and their spouses, and to a closed group of retirees
selected by the Company. The form and type of benefit is the same coverage that
is in effect for active employees, and the retiree pays his portion of the
premium for such coverage. Generally benefits cease at age 65. The Company also
provides post-employment life insurance of $8,000 for all Vermont-based
employees.
|
|
|
|
The
following tables set forth actuarial information, plan asset data, funded
status and amounts recognized in the balance sheet for the Company's defined
benefit pension plan, salary continuation plan and other post-employment
benefits. The Company uses a measurement date of December 31 for these plans.
|
|
|
NON-UNION
PENSION BENEFITS
|
|
|
SALARY
CONTINUATION BENEFITS
|
|
|
OTHER POST-EMPLOYMENT
BENEFITS
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
CHANGE IN BENEFIT
OBLIGATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at
beginning of year
|
$
|
25,103,124
|
|
$
|
24,857,204
|
|
$
|
5,413,160
|
|
$
|
5,483,418
|
|
$
|
1,747,905
|
|
$
|
1,700,025
|
|
Service cost
|
|
65,417
|
|
|
315,204
|
|
|
-
|
|
|
-
|
|
|
4,964
|
|
|
6,111
|
|
Interest cost
|
|
1,501,114
|
|
|
1,508,876
|
|
|
335,917
|
|
|
322,457
|
|
|
105,268
|
|
|
108,103
|
|
Curtailment/assumption
changes
|
|
(1,036,449)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Actuarial (gain)/ loss
|
|
(343,176)
|
|
|
(233,920)
|
|
|
367,975
|
|
|
60,740
|
|
|
65,050
|
|
|
86,200
|
|
Benefits paid
|
|
(1,425,464)
|
|
|
(1,344,240)
|
|
|
(541,851)
|
|
|
(453,455)
|
|
|
(151,885)
|
|
|
(152,534)
|
|
Benefit obligation at end of
year
|
$
|
23,864,566
|
|
$
|
25,103,124
|
|
$
|
5,575,201
|
|
$
|
5,413,160
|
|
$
|
1,771,302
|
|
$
|
1,747,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CHANGE IN PLAN ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at
beginning of year
|
$
|
16,077,451
|
|
$
|
21,188,923
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Actual return on plan assets
|
|
3,423,223
|
|
|
(4,491,644)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Employer contribution
|
|
1,042,749
|
|
|
754,000
|
|
|
541,851
|
|
|
453,455
|
|
|
151,885
|
|
|
142,017
|
|
Expenses
|
|
(63,300)
|
|
|
(29,588)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Benefits paid
|
|
(1,425,464)
|
|
|
(1,344,240)
|
|
|
(541,851)
|
|
|
(453,455)
|
|
|
(151,885)
|
|
|
(142,017)
|
|
Fair value of plan assets at
end of year
|
$
|
19,054,659
|
|
$
|
16,077,451
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
$
|
(4,809,907)
|
|
$
|
(9,025,673)
|
|
$
|
(5,575,201)
|
|
$
|
(5,413,160)
|
|
$
|
(1,771,302)
|
|
$
|
(1,747,905)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial
Statements
December 31, 2009 and 2008
Amounts recognized in
accumulated other comprehensive loss con.sist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
$
|
6,125,599
|
|
$
|
9,931,652
|
|
$
|
1,650,273
|
|
$
|
1,394,071
|
|
$
|
346,048
|
|
$
|
289,388
|
|
Prior service cost
|
|
-
|
|
|
126,848
|
|
|
-
|
|
|
-
|
|
|
292,307
|
|
|
326,696
|
|
Unrecognized transition
obligation
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
19,789
|
|
|
24,737
|
|
Net amount recognized
|
$
|
6,125,599
|
|
$
|
10,058,500
|
|
$
|
1,650,273
|
|
$
|
1,394,071
|
|
$
|
658,144
|
|
$
|
640,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
6.00%
|
|
|
6.30%
|
|
|
5.91%
|
|
|
6.30%
|
|
|
5.91%
|
|
|
6.30%
|
|
Expected return on plan assets
|
|
8.00%
|
|
|
8.00%
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Rate of compensation increase
|
|
N/A
|
|
|
3.00%
|
|
|
N/A
|
|
|
3.00%
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
2009, we decreased the discount rate used to determine our liability in the
pension plan from 6.3% to 6.0%. In 2009, we also decreased the discount rate
in the salary continuation and other post-employment benefit plans from 6.30%
to 5.91%. In 2008, we kept the discount rate at 6.3% for all of the plans,
the same discount rate used at December 31, 2007. In both years the rate was
based on a bond matching model which uses data on individual high-quality
corporate bonds and the timing and amount of the future benefit payments in
our plan to develop a weighted discount rate specific to our plan.
|
|
For
measurement purposes, the annual rate of increase in the per capita cost of
covered health care benefits was assumed to be 9.2% for 2010, 8.5% for 2011, 8%
for 2012, 7.5% for 2013, 7% for 2014, 6.5% for 2015, 6% for 2016 and 5% for
2017 and thereafter. Assumed health care trends do not have a significant
effect on the amounts reported for the health care plan. For example, a 1%
increase in assumed trends would increase the benefit obligation $17,240 and
the service and interest costs $1,297. A 1% decrease in assumed trends would
decrease the benefit obligation $16,077 and the service and interest costs
$1,206.
|
|
The
following table sets forth the components of the net periodic benefit cost
recognized in the statements of operations for the Company's defined benefit
pension plan, salary continuation plan and other post-employment benefits for
2009 and 2008.
|
|
|
NON-UNION
|
|
|
SALARY
|
|
|
|
OTHER POST-EMPLOYMENT
|
|
|
|
PENSION BENEFITS
|
|
|
CONTINUATION BENEFITS
|
|
|
|
BENEFITS
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPONENTS OF NET
PERIODIC BENEFIT COST:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
$
|
65,417
|
|
$
|
315,204
|
|
$
|
-
|
|
$
|
-
|
|
|
$
|
4,964
|
|
$
|
6,111
|
|
Interest
cost
|
|
1,501,114
|
|
|
1,508,876
|
|
|
335,917
|
|
|
322,457
|
|
|
|
105,268
|
|
|
108,103
|
|
Expected
return on plan assets
|
|
(1,224,515)
|
|
|
(1,681,796)
|
)
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
Amortization
of prior
service cost
|
|
31,712
|
|
|
140,523
|
|
|
-
|
|
|
-
|
|
|
|
34,389
|
|
|
26,749
|
|
Amortization
of transition obligation
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
4,948
|
|
|
4,948
|
|
Recognized
net actuarial loss
|
|
291,020
|
|
|
105,521
|
|
|
111,773
|
|
|
56,918
|
|
|
|
8,390
|
|
|
10,352
|
|
Recognition due to
curtailment
|
|
95,136
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
Net periodic benefit cost
|
$
|
759,884
|
|
$
|
388,328
|
|
$
|
447,690
|
|
$
|
379,375
|
|
|
$
|
157,959
|
|
$
|
156,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED-AVERAGE
ASSUMPTIONS USED TO DETERMINE NET PERIODIC BENEFIT COST FOR YEARS ENDED DECEMBER 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
6.30%
|
|
|
6.30%
|
|
|
6.30%
|
|
|
6.30%
|
|
|
|
6.30%
|
|
|
6.30%
|
|
Expected return on plan
assets
|
|
8.00%
|
|
|
8.00%
|
|
|
N/A
|
|
|
N/A
|
|
|
|
N/A
|
|
|
N/A
|
|
Rate of compensation
increase
|
|
3.00%
|
|
|
3.00%
|
|
|
N/A
|
|
|
N/A
|
|
|
|
N/A
|
|
|
N/A
|
|
..Amounts expected to be
recognized in net periodic benefit costs in 2010
|
|
Non-Union Pension
|
|
Salary Continuation
|
|
Other Post-Employment
|
Service cost
|
$
|
-
|
$
|
-
|
$
|
6,742
|
Interest cost
|
|
1,387,734
|
|
314,673
|
|
104,751
|
Expected return on plan
assets
|
|
(1,515,519)
|
|
-
|
|
-
|
Net amortization
|
|
170,893
|
|
79,223
|
|
62,159
|
Total pension expense
|
$
|
43,108
|
$
|
393,896
|
$
|
173,652
|
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial
Statements
December 31, 2009 and 2008
Plan Assets
|
The Company's overall
investment strategy is to achieve a long-term rate of return of 8.0%, with a
wide diversification of asset types. The following table sets forth the
actual asset allocation for the plan assets:
|
|
2009
|
|
2008
|
|
Target
Range
|
|
|
|
|
|
|
Equities
|
54%
|
|
48%
|
|
34% - 64%
|
Fixed income
|
45%
|
|
51%
|
|
25% - 45%
|
Cash equivalent
|
1%
|
|
1%
|
|
0 - 5%
|
|
The Company invests equity holdings
primarily in mutual funds which are diversified among the spectrum of value
and growth, large, medium and small cap, domestic and foreign securities, as
appropriate, to achieve the objective of a balanced portfolio, which optimizes
the expected returns and volatility in the various asset classes.
|
|
Fixed income holdings are
in the form of mutual funds that hold a combination of short-duration,
investment-grade fixed-income securities, inflation-indexed bonds of varying
maturities issued by the U.S. and non-U.S. governments, and a diversified
selection of investment-grade, fixed income securities, including corporate
securities, mortgage-backed securities, U.S. government securities and U.S.
dollar denomination bonds of foreign issuers.
|
|
Cash equivalents are held
in money market funds.
|
|
The Company prohibits
certain transactions in its plan including, but not limited to: short sales,
commodities, transactions on margin, letter stock, unregistered or restricted
stock, private placements, and derivative securities.
|
|
The Company determines its
investment strategies based on the composition of the beneficiaries in its
defined benefit plan and the relative time horizons that those beneficiaries
receive payouts from the plan. In addition, the Company receives advice from
our actuaries and plan administrator regarding market conditions, which,
taken together with the characteristics of the plan, result in the investment
strategy.
|
|
The Company's plan assets
were as follows at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
ASSET CATEGORY
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Percentage of Assets
|
Cash Equivalent:
|
|
|
|
|
|
|
|
|
|
|
Premier money market
|
$
|
-
|
$
|
36,570
|
$
|
-
|
$
|
36,570
|
|
.19%
|
Fixed Income:
|
|
|
|
|
|
|
|
|
|
|
Premier short-duration bond
|
|
-
|
|
2,340,294
|
|
-
|
|
2,340,294
|
|
12.28%
|
Premier core bond
|
|
-
|
|
4,534,094
|
|
-
|
|
4,534,092
|
|
23.80%
|
Premier inflation-protected
bond
|
|
-
|
|
1,804,727
|
|
-
|
|
1,804,727
|
|
9.47%
|
Equities:
|
|
|
|
|
|
|
|
|
|
|
Large-cap value
|
|
-
|
|
1,390,697
|
|
-
|
|
1,390,697
|
|
7.30%
|
Select fundamental value
|
|
-
|
|
1,464,448
|
|
-
|
|
1,464,448
|
|
7.69%
|
Growth of America
|
|
-
|
|
1,557,725
|
|
-
|
|
1,557,725
|
|
8.18%
|
Premier capital
appreciation
|
|
-
|
|
1,659,109
|
|
-
|
|
1,659,109
|
|
8.71%
|
Mid-cap value
|
|
-
|
|
611,126
|
|
-
|
|
611,126
|
|
3.21%
|
Select mid-cap growth
|
|
-
|
|
663,112
|
|
-
|
|
663,112
|
|
3.48%
|
Select small company value
|
|
-
|
|
606,334
|
|
-
|
|
606,334
|
|
3.18%
|
Select small-cap growth
|
|
-
|
|
649,382
|
|
-
|
|
649,382
|
|
3.41%
|
Euro Pacific growth
|
|
-
|
|
1,737,041
|
|
-
|
|
1,737,041
|
|
9.10%
|
Total
|
|
-
|
|
19,054,659
|
|
-
|
|
19,054,659
|
|
100.00%
|
|
|
|
|
|
|
|
|
|
|
|
The assets used in our plan
are Separate Investment Accounts that utilize unit values and not net asset
values. Unit values are calculated based on observable net asset values of
the underlying investment and are considered Level 2 inputs.
|
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial
Statements
December 31, 2009 and 2008
Contributions
|
The Company was required to
make quarterly contributions to the pension plan totaling $390,332 for 2009.
We also made a voluntary contribution of $750,000 in September 2009. We
expect to contribute approximately the same amount in 2010. In August 2006, the Pension Protection Act was
signed into law. Among other things, the Act is
aimed at strengthening pension plans by requiring most pension plans to
become fully funded over a seven-year period. The Worker, Retiree and
Employer Recovery Act of 2008 has provided modest relief from the market
events in 2008 by decreasing short term contribution requirements. However, the Company is required to fully fund our
pension plan by December 31, 2014.
|
|
Future Benefit
Payments
|
Estimated future benefit
payments are as follows:
|
Year
Ending
December 31,
|
|
NON-UNION
PENSION BENEFITS
|
|
SALARY
CONTINUATION
BENEFITS
|
|
OTHER POST-
EMPLOYMENT BENEFITS
|
2010
|
$
|
1,471,334
|
$
|
540,111
|
$
|
157,903
|
2011
|
|
1,494,996
|
|
539,114
|
|
165,776
|
2012
|
|
1,517,288
|
|
537,940
|
|
164,588
|
2013
|
|
1,531,439
|
|
536,560
|
|
155,938
|
2014
|
|
1,539,392
|
|
534,954
|
|
144,917
|
2015-2019
|
|
8,486,499
|
|
1,967,984
|
|
613,459
|
|
UNION PENSION BENEFITS
|
The Company's Vermont based union employees are participants in the Steelworkers Pension Trust, a
multi-employer plan. The Company contributes to the plan as required by the
union contract. Contributions recognized in the accompanying consolidated
statements of operations were $317,138 and $359,410 in 2009 and 2008,
respectively.
|
|
OTHER SALARY
CONTINUATION BENEFITS
|
In addition to the benefits
available under its salary continuation plan disclosed above, the Company has
an agreement with a certain former employee, who was a former stockholder of
an acquired company that was bought in 1995. The present value of the future
payments under this agreement was $238,199 and $307,293 as of December 31,
2009 and 2008, respectively. Total annual payments of $84,000 began in
February 2008 and will continue through February 2012.
|
|
The Company also has a
non-qualified, unfunded deferred compensation plan for the benefit of
designated key employees whereby the employee may defer up to $100,000 of
their annual compensation for future distribution. Interest at the rate of
12% per annum is credited on a monthly basis to each participants account.
Payments commence upon retirement of the participant with various methods of
distribution, including interest only or interest and principal over ten to
twenty years. At December 31, 2009, there are three retired participants and
the total liability is $1,503,700. No active employees participate in this
plan.
|
|
The Company's Canadian
subsidiary has a deferred compensation agreement with a former employee. The
present value of the future payments under these agreements was $114,000 and
$103,500 as of December 31, 2009 and 2008. Total annual payments of $14,350
are expected to continue through 2022.
|
|
401(k) BENEFITS
|
The Company maintains a
401(k) plan for all eligible, U.S. employees. Union employees are eligible to
join on the first day of the quarter following their first full year of
service. Non-union employees are eligible to join after six months of
service. The Company makes matching contributions of up to 4% of the employee's
salary. The Company's contributions to the 401(k) plan were $164,429 and
$82,005 in 2009 and 2008, respectively.
|
|
The Company's Canadian
subsidiary sponsors a retirement plan for all of its salaried, non-union
employees and contributes 13% of each participant's compensation to this
plan. The investments in the account are self-directed by each participant
with a range of investment options. Rock of Ages Canada may, at its
discretion, make an additional annual contribution to a participant's
account, up to a maximum aggregate amount of $22,000 and $21,000 CDN per year
in 2009 and 2008, respectively (including amounts previously contributed
during the year). The Company's contributions to this plan were $168,785 CDN and
$158,659 CDN in 2009 and 2008, respectively.
|
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial
Statements
December 31, 2009 and 2008
|
CANADIAN SUPPLEMENTAL
RETIREMENT PLAN
|
|
Effective in 2007, Rock of
Ages Canada established a supplemental retirement plan for its President, who
is also the chief executive officer of the Company, ("Canadian
Supplemental Plan"). The Canadian Supplemental Plan is funded as a
retirement compensation arrangement as defined in the Canadian Income Tax
Act. Each year, Rock of Ages Canada may make a contribution to the Canadian
Supplemental Plan equal to 13% of the President's base salary, less any
amounts paid to the Basic Canadian Retirement Plan on his behalf. We made
contributions to the Canadian Supplemental Plan equal to $11,317 ($12,787
CDN) and $12,960 ($13,787 CDN) in 2009 and 2008, respectively. We may make
additional contributions to the Canadian Supplemental Retirement Plan at our
discretion.
|
|
|
(9)
|
STOCK-BASED EMPLOYEE
COMPENSATION
|
|
|
|
In June 2005, the
stockholders approved the Rock of Ages Corporation 2005 Stock Plan (the
"2005 Plan"). The 2005 Plan permits awards of stock options
(including both incentive stock options and nonqualified stock options) and
restricted stock. A maximum of 550,000 shares of Class A common stock may be
issued under the 2005 Plan. The 2005 Plan is administered by the Compensation
Committee of the Board of Directors, which has the authority to determine the
recipients of awards under the 2005 Plan and, subject to the 2005 Plan, the
terms and conditions of such awards. The 2005 Plan replaced the Rock of Ages
Corporation 1994 Stock Plan (the "1994 Plan") which expired in
November 2004. Although grants made under the 1994 Plan prior to its
expiration remain outstanding, no further grants may be made under the 1994
Plan.
|
|
|
|
|
|
Options granted have a 10
year term and vest at 20% per year after the first year.
|
|
|
|
|
|
The following tables set
forth stock option activity for the years ended December 31, 2009 and 2008
and information on outstanding and exercisable options at December 31, 2009:
|
|
NUMBER
OF OPTIONS
|
|
|
WEIGHTED
AVERAGE
EXERCISE PRICE
|
|
Outstanding, December 31,
2007
|
196,000
|
|
$
|
6.11
|
|
|
|
|
|
|
|
Granted
|
185,000
|
|
|
2.63
|
|
Exercised
|
-
|
|
|
-
|
|
Surrendered
|
(57,000
|
)
|
|
6.45
|
|
Outstanding, December 31,
2008
|
324,000
|
|
$
|
4.06
|
|
|
|
|
|
|
|
Granted
|
20,000
|
|
|
2.63
|
|
Exercised
|
-
|
|
|
-
|
|
Surrendered
|
(30,000
|
)
|
|
2.91
|
|
Outstanding, December 31,
2009
|
314,000
|
|
$
|
4.08
|
|
|
|
|
|
|
|
Exercisable, December 31,
2009
|
153,000
|
|
$
|
5.29
|
|
|
|
|
|
|
|
Weighted average remaining
contractual life
|
6.2 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXERCISE
PRICE
|
|
NUMBER OF
OPTIONS
OUTSTANDING
|
|
WEIGHTED
AVERAGE
EXERCISE PRICE
|
|
REMAINING
CONTRACTURAL
LIFE
|
|
NUMBER OF
OPTIONS EXERCISABLE NUMBER
|
|
WEIGHTED
AVERAGE EXERCISE
PRICE
|
$
|
5.98
|
|
111,500
|
$
|
5.98
|
|
2.1 Years
|
|
111,500
|
$
|
5.98
|
$
|
5.93
|
|
25,000
|
$
|
5.93
|
|
7.6 Years
|
|
10,000
|
$
|
5.93
|
$
|
2.63
|
|
157,500
|
$
|
2.63
|
|
8.6 Years
|
|
31,500
|
$
|
2.63
|
$
|
2.63
|
|
20,000
|
$
|
2.63
|
|
9.2 Years
|
|
-
|
|
|
|
|
|
314,000
|
|
|
|
|
|
153,000
|
|
|
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial
Statements
December 31, 2009 and 2008
|
The fair value of each
options grant is estimated on the date of the grant. The per share weighted
average fair value of stock options granted during 2009 was $0.67 on the date
of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions: risk-free interest rate of 2.3%, dividend yield
of 0.00%; expected volatility of 45.59% and an expected life of 6.5 years.
The per share weighted average fair value of stock options granted during
2008 was $1.22 on the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions: risk-free interest
rate of 3.5%, dividend yield of 0.00%; expected volatility of 40.60% and an
expected life of 6.5 years. The fair values of stock options awards are
amortized on a straight line basis over the requisite service periods of the
award, which are generally the vesting period reduced for actual forfeitures.
|
|
|
|
The Company selected the
assumptions used in the Black-Scholes pricing model using the following
criteria:
-
Risk-free interest rate -
The Company bases the risk-free interest rate on implied yield available
on a U.S. Treasury note with a maturity term equal to or approximating
the expected term of the underlying award.
-
Dividend yield - the
Company does not intend to pay dividends on its common stock for the
foreseeable future and, accordingly, uses a dividend yield of zero.
-
Volatility - the expected
volatility of the Company's shares was estimated based upon the
historical volatility of the Company's share price with consideration
given to the expected life of the award.
-
Expected life - The
average expected term was determined by the "SEC shortcut approach", as
described in SAB 107, "Disclosures about Fair Value of Financial
Instruments", which is the mid-point between the vesting date and the
end of the contractual term.
|
|
|
|
As of December 31, 2009,
the total unrecognized compensation cost related to the stock options granted
during 2009, 2008 and 2007 was $11,000 and $163,000, and $38,000, respectively
which is expected to be amortized over the next 2.5 to 4.5 years.
|
|
|
|
|
|
During 2009 and 2008, the Company's
average stock price was less than the average strike price of all vested
options, therefore for options vesting during 2009 and 2008 there was no
intrinsic value.
|
|
|
(10)
|
RELATED PARTY
TRANSACTIONS
|
|
|
|
The Company is related
through common ownership with several companies. Kurt M. Swenson, the
Company's Chairman, and his brother Kevin C. Swenson, each own approximately
31% of Swenson Granite LLC ("Swenson LLC"). Certain other 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 5% of the Class B Common Stock of the Company, is the
President and Chief Executive Officer of Swenson LLC, and including shares
owned by his wife and children, owns 12% of Swenson LLC. Neither Kurt M.
Swenson nor any other officer or director 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 therein.
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. Because of the proximity
of the Woodbury quarry to Barre, Vermont, the Company provides certain
maintenance services and parts to the Woodbury quarry and is reimbursed for
the cost of such services. The Company also purchases blocks from the
Swenson's Concord quarry and other products from Swenson LLC at market
prices. Swenson LLC also purchases granite blocks and slabs and miscellaneous
services from the Company.
VIKA, Ltd. ("VIKA"), a
quarry company in which we had held a 1/3 equity interest since 2002, experienced
continuing operational difficulties leading to reductions in both the
production and sale of Galactic Blue granite blocks. On June 30, 2009, the Company agreed to sell its
one-third ownership interest in VIKA to the remaining VIKA shareholder for $170,583
payable in four equal installments of $42,646 due from July to October 2009. All
payments were collected by the end of the year. In conjunction with this sale
the Company entered into an exclusive distribution agreement with VIKA
pursuant to which the Company has the exclusive worldwide right to sell and
distribute all quarried products of VIKA including slabs and other finished
products for a period of five years. The investment in VIKA was fully
written-off in 2007.
|
|
|
|
|
|
The transactions with related
parties, included in the consolidated statements of operations, are as
follows for the years ended December 31, 2009 and 2008:
|
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial
Statements
December 31, 2009 and 2008
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
Sales of inventory,
equipment and services to Swenson LLC
|
$
|
58,906
|
|
$
|
92,114
|
|
|
|
|
|
|
Purchases from Swenson LLC
|
$
|
72,779
|
|
$
|
44,525
|
Purchases from VIKA, Ltd.
|
|
553,299
|
|
|
406,527
|
Total
purchases from related parties
|
$
|
626,078
|
|
$
|
451,052
|
|
|
|
|
|
|
Amounts due
from related parties as of December 31, 2009 and 2008 are as follows:
|
|
2009
|
|
|
2008
|
Due from Swenson LLC
|
$
|
9,444
|
|
$
|
13,182
|
Due from VIKA, Ltd.
|
|
9,200
|
|
|
-
|
Total due from
related parties
|
|
18,644
|
|
|
13,182
|
|
|
(11)
|
UNAUDITED QUARTERLY
SUMMARY INFORMATION
|
|
|
|
The following is a summary
of unaudited quarterly summary information for the years ended December 31,
2009 and 2008 (in thousands, except per share data):
|
|
|
NET
REVENUES
|
|
GROSS PROFIT
|
|
|
NET INCOME
(LOSS)
|
|
|
NET INCOME
(LOSS)
PER SHARE -
BASIC AND DILUTED
|
|
2009 Quarters:
|
|
|
|
|
|
|
|
|
|
|
|
First
|
$
|
5,938
|
$
|
(121
|
)
|
$
|
(2,774
|
)
|
$
|
(0.37
|
)
|
Second
|
|
14,424
|
|
4,177
|
|
|
1,433
|
|
|
0.19
|
|
Third
|
|
12,881
|
|
3,933
|
|
|
1,534
|
|
|
0.21
|
|
Fourth
|
|
12,278
|
|
3,290
|
|
|
609
|
|
|
0.08
|
|
Total
|
$
|
45,521
|
$
|
11,279
|
|
$
|
802
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Quarters:
|
|
|
|
|
|
|
|
|
|
|
|
First
(3)
|
$
|
8,390
|
$
|
(133
|
)
|
$
|
(3,305
|
)
|
$
|
(0.45
|
)
|
Second
|
|
14,326
|
|
3,773
|
|
|
727
|
|
|
0.10
|
|
Third
|
|
16,593
|
|
5,934
|
|
|
3,059
|
|
|
0.41
|
|
Fourth
(1)(2)
|
|
16,560
|
|
1,317
|
|
|
(2,676
|
)
|
|
(0.36
|
)
|
Total
|
$
|
55,869
|
$
|
10,891
|
|
$
|
(2,195
|
)
|
$
|
(0.30
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
|
|
(1)
|
The Company consolidated
its headquarters into the manufacturing plant's existing offices and
therefore had a change in the use of its corporate headquarters building. Based
on our analysis we determined that the carrying value of the building
exceeded the net present value which indicated the building was impaired. We
recognized an impairment charge on the asset of $1,348,000 to reduce the
asset to the fair market value during the fourth quarter of the year ended December
31, 2008. See note 15.
|
|
|
|
|
(2)
|
The Company wrote down
second grade or "B" block inventory in our Bethel, Salisbury and Gardenia
quarries during the fourth quarter of 2008. This impairment charge totaled
$3,930,000 and is discussed further in note 15.
|
|
|
|
|
(3)
|
The loss from discontinued
operations during the first quarter of 2008 totaled $142,000. See note 14.
|
|
|
|
|
(12)
|
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:
|
|
|
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial
Statements
December 31, 2009 and 2008
|
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.
|
|
|
(13)
|
SEGMENT INFORMATION
|
|
|
|
The Company is organized
based on the products and services it offers. The Company currently operates
in two segments: quarry and manufacturing.
|
|
|
|
|
|
The quarry segment extracts
granite from the ground and sells it to the manufacturing segment and to
outside manufacturers, as well as to distributors in Europe and China. There was one quarry customer that represented approximately 20.8% of accounts
receivable at December 31, 2009 and two quarry customers that represented
approximately 46.1% of accounts receivable at December 31, 2008. These
receivables were backed by irrevocable letters of credit. This same customer
was also our largest customer in 2009 representing 8.3% of total revenue. In
2008, these same two customers were also our largest customers and
represented approximately 13.4% of total revenue.
|
|
|
|
|
|
The manufacturing segment's
principal product is granite memorials and mausoleums used primarily in cemeteries
and, to a lesser extent, specialized granite products for industrial
applications.
|
|
|
|
The other segment includes
unallocated corporate overhead.
|
|
|
|
Inter-segment revenues are
accounted for as if the sales were to third parties.
|
|
|
|
The following tables
present segment data as of or for the years ended December 31, 2009 and 2008
(in thousands):
|
2009
|
|
QUARRY
|
|
|
MANUFACTURING
|
|
|
OTHER
|
|
|
TOTAL
|
|
Total net revenues
|
$
|
23,592
|
|
$
|
26,570
|
|
$
|
-
|
|
$
|
50,162
|
|
Inter-segment net revenues
|
|
(1,910
|
)
|
|
(2,731
|
)
|
|
-
|
|
|
(4,641
|
)
|
Net revenues
|
|
21,682
|
|
|
23,839
|
|
|
-
|
|
|
45,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
5,524
|
|
|
5,755
|
|
|
-
|
|
|
11,279
|
|
Inter-segment gross profit
|
|
(512
|
)
|
|
512
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
5,012
|
|
|
6,267
|
|
|
-
|
|
|
11,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses
|
|
2,243
|
|
|
3,933
|
|
|
3,042
|
|
|
9,218
|
|
Effect of pension
curtailment
|
|
-
|
|
|
-
|
|
|
95
|
|
|
95
|
|
Foreign exchange loss
|
|
-
|
|
|
-
|
|
|
131
|
|
|
131
|
|
Other income, net
|
|
-
|
|
|
-
|
|
|
(405
|
)
|
|
(405
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
operations
|
$
|
2,769
|
|
$
|
2,334
|
|
$
|
(2,863
|
)
|
$
|
2,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
$
|
31,685
|
|
$
|
30,104
|
|
$
|
-
|
|
$
|
61,789
|
|
Inter-segment net revenues
|
|
(2,999
|
)
|
|
(2,921
|
)
|
|
-
|
|
|
(5,920
|
)
|
Net revenues
|
|
28,686
|
|
|
27,183
|
|
|
-
|
|
|
55,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
4,346
|
|
|
6,545
|
|
|
-
|
|
|
10,891
|
|
Inter-segment gross profit
|
|
(923
|
)
|
|
923
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial
Statements
December 31, 2009 and 2008
Gross profit
|
|
3,423
|
|
|
7,468
|
|
|
-
|
|
|
10,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses
|
|
2,267
|
|
|
4,383
|
|
|
3,636
|
|
|
10,286
|
|
Impairments
|
|
-
|
|
|
-
|
|
|
1,348
|
|
|
1,348
|
|
Foreign exchange income
|
|
-
|
|
|
-
|
|
|
(27
|
)
|
|
(27
|
)
|
Other income, net
|
|
-
|
|
|
-
|
|
|
(425
|
)
|
|
(425
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
operations
|
$
|
1,156
|
|
$
|
3,085
|
|
$
|
(4,532
|
)
|
$
|
(291
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets by
Segment
|
|
|
QUARRY
|
|
MANUFACTURING
|
|
OTHER
|
|
TOTAL
|
2009
|
$
|
35,128
|
$
|
18,549
|
$
|
4,775
|
$
|
58,452
|
|
|
|
|
|
|
|
|
|
2008
|
$
|
39,657
|
$
|
20,488
|
$
|
4,298
|
$
|
64,443
|
2009
|
|
QUARRY
|
|
MANUFACTURING
|
|
OTHER
|
|
TOTAL
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
$
|
1,668
|
$
|
108
|
$
|
3
|
$
|
1,779
|
Depreciation, depletion and
amortization
|
|
1,273
|
|
1,071
|
|
153
|
|
2,498
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
Capital expenditures
|
$
|
1,062
|
$
|
2,025
|
$
|
2
|
$
|
3,089
|
Depreciation, depletion and
amortization
|
|
1,261
|
|
918
|
|
221
|
|
2,400
|
|
Net revenues by geographic
area, attributed to countries based on where the product is shipped, for the
years ended December 31, 2009 and 2008 are as follows (in thousands):
|
|
|
2009
|
|
2008
|
Net revenues:
|
|
|
|
|
China
|
$
|
7,006
|
$
|
10,160
|
Italy
|
|
415
|
|
1,137
|
Other foreign countries
(excluding Canada)
|
|
205
|
|
323
|
Total Foreign
Revenue (excluding Canada)
|
|
7,626
|
|
11,620
|
United States and Canada
|
|
37,895
|
|
44,249
|
Total
net revenues
|
$
|
45,521
|
$
|
55,869
|
|
|
|
|
|
|
Property, plant and
equipment by geographic area as of December 31, 2009 and 2008 are as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Property, plant and
equipment:
|
|
|
|
|
|
United States
|
$
|
26,232
|
$
|
27,144
|
|
Canada
|
|
4,327
|
|
2,854
|
|
Total
property, plant and equipment
|
$
|
30,559
|
$
|
29,998
|
|
|
|
|
|
|
|
(14)
|
DISCONTINUED OPERATIONS
|
|
The sale of the retail
division closed on January 17, 2008. The results of operations for this
division have been classified as discontinued. The loss from operations for
the retail division was approximately $142,000 for the year ended December
31, 2008, including allocated interest expense of $23,000.
|
|
|
|
Operating results of the retail
division for the year ended December 31, 2008 were as follows (in thousands):
|
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial
Statements
December 31, 2009 and 2008
Net sales
|
$
|
-
|
Cost of goods sold
|
|
-
|
Gross profit
|
|
-
|
Selling, general and
administrative expenses
|
|
(119)
|
Income (loss) from
operations
|
|
(119)
|
Interest allocated
|
|
(23)
|
Net loss
|
$
|
(142)
|
|
|
|
|
|
(15)
|
IMPAIRMENT CHARGES
|
|
|
|
Due to the consolidation of
our corporate headquarters with the manufacturing plant's existing offices in
2008, the Company had a change in the use of its corporate headquarters
building located at 772 Graniteville Road, which we concluded to be a triggering
event that required an impairment analysis. We determined that the forecasted
undiscounted cash flows related to the building and land was less than its
carrying value. As a result, we recorded an impairment charge of $1,348,000
to reduce the carrying value of the building and land to its estimated fair
value. The estimated fair value was determined using a discounted cash flow
analysis and included consultation with an outside professional real estate
appraiser. No assurance can be given that the underlying estimates and
assumptions utilized in our determination of the new carrying value
will materialize as anticipated. During 2009, this building was listed for
sale and continues to be actively marketed.
|
|
|
(16)
|
ASSETS HELD FOR SALE
|
|
|
|
The Company has decided to
sell various unproductive assets including its former corporate headquarters
building. These assets had a carrying value totaling $759,000 and $477,000 in
2009 and 2008, respectively, and have been classified as current assets held
for sale. The estimated sales prices for the assets are expected to equal or exceed
the carrying values therefore no impairments were recognized in 2009.
|
|
|
(17)
|
ASSET PURCHASE
|
|
On April 17, 2009, Rock of Ages Canada, ("ROA Canada"), a
wholly owned subsidiary of the Company, completed the purchase of the real and
personal property comprising the Polycor Stanstead Quarry, located in
Stanstead, Quebec, Canada from Carrieres Polycor, Inc. ("Polycor").
The purchase price for the quarry, building and inventory was $1.3 million CDN.
This purchase was funded by ROA Canada's line of credit with the Royal Bank of
Canada. In connection with the purchase, Polycor entered into an
agreement that limits Polycor from owning or operating a quarry similar to the
Stanstead Gray quarry within fifty kilometers of Stanstead, Quebec. This
agreement also prohibits Polycor from soliciting ROA Canada's customers for
sales of gray granite. In connection with the purchase, ROA Canada also
entered into a 30 year supply agreement with Polycor, whereby ROA Canada must
supply Polycor with standard blocks not to exceed 300 cubic meters (or 10,594
cubic feet) a month at ROA Canada's best price offered to other quarry
customers less a 10% discount on first grade granite if paid within thirty
days. ROA Canada also assumed the remaining three years of supply
agreements with two unrelated granite manufacturers. The acquisition did
not meet the definition of a business and therefore was accounted for as an
asset purchase.
|
|
|
(18)
|
SUBSEQUENT EVENTS
|
|
|
|
In the first quarter of
2010, Rock of Ages Canada borrowed $4 million CDN on its term loan and paid
dividends totaling $4 million to Rock of Ages Corporation. The Company
applied $1 million of this dividend to its term loan with CIT, $900,000 to
the revolving line of credit and retained $1,900,000 for working capital
purposes. We also paid $200,000 CDN in Canadian withholding tax. The Company took
this action to take advantage of the historically high exchange rates, the
difference in interest rates under its credit facilities with the Royal Bank
of Canada and the CIT Group, and to take advantage of current income tax deductions
in Canada.
|
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Schedule II - Valuation and Qualifying Accounts and
Reserves
Years ended December 31, 2009 and 2008
(In Thousands)
COLUMN A
|
|
COLUMN B
|
|
COLUMN C
|
|
COLUMN D
|
|
COLUMN E
|
|
COLUMN F
|
|
|
|
|
ADDITIONS
|
|
|
|
|
|
|
DESCRIPTION
|
|
BALANCE AT
BEGINNING
OF PERIOD
|
|
DECREASE
DUE TO
DISPOSITIONS
|
|
CHARGED TO
COSTS AND
EXPENSES
|
|
DEDUCTIONS (1)
|
|
OTHER (2)
|
|
BALANCE AT END
OF PERIOD
|
Allowances for doubtful
accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
$
|
342
|
$
|
-
|
$
|
93
|
$
|
127
|
|
17
|
$
|
324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
$
|
260
|
$
|
-
|
$
|
163
|
$
|
56
|
|
(25)
|
$
|
342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Deductions
consist of accounts receivable written off as uncollectible.
|
|
|
|
|
|
(2) Effect of foreign
exchange rate changes.
|
|
|
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/ Donald M.
Labonte
Donald M. Labonte
President and Chief Executive Officer
|
Date: March 31, 2010
Pursuant to the requirements
of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant and in the capacities
indicated as of March 31, 2010.
SIGNATURE
|
|
TITLE
|
|
|
|
/s/Donald M.
Labonte
|
|
President and Chief
Executive Officer (Principal Executive Officer)
|
Donald M. Labonte
|
|
|
|
|
|
|
|
|
/s/ Laura A. Plude
Laura A. Plude
|
|
Vice-President and Chief
Financial Officer and Treasurer (Principal Financial and Accounting Officer)
|
|
|
|
|
|
|
/s/Kurt M. Swenson
|
|
Chairman of the Board of
Directors
|
Kurt M. Swenson
|
|
|
|
|
|
|
|
|
/s/Richard C. Kimball
|
|
Director
|
Richard C. Kimball
|
|
|
|
|
|
|
|
|
/s/James L. Fox
|
|
Director
|
James L. Fox
|
|
|
|
|
|
|
|
|
/s/ Pamela G. Sheiffer
|
|
Director
|
Pamela G. Sheiffer
|
|
|
|
|
|
|
|
|
/s/Charles M. Waite
|
|
Director
|
Charles M. Waite
|
|
|
|
|
|
|
|
|
/s/Frederick E. Webster
Jr.
Frederick E. Webster Jr.
|
|
Director
|
|
|
|
EXHIBIT INDEX
EXHIBIT
NUMBER
|
DESCRIPTION
|
|
|
2.1
|
Agreement and Plan of
Merger dated October 21, 2009 by and between Rock of Ages Corporation (a
Delaware corporation) and Rock of Ages Corporation (Vermont) (incorporated
herein by reference to Exhibit 2.1 to the Company's Current Report on Form
8-K filed with the Securities and Exchange Commission on December 8, 2009).
|
|
|
|
|
3.1
|
Articles of Incorporation
of the Company (incorporated herein by reference to Exhibit 3.1 to the
Company's Current Report on Form 8-K filed with the Securities and Exchange
Commission on December 8, 2009).
|
|
|
|
|
3.2
|
By-laws of the Company
(incorporated herein by reference to Exhibit 3.2 to the Company's Current
Report on Form 8-K and filed with the Securities and Exchange Commission on
December 8, 2009).
|
|
|
|
|
3.3
|
Articles of Merger filed with
the Vermont Secretary of State dated December 7, 2009 (incorporated herein by
reference to Exhibit 3.3 to the Company's Current Report on Form 8-K filed
with the Securities and Exchange Commission on December 8, 2009).
|
|
|
|
|
3.4
|
Certificate of Merger filed
with the Delaware Secretary of State dated December 7, 2009 (incorporated
herein by reference to Exhibit 3.4 to the Company's Current Report on Form
8-K filed with the Securities and Exchange Commission on December 8, 2009).
|
|
|
|
|
4.1
|
Specimen Certificate
representing the Class A Common Stock (incorporated herein by reference to
Exhibit 4.1 to the Company's Amendment No. 2 to Registration Statement on
Form 8-A (Commission File No. 0-2964) filed with the Securities and Exchange
Commission on December 15, 2009).
|
|
|
|
|
10.1*
|
First Amendment and
Restatement of Rock of Ages Corporation Key Employees Deferred Salary Plan
dated April 6, 2006 (incorporated herein by reference to Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the year ended December 31, 2006 and
filed with the Securities and Exchange Commission on April 2, 2007).
|
|
|
|
|
10.2*
|
Rock of Ages 2005 Stock
Plan (incorporated herein by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K and filed with the Securities and Exchange
Commission on June 23, 2005).
|
|
|
10.3*
|
Amendment to Salary
Continuation Agreement of Kurt M. Swenson dated April 20, 2006 (incorporated
herein by reference to Exhibit 10.7 to the Company's Quarterly Report on Form
10-Q for the quarterly period ended July 1, 2006 and filed with the
Securities and Exchange Commission on August 14, 2006).
|
|
|
|
|
10.4*
|
Retirement Agreement of
Kurt M. Swenson dated April 28, 2008 (incorporated herein by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the
Securities and Exchange Commission on April 29, 2008).
|
|
|
|
|
10.5*
|
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).
|
|
|
|
|
10.6
|
Form of Collective
Bargaining Agreement between Rock of Ages Corporation - Quarry Division and
the United Steelworkers of America, AFL_CIO_CLC on behalf of Amalgamated
Local #4 (incorporated by reference to Exhibit 10.4 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended July 4, 2009 and
filed with the Securities and Exchange Commission on August 14, 2009).
|
|
|
|
|
10.7
|
Form of Collective
Bargaining Agreement between Rock of Ages Corporation - Manufacturing
Division and the United Steelworkers of America, AFL_CIO_CLC on behalf of
Amalgamated Local #4 (incorporated by reference to Exhibit 10.5 to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended July
4, 2009 and filed with the Securities and Exchange Commission on August 14,
2009).
|
|
|
|
|
10.8
|
Form of Collective
Bargaining Agreement between Rock of Ages Corporation - Manufacturing
Division and the Granite Cutter's Association (incorporated by reference to
Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q for the quarterly
period ended July 4, 2009 and filed with the Securities and Exchange
Commission on August 14, 2009).
|
|
|
10.9
|
Credit Facility dated as of
October 26, 2009 between Royal Bank of Canada and Rock of Ages Canada, Inc.
|
|
|
10.10
|
Supply Agreement dated as
of January 11, 2002 by and between Rock of Ages Corporation and Adams Granite
Co., Inc. (incorporated herein by reference to exhibit 10.15 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2001 and
filed with the Securities and Exchange Commission on April 1, 2002).
|
|
|
|
|
10.11
|
Amendment to Supply
Agreement dated as of January 1, 2004 by and between Rock of Ages Corporation
and Adams Granite Co., Inc. (Incorporated by reference to Exhibit 10.2 to the
Company's annual Report on Form 10-K for the fiscal year ended December 31,
2006 and filed with the Securities and Exchange Commission on April 2, 2007).
|
|
|
|
|
|
|
10.12
|
Amendment No. 2 to Supply
Agreement dated as of January 16, 2007 by and between Rock of Ages
Corporation and Adams Granite Co., Inc. (incorporated by reference to Exhibit
10.21 to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2006 and filed with the Securities and Exchange Commission on
April 2, 2007)
|
|
|
|
|
|
|
10.13
|
Stock Purchase Agreement
dated as of January 17, 2008 by and between PKDM Holdings, Inc. and Rock of
Ages Corporation (incorporated herein by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K and filed with the Securities and
Exchange Commission on January 23, 2008).
|
|
|
|
|
|
|
10.14
|
Termination Agreement and
General Release dated January 17, 2008 by and between Richard M. Urbach and
the Company (incorporated by
reference to Exhibit 10.25 to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2007 and filed with the Securities and Exchange Commission on March 31,
2008).
|
|
|
|
|
10.15
|
Authorized Retailer Supply
and License Agreement dated January 17, 2008 by and between the Company, PKDM
Holdings, Inc., North American Heritage Services, Inc., Keith Monument
Company, LLC, and Sioux Falls Monument Co., LLC (incorporated by reference to Exhibit 10.26 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2007 and filed with the Securities and
Exchange Commission on March 31, 2008).
†
|
|
|
|
|
|
|
10.16
|
Amendment No. 1 to Supply
Agreement dated as of January 16, 2009 (executed and delivered March 10,
2009) by and between Rock of Ages Corporation and PKDM Holdings, Inc.
(incorporated by reference to Exhibit 10.1 to the Company's Current Report on
Form 8-K filed with the Securities and Exchange Commission on March 11,
2009).
|
|
|
|
|
|
|
10.17
|
Amended and Restated
Financing Agreement dated October 24, 2007 by and between The CIT
Group/Business Credit, Inc. and Carolina Quarries, Inc., Pennsylvania Granite
Corp., Keith Monument Company, LLC, Rock of Ages Memorials, Inc., Sioux Falls
Monument Co., and the Company (incorporated by reference to Exhibit 10.1 to
the Company's Current Report on Form 8-K and filed with the Securities and
Exchange Commission on October 25, 2007).
|
|
|
|
|
10.18
|
First Amendment to Amended
and Restated Financing Agreement dated March 30, 2009 by and between The CIT
Group/Business Credit, Inc. and Carolina Quarries, Inc., Pennsylvania Granite
Corp., and the Company (incorporated herein by reference to Exhibit 10.1 to
the Company's Current Report on Form 8-K and filed with the Securities and
Exchange Commission on March 31, 2009).
|
|
|
|
|
10.19
|
Letter from The CIT
Group/Business Credit, Inc. to Carolina Quarries, Inc., Pennsylvania Granite
Corp., Keith Monument Company, LLC, Rock of Ages Memorials, Inc., Sioux Falls
Monument Co., and the Company consenting to sale of the Company's retail
division (incorporated by
reference to Exhibit 10.28 to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2007 and filed with the Securities and Exchange Commission on March 31,
2008).
|
|
|
|
|
10.20
|
Consent and Assumption
Agreement dated December 7, 2009 by and among the Company, Rock of Ages
Corporation (a Delaware corporation), The CIT Group/Business Credit, Inc. and
Peoples United Bank (incorporated herein by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K filed with the Securities and Exchange
Commission on December 8, 2009).
|
|
|
|
|
10.21
|
Supplemental Retirement
Plan for Donald Labonté
dated as of January 1, 2007 (incorporated by reference to Exhibit 10.29 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2007 and filed with the Securities and
Exchange Commission on March 31, 2008)
|
|
|
|
|
10.22
|
Employment Agreement of Donald
M. Labonte dated as of July 1, 2008 (executed and delivered on August 26,
2008) (incorporated herein by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K and filed with the Securities and Exchange
Commission on August 28, 2008)
|
|
|
|
|
|
|
10.23
|
Asset Purchase Agreement
dated April 17, 2009 by and between Rock of Ages Canada, Inc., a wholly-owned
subsidiary of the Company, and Carrieres Polycor, Inc., for the purchase of
real and personal property comprising the Polycor Stanstead Quarry, located
in Stanstead, Quebec (incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarterly period ending April
4, 2009 and filed with the Securities and Exchange Commission on May 19,
2009). This exhibit is the original contract written in French.
|
|
|
|
|
10.24
|
English translation of the
Asset Purchase Agreement dated April 17, 2009 by and between Rock of Ages
Canada, Inc., a wholly-owned subsidiary of the Company, and Carrieres Polycor,
Inc., for the purchase of real and personal property comprising the Polycor
Stanstead Quarry, located in Stanstead, Quebec (incorporated by reference to
Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarterly
period ending April 4, 2009 and filed with the Securities and Exchange
Commission on May 19, 2009).
|
|
|
|
|
11.
|
Statement re: computation
of per share earnings (incorporated herein by reference to Note (1)(n) of the
Company's consolidated financial statements (filed herewith))
|
|
|
|
|
21.
|
Subsidiaries of the Company
|
|
|
|
|
23.1
|
Consent of Grant Thornton
LLP
|
|
|
|
|
31.1
|
Certification of CEO
pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act
of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
31.2
|
Certification of CFO
pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act
of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
|
32.1
|
Certification of CEO
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes Oxley Act of 2002.
|
|
|
|
|
32.2
|
Certification of CFO
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes Oxley Act of 2002.
|
* This exhibit is a
management contract or compensatory plan or arrangement.
Portions of this exhibit have been omitted
and filed separately with the Securities and Exchange Commission pursuant to a
request for confidential treatment.
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