UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark One)
T
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended July 3,
2010
OR
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from
______________ to ______________
Commission file number: 0-29464
ROCK OF
AGES CORPORATION
(Exact name of Registrant as Specified in its Charter)
Vermont
|
03-0153200
|
(State
or other jurisdiction of
incorporation or organization)
|
(I. R.
S. Employer
Identification Number)
|
560
Graniteville Road, Graniteville,
Vermont
05654
(Address of principal executive
offices)
(Zip Code)
(802)
476-3121
(Registrant's telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period 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 whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" 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 Act.) Yes
o
No
x
As of August 13, 2010, 4,812,342 shares of Class A
Common Stock and 2,603,721 shares of Class B Common Stock of the registrant
were outstanding.
ROCK OF AGES CORPORATION
INDEX
Form 10-Q for the Quarterly Period
Ended July 3, 2010
PART I
|
FINANCIAL INFORMATION
|
PAGE
NO.
|
|
|
|
Item 1.
|
Financial
Statements
|
|
|
|
|
|
Consolidated
Balance Sheets - July 3, 2010 (Unaudited) and December 31, 2009
|
4
|
|
|
|
|
Consolidated
Statements of Operations (Unaudited) - Three Months Ended July 3, 2010 and
July 4, 2009
|
5
|
|
|
|
|
Consolidated
Statements of Cash Flows (Unaudited) - Three Months Ended July 3, 2010 and July
4, 2009
|
6
|
|
|
|
|
Notes
to Unaudited Consolidated Financial Statements
|
7
|
|
|
|
Item 2.
|
Management's
Discussion and Analysis of Financial Condition and Results of Operations
|
15
|
|
|
|
Item 3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
19
|
|
|
|
Item 4.
|
Controls
and Procedures
|
20
|
|
|
|
PART II
|
OTHER INFORMATION
|
|
|
|
|
Item 1.
|
Legal
Proceedings
|
20
|
|
|
|
Item
1A.
|
Risk
Factors
|
20
|
|
|
|
Item 6.
|
Exhibits
|
22
|
|
|
|
Signature
|
23
|
|
|
|
|
|
|
|
|
|
|
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q,
including "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in Part I, Item 2,
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:
-
our ability to certify adequate internal controls over our
financial reporting;
-
our reliance on our line of credit with the CIT Group to
fund our business operations and/or strategy;
-
our ability to maintain compliance with our covenants in our
credit facility;
-
our ability to form and maintain strategic alliances with
cemeteries, funeral homes and memorial retailers;
-
uncertainties involving production recovery, quarry yields
and demand for Rock of Ages' dimension stone;
-
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;
-
uncertainties related to the purported class action lawsuit
filed in connection with the acquisition proposal received on May 6, 2010
and other risks and uncertainties
described herein, including, but not limited to the items discussed in
"Risk Factors That May Affect Future Results" in the Company's Annual
Report on Form 10-K for the year ended December 31, 2009, filed on March 31, 2010
(the "2009 Annual Report") and in Part II, 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: FINANCIAL INFORMATION
Item 1: Financial Statements
ROCK OF AGES CORPORATION
CONSOLIDATED BALANCE SHEETS
($ in thousands, except par value amounts)
|
|
July 3,
|
|
|
December 31,
|
ASSETS
|
|
2010
|
|
|
2009
|
|
|
(Unaudited)
|
|
|
(Audited)
|
Current assets:
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
2,200
|
|
$
|
1,713
|
Trade receivables, net
|
|
8,539
|
|
|
7,241
|
Inventories
|
|
14,767
|
|
|
15,077
|
Income taxes receivable
|
|
177
|
|
|
429
|
Other current assets
|
|
1,703
|
|
|
1,191
|
Assets held for sale
|
|
621
|
|
|
758
|
Total current
assets
|
|
28,007
|
|
|
26,409
|
Property, plant and equipment, net
|
|
30,658
|
|
|
30,559
|
Identified intangible assets, net
|
|
407
|
|
|
582
|
Goodwill
|
|
387
|
|
|
387
|
Deferred tax assets
|
|
39
|
|
|
40
|
Other long term assets
|
|
491
|
|
|
475
|
Total assets
|
$
|
59,989
|
|
$
|
58,452
|
LIABILITIES AND
STOCKHOLDERS' EQUITY
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Borrowings under line of credit
|
$
|
-
|
|
$
|
214
|
Current maturities of long-term debt
|
|
1,289
|
|
|
801
|
Trade payables
|
|
1,642
|
|
|
1,285
|
Accrued expenses
|
|
1,998
|
|
|
1,264
|
Salary continuation and other post-employment
benefits
|
|
702
|
|
|
691
|
Customer deposits
|
|
1,176
|
|
|
774
|
Current deferred tax liabilities
|
|
-
|
|
|
236
|
Total current liabilities
|
|
6,807
|
|
|
5,265
|
Long-term debt, excluding current installments
|
|
14,335
|
|
|
13,361
|
Salary continuation liability, net of current portion
|
|
5,243
|
|
|
5,386
|
Accrued pension cost
|
|
4,522
|
|
|
4,810
|
Deferred salary liability
|
|
1,504
|
|
|
1,504
|
Accrued other post-employment benefits, net of
current portion
|
|
1,637
|
|
|
1,622
|
Total liabilities
|
|
34,048
|
|
|
31,948
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
|
Preferred stock - $.01 par value; 2,500,000 shares
authorized; No shares issued or outstanding
|
|
|
|
|
|
Common stock - Class A, $.01 par value; 30,000,000
shares authorized; 4,812,342
shares issued and outstanding as of July 3,
2010 and December 31, 2009
|
|
48
|
|
|
48
|
Common stock - Class B, $.01 par value;
15,000,000 shares authorized; 2,603,721
shares issued and outstanding as of July 3,
2010 and December 31, 2009
|
|
26
|
|
|
26
|
Additional paid-in capital
|
|
65,777
|
|
|
65,751
|
Accumulated deficit
|
|
(35,277
|
)
|
|
(34,746)
|
Accumulated other comprehensive loss
|
|
(4,633
|
)
|
|
(4,575)
|
Total stockholders' equity
|
|
25,941
|
|
|
26,504
|
Total liabilities and stockholders'
equity
|
$
|
59,989
|
|
$
|
58,452
|
SEE ACCOMPANYING NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.
ROCK OF AGES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
(Unaudited)
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
July 3, 2010
|
|
|
July 4, 2009
|
|
|
July 3, 2010
|
|
|
July 4, 2009
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarry
|
$
|
6,638
|
|
$
|
6,912
|
|
$
|
10,260
|
|
$
|
10,036
|
|
Manufacturing
|
|
8,025
|
|
|
7,512
|
|
|
11,914
|
|
|
10,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
14,663
|
|
|
14,424
|
|
|
22,174
|
|
|
20,362
|
|
Cost of goods sold:
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarry
|
|
4,504
|
|
|
5,166
|
|
|
8,476
|
|
|
8,515
|
|
Manufacturing
|
|
5,357
|
|
|
5,081
|
|
|
8,801
|
|
|
7,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of goods sold
|
|
9,861
|
|
|
10,247
|
|
|
17,277
|
|
|
16,307
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarry
|
|
2,134
|
|
|
1,746
|
|
|
1,784
|
|
|
1,521
|
|
Manufacturing
|
|
2,668
|
|
|
2,431
|
|
|
3,113
|
|
|
2,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
4,802
|
|
|
4,177
|
|
|
4,897
|
|
|
4,055
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarry
|
|
496
|
|
|
583
|
|
|
1,089
|
|
|
1,130
|
|
Manufacturing
|
|
1,106
|
|
|
1,058
|
|
|
2,035
|
|
|
2,026
|
|
Corporate overhead
|
|
669
|
|
|
692
|
|
|
1,357
|
|
|
1,733
|
|
Strategic options and lawsuit expenses
|
|
493
|
|
|
-
|
|
|
493
|
|
|
-
|
|
Effect of pension curtailment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
95
|
|
Foreign exchange loss (income)
|
|
-
|
|
|
-
|
|
|
(84)
|
|
|
-
|
|
|
Other income, net
|
|
(52)
|
|
|
(55)
|
|
|
(145)
|
|
|
(144)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling, general and administrative
expenses
|
|
2,712
|
|
|
2,278
|
|
|
4,745
|
|
|
4,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before interest expense and income
taxes
|
|
2,090
|
|
|
1,899
|
|
|
152
|
|
|
(785)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
279
|
|
|
331
|
|
|
573
|
|
|
537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
1,811
|
|
|
1,568
|
|
|
(421)
|
|
|
(1,322)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
250
|
|
|
135
|
|
|
110
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
1,561
|
|
$
|
1,433
|
|
$
|
(531)
|
|
$
|
(1,341)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share - basic
|
$
|
0.21
|
|
$
|
0.19
|
|
$
|
(0.07)
|
|
$
|
(0.18)
|
|
Net income (loss) per share - diluted
|
|
0.21
|
|
|
0.19
|
|
|
(0.07)
|
|
|
(0.18)
|
|
Weighted average number of common shares outstanding
- basic
|
|
7,416
|
|
|
7,416
|
|
|
7,416
|
|
|
7,416
|
|
Weighted average number of common shares outstanding
- diluted
|
|
7,439
|
|
|
7,416
|
|
|
7,416
|
|
|
7,416
|
|
SEE ACCOMPANYING NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
ROCK OF AGES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
( in thousands)
(Unaudited)
|
|
Six Months Ended
|
|
|
July 3,
|
|
|
July 4,
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
Net loss
|
$
|
(531)
|
|
$
|
(1,341)
|
Adjustments to reconcile net loss to net cash
provided by operating activities:
|
|
|
|
|
|
Gain on sale of assets
|
|
(83)
|
|
|
(9)
|
Depreciation, depletion and
amortization
|
|
1,203
|
|
|
1,214
|
Deferred taxes
|
|
(235)
|
|
|
-
|
Stock compensation expense
|
|
27
|
|
|
31
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
Trade receivables, net
|
|
(1,321)
|
|
|
4,609
|
Inventories
|
|
260
|
|
|
2,013
|
Other assets
|
|
(171)
|
|
|
(90)
|
Trade payables, accrued
expenses and income taxes
|
|
1,098
|
|
|
(502)
|
Customer deposits
|
|
403
|
|
|
328
|
Salary continuation and
pension
|
|
(404)
|
|
|
325
|
Other liabilities
|
|
-
|
|
|
(20)
|
|
|
|
|
|
|
Net cash provided by
operating activities
|
|
246
|
|
|
6,558
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
Purchases of other property, plant
and equipment
|
|
(1,303)
|
|
|
(1,174)
|
Proceeds from sale of assets
|
|
246
|
|
|
123
|
Purchase of land and granite
reserves
|
|
-
|
|
|
(1,273)
|
|
|
|
|
|
|
Net cash used in
investing activities
|
|
(1,057)
|
|
|
(2,324)
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
Net repayments under lines of credit
|
|
(216)
|
|
|
(4,713)
|
Principal borrowings on long-term debt
|
|
3,967
|
|
|
-
|
Principal payments on long-term debt
|
|
(2,466)
|
|
|
(135)
|
|
|
|
|
|
|
Net cash provided by (used
in) financing activities
|
|
1,285
|
|
|
(4,848)
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
13
|
|
|
41
|
|
|
|
|
|
|
Net increase (decrease) in
cash and cash equivalents
|
|
487
|
|
|
(573)
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period
|
|
1,713
|
|
|
888
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
$
|
2,200
|
|
$
|
315
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
Interest
|
$
|
588
|
|
$
|
569
|
Income taxes
|
|
99
|
|
|
165
|
|
|
|
|
|
|
SEE ACCOMPANYING NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
ROCK OF AGES CORPORATION
NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
(1)
|
Basis of Presentation
|
|
The
accompanying unaudited consolidated financial statements have been prepared
pursuant to the rules and regulations for reporting on Form 10-Q.
Accordingly, certain information and notes required by accounting principles
generally accepted in the United States of America ("U.S. GAAP") for complete
financial statements are not included herein. In the opinion of management,
all adjustments of a normal recurring nature considered necessary for a fair
presentation have been included. Results of operations for the interim periods
are not necessarily indicative of the results that may be expected for a full
year. The Company has historically 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 conditions
affecting operations in Vermont and Canada and the setting of memorials in
cemeteries located in northern regions. For further information, refer to the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 2009, filed on March
31, 2010 (SEC File No. 000-29464) (the "2009 Annual Report").
|
|
In this
report, the terms "Company," "we," "us," or
"our" mean Rock of Ages Corporation and all subsidiaries included
in our consolidated financial statements.
|
|
The
Company's fiscal year ends on December 31 and its fiscal quarters are the
13-week periods ending on the Saturday nearest March 31, June 30 and
September 30. As a result, the first and fourth quarter may be more or less
than 13 weeks, by 1 to 6 days, which can affect comparability between
periods. The second quarter of 2010 and 2009 each have 91 days.
|
|
|
(2)
|
Stock-Based Compensation
|
|
The following tables
set forth stock option activity for the periods ended July 3, 2010 and July
4, 2009 and information on outstanding and exercisable options at such dates:
|
|
Six
Months Ended
|
|
|
July 3,
2010
|
|
July 4,
2009
|
|
|
Number
Of Options
|
|
|
Weighted
Average
Exercise Price
|
Aggregate Intrinsic
Value
|
Number
Of Options
|
|
|
Weighted
Average
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of period
|
314,000
|
|
$
|
4.08
|
|
324,000
|
|
$
|
4.06
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
-
|
|
|
-
|
|
20,000
|
|
|
2.63
|
|
Exercised
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
Canceled
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
Outstanding at end of period
|
314,000
|
|
$
|
4.08
|
$ 207,675
|
344,000
|
|
$
|
3.98
|
|
Exercisable at end of period
|
157,000
|
|
$
|
5.22
|
$ 41,535
|
119,000
|
|
$
|
5.98
|
|
Weighted average remaining contractual life
|
5.7 years
|
|
|
|
|
6.9 years
|
|
|
|
|
|
At July 4, 2009, the closing price of the Company's
stock was less than the weighted average exercise price of the outstanding
options, therefore, there was no aggregate intrinsic value of outstanding
options.
|
|
|
|
|
|
Inventories consist of the following (in thousands):
|
|
July 3,
|
|
December 31,
|
|
|
2010
|
|
2009
|
Raw materials
|
$
|
8,953
|
$
|
10,402
|
Work-in-process
|
|
1,565
|
|
1,057
|
Finished goods and supplies
|
|
4,249
|
|
3,618
|
|
$
|
14,767
|
$
|
15,077
|
|
|
|
|
|
The
finished goods and supplies inventory includes $1,847,000 of retail display
inventory that is located at various retail locations and is consigned to
PKDM Holdings Inc., ("PKDM") the owner 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).
|
|
|
(4)
|
Earnings (Loss) Per Share
|
|
The following is a reconciliation of shares used in
calculating basic and diluted earnings per share (in thousands):
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
July 3, 2010
|
|
July 4, 2009
|
|
July 3, 2010
|
|
July 4, 2009
|
Basic weighted average shares
|
|
7,416
|
|
7,416
|
|
7,416
|
|
7,416
|
Effect of dilutive stock options
|
|
23
|
|
-
|
|
-
|
|
-
|
Diluted weighted average shares
|
|
7,439
|
|
7,416
|
|
7,416
|
|
7,416
|
|
|
|
|
|
|
|
|
|
|
Options to purchase 136,500 shares of Class A common
stock were outstanding at July 3, 2010, but were not included in the
computation of diluted earnings per share for the three months ended July 3,
2010 because they were out of the money. Options to purchase 314,000 shares
of Class A common stock were outstanding at July 3, 2010, but were not
included in the computation of diluted earnings (loss) per share for the six
months ended July 3, 2010 because the effect would have been anti-dilutive.
|
|
Options to purchase 344,000 shares of Class A common
stock were outstanding at July 4, 2009, but were not included in the
computation of diluted earnings (loss) per share for the three and six months
ended July 4, 2009 because the effect would have been anti-dilutive.
|
|
|
(5)
|
Segment Information
|
|
The Company is organized based on the products and
services it offers. The Company operates in two segments: quarry and
manufacturing.
|
|
The quarry segment extracts granite from the ground
and sells it to either the Company's manufacturing segment or to outside
manufacturers, as well as to distributors in Europe and China. There were two
quarry customers that represented approximately 17.4% of accounts receivable
at July 3, 2010 and one customer that represented approximately 20.8% of
accounts receivable at December 31, 2009. These receivables were backed by
irrevocable letters of credit.
|
|
The manufacturing segment's principal products are
granite memorials and mausoleums used primarily in cemeteries and, to a
lesser extent, specialized granite products for industrial applications.
|
|
Inter-segment revenues are accounted for as if the
sales were to third parties. These are eliminated on consolidation in the
statements of operations.
|
|
The following tables present unaudited segment
information for the three and six month periods ended July 3, 2010 and July 4,
2009 (in thousands):
|
|
Three month period:
|
|
2010
|
|
Quarry
|
|
|
Manufacturing
|
|
|
Unallocated Corporate
Overhead
|
|
|
Total
|
Total net revenues
|
$
|
7,411
|
|
$
|
8,025
|
|
$
|
-
|
|
$
|
15,436
|
Inter-segment net revenues
|
|
(773
|
)
|
|
-
|
|
|
-
|
|
|
(773)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
6,638
|
|
|
8,025
|
|
|
-
|
|
|
14,663
|
Total gross profit
|
|
2,397
|
|
|
2,405
|
|
|
-
|
|
|
4,802
|
Inter-segment gross profit
|
|
(263
|
)
|
|
263
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
2,134
|
|
|
2,668
|
|
|
-
|
|
|
4,802
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
496
|
|
|
1,106
|
|
|
669
|
|
|
2,271
|
Strategic options and lawsuit expenses
|
|
|
|
|
|
|
|
493
|
|
|
493
|
Other income, net
|
|
|
|
|
|
|
|
(52
|
)
|
|
(52)
|
Income before interest and taxes
|
$
|
1,638
|
|
$
|
1,562
|
|
$
|
(1,110
|
)
|
$
|
2,090
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
Quarry
|
|
|
Manufacturing
|
|
|
Unallocated Corporate
Overhead
|
|
|
Total
|
Total net revenues
|
$
|
7,273
|
|
$
|
7,512
|
|
$
|
-
|
|
$
|
14,785
|
Inter-segment net revenues
|
|
(361
|
)
|
|
-
|
|
|
-
|
|
|
(361)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
6,912
|
|
|
7,512
|
|
|
-
|
|
|
14,424
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
1,817
|
|
|
2,360
|
|
|
-
|
|
|
4,177
|
Inter-segment gross profit
|
|
(71
|
)
|
|
71
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
1,746
|
|
|
2,431
|
|
|
-
|
|
|
4,177
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
583
|
|
|
1,058
|
|
|
692
|
|
|
2,333
|
Other income, net
|
|
|
|
|
|
|
|
(55
|
)
|
|
(55)
|
Income before interest and taxes
|
$
|
1,163
|
|
$
|
1,373
|
|
$
|
(637
|
)
|
$
|
1,899
|
|
|
|
|
|
|
|
|
|
|
|
|
Six month period:
2010
|
|
Quarry
|
|
|
Manufacturing
|
|
|
Unallocated Corporate
Overhead
|
|
|
Total
|
Total net revenues
|
$
|
11,697
|
|
$
|
11,914
|
|
$
|
-
|
|
$
|
23,611
|
Inter-segment net revenues
|
|
(1,437
|
)
|
|
-
|
|
|
-
|
|
|
(1,437)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
10,260
|
|
|
11,914
|
|
|
-
|
|
|
22,174
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
2,048
|
|
|
2,849
|
|
|
-
|
|
|
4,897
|
Inter-segment gross profit
|
|
(264
|
)
|
|
264
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
1,784
|
|
|
3,113
|
|
|
-
|
|
|
4,897
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
1,089
|
|
|
2,035
|
|
|
1,357
|
|
|
4,481
|
Strategic options and lawsuit expenses
|
|
|
|
|
|
|
|
493
|
|
|
493
|
Foreign exchange income
|
|
-
|
|
|
-
|
|
|
(84
|
)
|
|
(84)
|
Other income, net
|
|
|
|
|
|
|
|
(145
|
)
|
|
(145)
|
Income before interest and taxes
|
$
|
695
|
|
$
|
1,078
|
|
$
|
(1,621
|
)
|
$
|
152
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
Quarry
|
|
|
Manufacturing
|
|
|
Unallocated Corporate
Overhead
|
|
|
Total
|
Total net revenues
|
$
|
10,688
|
|
$
|
10,326
|
|
$
|
-
|
|
$
|
21,014
|
Inter-segment net revenues
|
|
(652)
|
|
|
-
|
|
|
-
|
|
|
(652)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
10,036
|
|
|
10,326
|
|
|
-
|
|
|
20,362
|
Total gross profit
|
|
1,592
|
|
|
2,463
|
|
|
-
|
|
|
4,055
|
Inter-segment gross profit
|
|
(71)
|
|
|
71
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
1,521
|
|
|
2,534
|
|
|
-
|
|
|
4,055
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
1,130
|
|
|
2,026
|
|
|
1,733
|
|
|
4,889
|
Effect of pension curtailment
|
|
-
|
|
|
-
|
|
|
95
|
|
|
95
|
Other income, net
|
|
|
|
|
|
|
|
(144)
|
|
|
(144)
|
Income (loss) before interest and taxes
|
$
|
391
|
|
$
|
508
|
|
$
|
(1,684)
|
|
$
|
(785)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues by geographic area, based on shipping
destination, for the three months ended July 3, 2010 and July 4, 2009 are as
follows (in thousands):
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
July 3, 2010
|
|
July 4, 2009
|
|
July 3, 2010
|
|
July 4, 2009
|
Net revenues:
|
|
|
|
|
|
|
|
|
China
|
$
|
1,998
|
$
|
2,591
|
$
|
3,209
|
$
|
3,436
|
Italy
|
|
235
|
|
30
|
|
442
|
|
35
|
Other foreign countries
|
|
68
|
|
26
|
|
127
|
|
101
|
|
|
2,301
|
|
2,647
|
|
3,778
|
|
3,572
|
United States and Canada
|
|
12,362
|
|
11,777
|
|
18,396
|
|
16,790
|
Total net revenues
|
$
|
14,663
|
$
|
14,424
|
$
|
22,174
|
$
|
20,362
|
|
|
|
|
|
|
|
|
|
|
Net
property, plant and equipment by geographic area are as follows (in
thousands):
|
|
|
July 3, 2010
|
|
December 31, 2009
|
United States
|
$
|
26,566
|
$
|
26,232
|
Canada
|
|
4,092
|
|
4,327
|
|
$
|
30,658
|
$
|
30,559
|
|
|
|
|
|
(6)
|
Comprehensive Income (Loss)
|
|
Accumulated
other comprehensive loss consists of the following components (in
thousands):
|
|
|
|
Foreign
Currency Translation
|
|
|
Unfunded
Pension Liability
|
|
|
Investment
Available for Sale
|
|
|
Accumulated
Other Comprehensive Loss
|
Balance at
December 31, 2009
|
$
|
3,028
|
|
$
|
(7,569)
|
|
$
|
(34)
|
|
$
|
(4,575)
|
Changes in
2010
|
|
(75)
|
|
|
-
|
|
|
17
|
|
|
(58)
|
Balance at
July 3, 2010
|
$
|
2,953
|
|
|
(7,569)
|
|
|
(17)
|
|
|
(4,633)
|
|
|
|
|
|
|
|
|
|
|
|
|
Included
in other comprehensive income/loss was a reclassification adjustment of $157,000
and $312,000 in 2010 and 2009, respectively for the unfunded pension
liability.
Comprehensive income (loss) is as follows (in thousands):
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
July 3,
|
|
|
July 4,
|
|
|
July 3,
|
|
|
July 4,
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
1,561
|
|
$
|
1,433
|
|
$
|
(531)
|
|
$
|
(1,341)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
adjustment
|
|
(396)
|
|
|
545
|
|
|
(75)
|
|
|
448
|
Unrealized gain(loss) on
investment in
|
|
|
|
|
|
|
|
|
|
|
|
available for sale securities
|
|
(13)
|
|
|
69
|
|
|
17
|
|
|
95
|
Pension related adjustment:
|
|
|
|
|
|
|
|
|
|
|
|
Curtailment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,503
|
Pension liability adjustment,
net of
reclassification adjustment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,517
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
$
|
1,152
|
|
$
|
2,047
|
|
$
|
(589)
|
|
$
|
3,222
|
|
|
(7)
|
Components of Net Periodic Benefit Cost
|
|
Components of net periodic benefit cost for the
three months ended July 3, 2010 and July 4, 2009 are as follows (in
thousands):
|
|
|
|
NON-UNION
PENSION BENEFITS
|
|
|
SALARY
CONTINUATION BENEFITS
|
|
|
OTHER
POST- EMPLOYMENT BENEFITS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 3, 2010
|
|
|
July 4, 2009
|
|
|
July 3, 2010
|
|
|
July 4, 2009
|
|
|
July 3, 2010
|
|
|
July 4,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
2
|
|
$
|
1
|
Interest cost
|
|
347
|
|
|
371
|
|
|
78
|
|
|
84
|
|
|
26
|
|
|
26
|
Expected return on plan assets
|
|
(379
|
)
|
|
(302
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
Amortization of prior service costs
|
|
-
|
|
|
-
|
|
|
20
|
|
|
28
|
|
|
15
|
|
|
12
|
Amortization of net actuarial loss
|
|
43
|
|
|
45
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
Net periodic benefit cost
|
$
|
11
|
|
$
|
114
|
|
$
|
98
|
|
$
|
112
|
|
$
|
43
|
|
$
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of net periodic benefit cost for the six
months ended July 3, 2010 and July 4, 2009 are as follows (in thousands):
|
|
|
|
NON-UNION
PENSION BENEFITS
|
|
|
SALARY
CONTINUATION BENEFITS
|
|
|
OTHER
POST-EMPLOYMENT BENEFITS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 3, 2010
|
|
|
July 4, 2009
|
|
|
July 3, 2010
|
|
|
July 4,
2009
|
|
|
July 3, 2010
|
|
|
July 4, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
-
|
|
$
|
65
|
|
$
|
-
|
|
$
|
-
|
|
$
|
3
|
|
$
|
2
|
|
Interest cost
|
|
694
|
|
|
758
|
|
|
157
|
|
|
168
|
|
|
52
|
|
|
52
|
|
Expected return on plan assets
|
|
(758)
|
|
|
(620)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Amortization of prior service costs
|
|
-
|
|
|
32
|
|
|
40
|
|
|
56
|
|
|
31
|
|
|
24
|
|
Amortization of net actuarial loss
|
|
86
|
|
|
200
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Effect of curtailment
|
|
-
|
|
|
95
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
Net periodic benefit cost
|
$
|
22
|
|
$
|
530
|
|
$
|
197
|
|
$
|
224
|
|
$
|
86
|
|
$
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective March 31, 2009, the Company's defined
benefit pension plan was amended by freezing membership and future benefits
in the plan. We recognized additional pension expense of $95,000 as the
effect of the pension curtailment in the first quarter of 2009. Additionally,
the defined benefit pension plan was revalued as of the date of the
curtailment. The effect of the curtailment and re-measurement resulted in a decrease
of the projected benefit obligation of $3.8 million and a decrease in the
accumulated other comprehensive loss of $4.0 million.
|
|
|
The Company expects to contribute approximately $1.3
million to the defined benefit pension plan during 2010. A $212,000
contribution was made during the quarter ended July 3, 2010 for 2010. We
also contributed $98,000 in January 2010 for the 2009 plan year.
|
|
|
(8)
|
Recent Accounting Pronouncements
|
|
In February 2010, the FASB issued an amendment to
certain recognition and disclosure requirements on subsequent events. This
amendment removed the requirement for a Securities and Exchange Commission
filer to disclose a date through which subsequent events have been evaluated
in both issued and revised financial statements. The adoption of this new
guidance has been applied to the Company's consolidated financial statements
and the Company has evaluated subsequent events through the date of issuance
of the financial statements.
|
|
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 adoption of this guidance did not have a material impact on our
financial position or results of operations.
|
|
(9)
|
Credit Facility
|
|
In October 2007, the Company entered into a new
credit facility with its existing lenders, the CIT Group/Business Credit and
Chittenden Trust Company (the "Lenders") that will expire in October 2012 and
is secured by substantially all assets of the Company located in the United
States. The credit 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 $-0- and $11,886,000 as of
July 3, 2010 and $2,715,000 and $13,991,000 as of July 4, 2009 on the
revolving credit facility and the term loan line of credit, respectively.
Availability under the revolving credit facility was $11 million as of July 3,
2010. The credit facility financing 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.
|
|
Repayment Terms.
As the aggregate unpaid principal balance
of the outstanding term loan is less than $17,500,000, quarterly principal
payments are no longer required. The principal balance is payable in full on
the expiration date of the facility in October 2012. The Company does have
the right to make voluntary pre-payments on the term loan. In the first
quarter of 2010 our Canadian subsidiary borrowed $4 million on its term loan.
The proceeds, net of the Canadian withholding tax, were used to pay $2
million on the term debt with the remainder used for working capital. The
revolving credit facility is paid down daily with all proceeds received by
the Company.
|
|
The Company is required to repay its term loan to
the extent it sells certain assets collateralizing the loan. Accordingly, the
Company has classified a portion of the term loan as a current liability
based on the estimated proceeds of fixed assets classified as held for sale.
|
|
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 the trailing twelve-month period at the end of each quarter. Due to the
non-cash impairment charges on the write-down of inventory and the corporate
building we were in violation of the fixed charge coverage ratio covenant at
December 31, 2008. We received a waiver of this covenant from the Lenders and
amended the agreement as of March 30, 2009. The Company was in compliance
with this covenant at July 3, 2010.
|
|
Total Liabilities to Net Worth
Ratio.
The
credit facility also requires that the ratio of our total liabilities to net
worth (the "Leverage Ratio") not exceed 2.25 for the first two quarters of
2009 and 2.00 for the remainder of the term of the loan. The Leverage Ratio
excludes from the calculation the change in tangible net worth directly
resulting from the Company's compliance with changes in accounting for
pensions of $6.0 million. As of July 3, 2010, we were in compliance with the
Leverage Ratio covenant.
|
|
Canadian Facility.
The Company's Canadian subsidiary has a
line of credit agreement with the Royal Bank of Canada that is renewable
annually. 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%. There was $-0-
outstanding as of July 3, 2010 and July 4, 2009, respectively.
|
|
The Canadian subsidiary also has a non-revolving
term loan with the Royal Bank of Canada which cannot exceed $4 million CDN
bearing interest at the Canadian prime rate plus 0.95%. There was $3.5
million and $-0- outstanding as of July 3, 2010 and July 4, 2009,
respectively. The effective interest rate was 3.45% as of July 3, 2010.
|
|
(10)
|
Income Taxes
|
|
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.
|
|
Income tax expense in the first half of 2010 and 2009
result primarily from income at our Canadian subsidiary. Tax expense is calculated
based on the estimated annual effective Canadian tax rate of 31% for 2010 and
2009.
|
|
In 2005, the Company adjusted its valuation allowance
to fully reserve for the entire net U.S. deferred tax asset. At each
subsequent period, including at the end of the second quarter of 2010, 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
if and/or when the Company has taxable income from its U.S. operations.
|
|
As of July 3, 2010 and December 31, 2009, the
Company recorded no unrecognized tax benefits or liabilities related to
uncertain tax positions.
|
|
|
(11)
|
Intangible Assets and Goodwill
|
|
We test 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.
In the first quarter of 2010, we performed our
annual assessment for the quarry reporting unit. We calculated the fair value
of the quarry reporting unit based on the estimated expected discounted
future cash flows. Based on this analysis we concluded that there was no
indication of impairment as of April 3, 2010, although there can be no
assurance that goodwill will not become impaired in future periods.
|
|
|
(12)
|
Fair Value Measurements
|
|
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 July 3,
2010 and December 31, 2009 we estimated to be at market.
|
|
The assets in our pension plan are
Separate Investment Accounts and their fair value is based on 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.
|
|
|
(13)
|
Regulatory Matters
|
|
The U.S. Mine Safety and Health Administration
(MSHA) issued citations 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 the 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.
|
|
|
(14)
|
Assets Held For Sale
|
|
|
|
As of
July 3, 2010, the Company held various assets for sale, which were no longer
being used in production, totaling $621,000 and $758,000 at December 31,
2009. During the quarter ended July 3, 2010, we sold property located in
Hardwick, Vermont with a book value of $137,000. The remaining assets have
been classified as current assets held for sale. The estimated sales prices
for the assets are expected to exceed the carrying values therefore no
impairments were recognized. Accordingly, these amounts have been
reclassified from the term loan to current maturities of long term debt since
the company is required to apply the proceeds from the sale of these assets,
when they are sold, against the term loan.
|
|
|
(15)
|
Proposed Transaction and
Exploration of Strategic Alternatives
|
|
On May 6, 2010, the Company's Board of Directors
received an unsolicited proposal from Swenson Granite Company, LLC
("Swenson") to purchase all outstanding shares of the Company's common
stock, including shares underlying vested options, for a purchase price of
$4.38 per share in cash. The acquisition proposed by Swenson is conditioned
on lender due diligence, negotiation of a definitive structure and terms to
be set forth in a definitive acquisition agreement with the Company, and
Swenson obtaining financing for the transaction in an amount sufficient to
fund the purchase price and the ongoing operations of the two companies.
Kurt M. Swenson, the Chairman of Swenson and
non-executive Chairman of Rock of Ages, together with his brother, Kevin
Swenson and Robert Pope, President and Chief Executive Officer of Swenson,
own approximately 74% of Swenson and approximately 29% of all outstanding
shares of common stock of the Company, and control approximately 70% of the
voting power of all outstanding capital stock of the Company. According to
the proposal letter, as part of the transaction, Kurt Swenson, Kevin Swenson
and Robert Pope would exchange all of their 2,173,364 Class B shares of the
Company for additional interests in Swenson.
The Board of Directors of the Company formed a
special committee of independent directors (the "Committee") which
retained financial advisors and legal counsel. On May 21, 2010, the Committee
commenced a process to explore and consider possible strategic alternatives
for the Company while it continues to evaluate the proposal from Swenson.
The Company's shareholders and others considering trading in its securities have
been cautioned that no decisions had been made by the Committee or the Board
of Directors as to the Company's response to the proposal or actions it may
consider in light of the Swenson proposal or the exploration of possible
strategic alternatives. See Item 1A - "Risk Factors" of this Form 10-Q.
|
|
|
(16)
|
Litigation
|
|
A purported shareholder of Rock of Ages
has commenced a purported class action lawsuit against Rock of Ages, all of
the members of its Board of Directors and certain officers, and Swenson, in
connection with the acquisition proposal submitted by Swenson on May 6, 2010
to Rock of Ages' Board of Directors. The plaintiff alleges, among other
things, that the directors and named officer defendants of Rock of Ages
breached their fiduciary duties in connection with the Swenson proposal, that
Swenson's proposed offer is inadequate, and that the persons constituting a
group with Swenson with respect to the Swenson proposal, including Rock of
Ages' controlling shareholders, would benefit from the proposed transaction
to the detriment of Rock of Ages' other shareholders. The plaintiff seeks,
among other things, damages and injunctive relief against the consummation of
the transaction proposed by Swenson. Rock of Ages believes the complaint is
without merit and is engaged in a vigorous defense.
|
|
|
(17)
|
Subsequent Events
|
|
We have reviewed subsequent events and
concluded that no material subsequent events have occurred that are not
accounted for in the accompanying financial statements or disclosed in the
accompanying notes.
|
Item 2.
|
Management's
Discussion and Analysis of Financial Condition and Results of Operations
|
|
Overview
|
|
Rock of Ages is an integrated quarrier and
manufacturer of granite and products manufactured from granite. During the
first half of 2010, 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 products are granite memorials and
mausoleums used primarily in cemeteries. It also manufactures specialized
granite products for industrial applications.
|
|
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
either close or reduce the operations 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
significant net loss during the first three months of each calendar year.
|
|
In the second quarter of 2010 total revenue increased
$239,000 or 2% from the same period last year mainly due to increased sales
of industrial products. Total gross profit increased $625,000 from the same
period last year. SG&A expenses increased 19% or $434,000 due to costs
associated with the consideration of the Swenson proposal, and the process
commenced by the special committee of independent directors (the "Committee")
to explore and consider strategic alternatives for the Company (the "Strategic
Process"), as well as costs associated with defending against the shareholder
lawsuit described in Part II, Item 1 of this Report. Total net income increased
by $128,000 over the same period last year.
|
|
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. 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, valuation of deferred
tax assets, accounting for pensions and other post-employment benefits and
valuation of inventory. There have been no material changes in the Company's
critical accounting policies or changes in the methodology applied by
management for critical accounting policies from what was previously disclosed
in our most recent Form 10-K.
|
|
Results of Operations
The
following table sets forth certain statement of operations data as a
percentage of total net revenues with the exception of quarry and
manufacturing gross profit and SG&A, which are shown as a percentage of
their respective segment's net revenues.
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
July 3, 2010
|
|
July 4, 2009
|
|
July 3, 2010
|
|
July 4, 2009
|
|
|
|
|
|
|
|
|
|
Net Revenues:
|
|
|
|
|
|
|
|
|
Quarry
|
|
45.3%
|
|
47.9%
|
|
46.3%
|
|
49.3%
|
Manufacturing
|
|
54.7%
|
|
52.1%
|
|
53.7%
|
|
50.7%
|
|
|
|
|
|
|
|
|
|
Total
net revenues
|
|
100.0%
|
|
100.0%
|
|
100.0%
|
|
100.0%
|
Gross Profit:
|
|
|
|
|
|
|
|
|
Quarry
|
|
32.1%
|
|
25.3%
|
|
17.4%
|
|
15.2%
|
Manufacturing
|
|
33.2%
|
|
32.4%
|
|
26.1%
|
|
24.5%
|
|
|
|
|
|
|
|
|
|
Total
gross profit
|
|
32.7%
|
|
29.0%
|
|
22.1%
|
|
19.9%
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses:
|
|
|
|
|
|
|
|
|
Quarry
|
|
7.5%
|
|
8.4%
|
|
10.6%
|
|
11.3%
|
Manufacturing
|
|
13.8%
|
|
14.1%
|
|
17.1%
|
|
19.6%
|
Corporate
overhead
|
|
4.6%
|
|
4.8%
|
|
6.1%
|
|
8.5%
|
Strategic
options and lawsuit expenses
|
|
3.4%
|
|
-
|
|
2.2%
|
|
-
|
Effect
of pension curtailment
|
|
-
|
|
-
|
|
-
|
|
0.5%
|
Foreign
exchange loss (income)
|
|
-
|
|
-
|
|
(0.4%)
|
|
-
|
Other
income, net
|
|
(0.4%)
|
|
(0.4%)
|
|
(0.7%)
|
|
(0.7%)
|
|
|
|
|
|
|
|
|
|
Total
SG&A expenses
|
|
18.5%
|
|
15.8%
|
|
21.4%
|
|
23.8%
|
|
|
|
|
|
|
|
|
|
Income (loss) before interest and income taxes
|
|
14.2%
|
|
13.2%
|
|
0.7%
|
|
(3.9%)
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
1.9%
|
|
2.3%
|
|
2.6%
|
|
2.6%
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
12.3%
|
|
10.9%
|
|
(1.9%)
|
|
(6.5%)
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
1.7%
|
|
1.0%
|
|
0.5%
|
|
0.1%
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
10.6%
|
|
9.9%
|
|
(2.4%)
|
|
(6.6%)
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 3, 2010 Compared
to Three Months Ended July 4, 2009
|
|
On a consolidated basis for the three-month period
ended July 3, 2010, compared to the three-month period ended July 4, 2009, revenue
increased $239,000 or 2%, gross profit increased $625,000 or 15% and total operating
expenses increased $434,000 or 19%. The Company reported net income of $1.6
million in the second quarter of 2010 compared to $1.4 million for the second
quarter of 2009.
|
|
Quarry Segment Analysis
|
|
In the second quarter of 2010 revenues in our quarry
division decreased $274,000 or 4% from the same period last year mainly due
to decreased export sales of Bethel White. We continue to see good demand for
our export stone and believe Bethel will get back to historical levels. However,
even with the decrease in sales, gross profit increased $388,000 from the
same period last year mainly due to increased profit margins in our
Stanstead, Salisbury and Gardenia quarries. In each of these quarries the
cost per cubic foot has decreased and the gross profit margins have
increased.
|
|
SG&A expenses decreased 15% or $87,000 due to decreased
pension and legal expenses. Therefore the quarry divisional operating income
increased 41% or $475,000 compared to the same period last year.
|
|
Manufacturing Segment Analysis
|
|
Revenue in our manufacturing division was $513,000
higher in the second quarter of 2010 than the same period last year. The
increase in manufacturing revenue is due to increased shipments of industrial
products. The plant in Canada had increased monumental shipments, however,
that increase was more than offset by decreased monumental shipments in the
U.S. plant, mainly due to decreased shipments of mausoleums and features in
this quarter compared to the same quarter last year.
|
|
Gross profit for the second quarter of 2010 was $237,000
or 10% higher than the same period last year. The gross profit margin
increased from 32% to 33%.
|
|
SG&A costs for the quarter ended July 3, 2010
for the manufacturing division increased $48,000 or 5% compared to the quarter
ended July 4, 2009. This increase is due primarily to increased travel and
incentive expenses for the Beebe plant, increased commission expenses for the
industrial products division and the increase in the Canadian exchange rate. The
manufacturing operating income was $189,000 higher than last year's second
quarter.
|
|
Consolidated Items
|
|
Corporate overhead,
consisting of operating costs not directly related to an operating segment,
decreased 3%, or
|
$23,000, for the quarter ended July 3,
2010 compared to the quarter ended July 4, 2009 due in part to decreased legal
expenses and Delaware franchise tax accruals which were partially offset by
increased bank charges, travel expenses and incentive accrual. In the second
quarter of 2010 we incurred $336,000 in costs related to the Strategic Process
and we incurred $157,000 in costs related to the shareholder lawsuit Described
in Part II, Item 1 of this Report.
|
|
Other income, which includes rental income from
non-operating properties, was up 6%, or $3,000, in the second quarter of 2010.
|
|
Due to the decreased level of U.S. debt in 2010 net
interest expense decreased $52,000, or 16%, for the quarter ended July 3,
2010 compared to the quarter ended July 4, 2009. On March 30, 2009, we
reached a definitive agreement with our lenders on the conditions of the
grant of a waiver from compliance with certain covenants contained in our
Amended and Restated Financing Agreement. In consideration of the consents
and waivers the unused line fee went from .25% to .50% and the existing
interest rate pricing grid was changed and interest rates increased
approximately 3%. Despite the higher rates the decreased level of debt
resulted in a decrease in interest expense.
|
|
Income tax expense was $250,000 for the quarter
ended July 3, 2010, compared to $135,000 for the same quarter in 2009. The
tax expense reported in both periods was primarily due to our Canadian
subsidiary and is more in 2010 than 2009 due to a larger second quarter net
income in our Canadian subsidiary and the increase in the exchange rate. During
the first quarter of both years we continued to fully reserve against all our
U.S. deferred tax assets.
|
|
Six Months Ended July 3, 2010
Compared to Six Months Ended July 4, 2009
|
|
On a consolidated basis for the six-month period
ended July 3, 2010, compared to the six-month period ended July 4, 2009, revenue
increased $1.8 million or 9%, gross profit increased $842,000 or 21% and total
operating expenses decreased $95,000 or 2%. The Company reported a net loss
of $531,000 in the second quarter of 2010 compared to a loss of $1.3 million
for the second quarter of 2009.
|
|
Quarry Segment Analysis
|
|
In the first half of 2010 revenues in our quarry
division increased $224,000 or 2% from the same period last year mainly due
to increased sales of Stanstead and Gardenia. The increase in the sales of
Stanstead is due in part to the purchase of the Polycor quarry which was
completed in April 2009. Gross profit increased $263,000 from the same period
last year mainly due to increased profit margins in our Stanstead, Salisbury
and Gardenia quarries. In each of these quarries the cost per cubic foot has
decreased and the gross profit margins have increased. Due to better recovery
rates, the production in Stanstead in the first six months of 2010 has been
more than double the amount in the same period of 2009. In 2010 we had a mild
winter so the men started working sooner in 2010 than in 2009 therefore
production was much better. Production in both Salisbury and Gardenia is
better in 2010 due to the development we have done in each of those quarries and
the fact that we have moved to the next level in the quarry.
|
|
SG&A expenses decreased 4% or $41,000 due to
decreased pension, office and legal expenses. These decreases are somewhat
offset by increases in sales travel and convention expenses and incentive
accrual. Therefore the quarry divisional operating income increased 78% or
$304,000 compared to the same period last year.
|
|
Manufacturing Segment Analysis
|
|
Revenue in our manufacturing division was $1.6
million higher in the first half of 2010 than the same period last year. The
increase in manufacturing revenue is due to increased shipments of industrial
products and monumental shipments from our plant in Canada and a small
increase in shipments in the U.S. plant.
|
|
Gross profit for the first half of 2010 was $579,000
or 23% higher than the same period last year. The gross profit margin
increased from 25% to 26% due to the larger profit margin for industrial
products.
|
|
SG&A costs for the six-month period ended July
3, 2010 for the manufacturing division increased slightly, $9,000, compared
to the six-month period ended July 4, 2009. The manufacturing operating
income was $570,000 higher than the same period last year.
|
|
Consolidated Items
|
|
Corporate overhead,
consisting of operating costs not directly related to an operating segment,
decreased 22%, or $376,000, for the six-month period ended July 3, 2010
compared to the six-month period ended July 4, 2009 due to
|
decreased pension, legal and accounting
expenses and Delaware franchise tax accruals. The decreases were somewhat
offset by increased bank fees and accruals for incentive payments. In the
first half of 2010 we incurred $336,000 in costs related to the Strategic
Process and $157,000 in costs related to the shareholder lawsuit described in
Part II, Item 1of this Report.
|
|
Other income, which includes rental income from
non-operating properties, was comparable to the prior year.
|
|
Effective March 31, 2009 the Company's defined
benefit pension plan was amended by freezing membership and future benefits
in the plan. Accordingly, we recognized an additional pension expense of
$95,000 as the effect of the pension curtailment in the first half of 2009. There
was no comparable expense in 2010.
|
|
Net interest expense increased $36,000, or 7%, for
the six-month period ended July 3, 2010 compared to the six-month period
ended July 4, 2009. On March 30, 2009, we reached a definitive agreement with
our lenders on the conditions of the grant of a waiver from compliance with
certain covenants contained in our Amended and Restated Financing Agreement.
In consideration of the consents and waivers the unused line fee went from
.25% to .50% and the existing interest rate pricing grid was changed and
interest rates increased approximately 3%.
|
|
Income tax expense was $110,000 for the six-month
period ended July 3, 2010, compared to $19,000 for the same six-month period
in 2009. The tax expense reported in both periods was primarily due to
our Canadian subsidiary and is more in 2010 than 2009 due to a larger first
half net income in our Canadian subsidiary and the increase in the exchange
rate. During the first half of both years we continued to fully reserve
against all our U.S. deferred tax assets.
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|
Liquidity and Capital Resources
|
|
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 $50 million credit facility with our Lenders was renewed on October 24,
2007 for a term of five years.
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|
We have historically contributed between $800,000
and $1.0 million per year to the defined benefit pension plan. We expect to
contribute $1.3 million to the defined benefit plan this year, which, we
believe, we will be able to fund either from cash from operations or
borrowing under our credit facilities. A $212,000 contribution was made
during the quarter ended July 3, 2010 for 2010. We also contributed $98,000
in January 2010 for the 2009 plan year. See note 7 of the Notes to Unaudited Consolidated
Financial Statements.
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|
Our primary need for capital will be to maintain and
improve our quarry and manufacturing facilities. We have approximately $2
million planned for capital expenditures in 2010. We believe we will be able
to fund these capital expenditures either from cash from operations or
borrowings under our credit facilities.
|
|
On April 17, 2009, ROA Canada 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 CDN. This
purchase was funded by ROA Canada's line of credit with the Royal Bank of
Canada.
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|
In March 2010, we received $3.8 million, net of the
Canadian withholding taxes, as a dividend from our Canadian subsidiary. We
applied $2 million of this dividend to the long-term debt and $1.8 million was
retained for working capital needs.
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|
Cash Flows
|
|
At July 3, 2010, we had cash and cash equivalents of
$2.2 million and working capital of $21.2 million, compared to $1.7 million of
cash and cash equivalents and working capital of $21.1 million at December 31,
2009.
|
|
Cash Flows from Operations.
Net cash provided by operating activities was
$246,000 for the six-month period ended July 3, 2010 compared to net cash
provided by operating activities of $6.6 million in the six-month period ended
July 4, 2009. The decrease in cash flow from operations is due primarily to
the decrease in the amount of collections on accounts receivable and the
change in inventory in the first half of 2010 compared to 2009. The
significant decrease in trade receivables in 2009 was partly due to the high
level of receivables as of December 31, 2008 which was driven by a very large
sale at the end of the year of $1.4 million and the high level of sales in Q4
2008 in general - especially
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quarry export sales. Combine this with a very
low level of accounts receivable at the end of 2009 and accounts receivable
goes from a source of funds of $4.6 million in the first half of 2009 to a use
of funds of $1.3 million in the first half of 2010.
|
|
Cash Flows from Investing
Activities.
Cash flows used in investing activities were $1.1 million in the first half
of 2010 compared to $2.3 million for the same period in 2009. In 2010 we
spent $1.3 million for capital expenditures, of which, $819,000 was for
quarry development. In 2009, we purchased property, plant and equipment
(PP&E) totaling $1.2 million less $123,000 received on sales of assets
plus $1.3 million for a quarry in Canada. Cash used in investing activities
comes from either borrowings under our credit facilities or from operations.
|
|
Cash Flows from Financing
Activities.
Net
cash provided by financing activities in the six-month period ended July 3,
2010 was $1.3 million which consisted of $4 million in gross proceeds from
long-term debt of our Canadian subsidiary less $2.5 million paid on long-term
debt in the U.S. and Canada plus $216,000 paid on the revolving line of
credit. This compares to $4.8 million used in financing activities in the six-month
period ended July 4, 2009 which consisted of repayments on the long-term debt
of $135,000 and net repayments on the revolving line of credit of $4.7
million.
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|
CIT Credit Facility
|
|
We have a credit facility with the CIT
Group/Business Credit and Chittenden Trust Company (the "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 credit 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 $-0- and $11,886,000 as of July 3, 2010 and $2,715,000 and
$13,991,000 as of July 4, 2009 on the revolving credit facility and the term
loan line of credit, respectively. Availability under the revolving credit
facility was $11 million as of July 3, 2010. The credit facility financing
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 requires a minimum fixed
charge coverage ratio and a total liabilities to net worth ratio. See
footnote No. 9 to the financial statements for more details.
|
|
Interest Rates.
We can elect the interest rate under
the credit facility based on the prime rate or LIBOR for both the revolving
credit facility and the term loan. The revolving credit facility's rate is
based on Prime plus 3% or LIBOR plus 4% with a 2% floor for LIBOR. The term
loan's rate is based on Prime plus 3.5% or LIBOR plus 4.5% with a 2% floor
for LIBOR.
|
|
The rates in effect as of July 3, 2010 were as
follows:
|
|
|
|
|
|
|
|
|
|
Amount
|
|
Formula
|
|
Effective
Rate
|
Revolving Credit Facility
|
$
|
-
|
|
Prime + 3.00%
|
|
6.25%
|
Term Loan
|
$
|
2.9 million
|
|
Prime + 3.50%
|
|
6.75%
|
Term Loan
|
$
|
9.0 million
|
|
Libor + 4.5%
|
|
6.50%
|
|
Canadian
Credit Facility
|
|
The
Company's Canadian subsidiary has a line of credit agreement with the Royal
Bank of Canada that is renewable annually. 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%. There was $-0- outstanding
as of July 3, 2010 and July 4, 2009, respectively.
|
|
The Canadian subsidiary also has a non-revolving
term loan which cannot exceed $4 million CDN bearing interest at the Canadian
prime rate plus 0.95%. There was $3.5 million and $-0- outstanding as of July
3, 2010 and July 4, 2009, respectively. The effective rate was 3.45% as of July
3, 2010.
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|
Off-Balance Sheet Arrangements
|
|
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.
|
|
|
Item 3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
The
Company has financial instruments that are subject to interest rate risk,
principally debt obligations under its credit facilities. Historically, the
Company has not experienced material gains or losses due to interest rate
changes. Based on the July 3, 2010 outstanding borrowings under the credit
facilities of $15.4 million, the impact of a 1% increase in the interest rates
would be approximately $154,000 a year.
|
|
The
Company is subject to foreign currency exchange rate risk primarily from the
operations of its Canadian subsidiary. At July 3, 2010, the Canadian subsidiary
had total assets of $12.1 million exposed to changes in the Canadian/U.S.
dollar exchange rate. The impact of the change in the exchange rate in the
first six months of 2010 was ($75,000) due to a slight decrease in the value
of the Canadian dollar.
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|
Item 4.
|
Controls and Procedures
|
|
Disclosure Controls and
Procedures.
The
Company, with the participation of our Chief Executive Officer ("CEO") and
Chief Financial Officer ("CFO"), 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 the end of the period covered by this report.
Based on this evaluation, our CEO and CFO 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 CEO and CFO, as appropriate to allow timely
decisions regarding required disclosure. Management has concluded that the
consolidated financial statements in this Form 10-Q fairly present, in all
material respects, the Company's financial position, results of operations
and cash flows for the periods and dates presented.
|
|
Changes in Internal Control Over
Financial Reporting.
There have been no significant changes in the Company's internal
control over financial reporting identified during the quarter ended July 3,
2010.
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|
|
PART II
|
OTHER INFORMATION
|
|
Item 1.
|
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 them
to have a material adverse effect on our business or financial condition.
|
|
The Company carries insurance with coverage that it
believes to be customary in its industry. Although there can be no assurance
that such insurance will be sufficient to protect us against all
contingencies, management believes that its insurance protection is
reasonable in view of the nature and scope of our operations.
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|
The U.S. Mine Safety and Health Administration
(MSHA) issued citations 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 the 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.
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|
A
purported shareholder of Rock of Ages has commenced a purported class action
lawsuit against Rock of Ages, all of the members of its Board of Directors
and certain officers, and Swenson, in connection with the acquisition
proposal submitted by Swenson on May 6, 2010 to Rock of Ages' Board of
Directors. The plaintiff alleges, among other things, that the directors and
named officer defendants of Rock of Ages breached their fiduciary duties in
connection with the Swenson proposal, that Swenson's proposed offer is
inadequate, and that the persons constituting a group with Swenson with
respect to the Swenson proposal, including Rock of Ages' controlling
shareholders, would benefit from the proposed transaction to the detriment of
Rock of Ages' other shareholders. The plaintiff seeks, among other things,
damages and injunctive relief against the consummation of the transaction
proposed by Swenson. Rock of Ages believes the complaint is without merit
and is engaged in a vigorous defense.
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|
Item 1A.
|
Risk Factors
|
|
Other than the risk
factors described below, there have been no material changes to the risk
factors previously
|
disclosed
in Part I, Item 1A of the Company's 2009 Annual Report.
|
|
The Company recently received a
proposal from Swenson Granite Company LLC, of which Kurt M. Swenson, the
Company's non-executive Chairman and a substantial shareholder of the
Company, is non-executive Chairman and a substantial equityholder, to acquire
all of the Company's outstanding common stock; there can be no assurance that
such proposal or any other proposal that the Company may receive will lead to
a definitive acquisition agreement, or that a transaction contemplated by the
Swenson Granite Proposal or any other proposal will be approved or
completed. The Company will likely incur significant fees and expenses in
connection with responding to the Swenson Granite proposal and related
matters.
|
|
On May 6, 2010, the Company's Board of Directors
received an unsolicited proposal from Swenson Granite Company, LLC
("Swenson") to purchase all outstanding shares of common stock,
including shares underlying vested options, of the Company for a purchase
price of $4.38 per share in cash (the "Swenson Proposal"). For
additional details on the Swenson Proposal, please see Note 15 - Subsequent
Events in the Notes to Unaudited Consolidated Financial Statements of this
Form 10-Q and the information contained in the Company's Current Report on
Form 8-K filed with the Commission on May 10, 2010.
The Board of Directors has formed a special
committee of independent directors (the "Special Committee") which
has retained financial advisors and legal counsel. On May 21, 2010, the
Committee commenced a process to explore and consider possible strategic
alternatives for the Company while it continues to evaluate the proposal from
Swenson. The Company's shareholders and others considering trading in its
securities are cautioned that no decisions have been made by the Special
Committee or the Board of Directors as to the Company's response to the
proposal or actions it may consider in light of the proposal or the
exploration of possible strategic alternatives. There can be no assurance
that either the Swenson Proposal or any proposal received in connection with
the exploration of strategic alternatives will lead to a definitive
acquisition agreement, or that a transaction contemplated by the Swenson
Proposal or any other transaction will be approved or completed.
The Company will be responsible for payment of the
fees and expenses of the Special Committee's financial advisor and counsel,
as well as of its own counsel; such fees and expenses could be significant
and adversely impact the Company's results of operations.
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|
A purported shareholder
of Rock of Ages has commenced a purported class action lawsuit against Rock
of Ages, all of the members of its Board of Directors and certain officers,
and Swenson Granite Company, LLC ("Swenson"), in connection with
the acquisition proposal submitted by Swenson on May 6, 2010 to Rock of Ages'
Board of Directors.
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|
The plaintiff alleges, among other
things, that the directors and named officer defendants of Rock of Ages
breached their fiduciary duties in connection with the Swenson proposal, that
Swenson's proposed offer is inadequate, and that the persons constituting a
group with Swenson with respect to the Swenson proposal, including Rock of
Ages' controlling shareholders, would benefit from the proposed transaction
to the detriment of Rock of Ages' other shareholders. The plaintiff seeks,
among other things, damages and injunctive relief against the consummation of
the transaction proposed by Swenson. Rock of Ages believes the complaint is
without merit and is engaged in a vigorous defense.
There can be no assurance that we will
prevail in our defense and even if we do, the legal fees and expenses related
to this lawsuit will be significant and may adversely impact the Company's
results of operations.
|
|
If we are unable to
affirm the effectiveness of our internal controls over financial reporting in
future years, the market value of our common stock could be adversely
affected.
|
|
We must report on our internal controls over
financial reporting as of the end of each fiscal quarter and as of the end of
each fiscal year. In 2007 we disclosed material weaknesses in our internal
controls 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
controls over financial reporting as of December 31, 2008 and December 31,
2009. However, we cannot assure you that we will continue to be able to
report that our internal controls over financial reporting are effective as
of December 31, 2010 and subsequent fiscal year end dates, respectively. 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.
|
Item 6.
|
Exhibits
|
|
|
Number
|
Exhibits
|
|
|
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 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.
|
|
|
|
|
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.
|
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
|
|
ROCK OF
AGES CORPORATION
|
|
|
Dated: August
17, 2010
|
By:
/s/
Laura A Plude
Laura A. Plude
Vice President, Chief Financial Officer
and Treasurer
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
|
EXHIBIT INDEX
Number
|
Exhibits
|
|
|
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 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.
|
|
|
|
|
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.
|
|