Rock of Ages (ROAC) 10-Q 2010 Q3 Quarterly report

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

2

 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.

3

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.
 

4

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

5

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

6

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.

(3) Inventories

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

7

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

8

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

9

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):

10

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.

11

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

12

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

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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.

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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%

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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

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$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

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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.  

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.

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.

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.

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.

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

18

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.

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.

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

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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.
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.

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.
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.
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.
Item 1A.	Risk Factors
Other than the risk factors described below, there have been no material changes to the risk factors previously

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 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.

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.

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.

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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.

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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)

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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.

 

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