UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to ______________ Commission file number: 0-29464 ROCK OF AGES CORPORATION ------------------------ (Exact name of Registrant as Specified in its Charter) Delaware 03-015320 -------- ---------- (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification Number) 772 Graniteville Road, Graniteville, Vermont 05654 - ---------------------------------------------------------- (Address of principal executive offices) (Zip Code) (802) 476-3121 -------------- (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period than the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- As of June 30, 2000, 4,375,956 shares of Class A Common Stock, par value $0.01 per share, and 3,075,011 shares of Class B Common Stock, par value $0.01 per share, of Rock of Ages Corporation were outstanding. ROCK OF AGES CORPORATION INDEX Form 10-Q for the Quarterly Period Ended June 30, 2000 PART I FINANCIAL INFORMATION PAGE NO. - ---------------------------- -------- Item 1. Financial Statements Condensed Consolidated Balance Sheets - 3 June 30, 2000 and December 31, 1999 Condensed Consolidated Statements of 4 Operations - Three Months Ended and Six Months Ended June 30, 2000 and 1999 Condensed Consolidated Statements of Cash 5 Flows - Three Months Ended and Six Months Ended June 30, 2000 and 1999 Notes to Condensed Consolidated Financial 6 Statements Item 2. Management's Discussion and Analysis of 11 Financial Condition of Operations Item 3. Quantitative and Qualitative Disclosures 15 About Market Risk PART II OTHER INFORMATION - ------------------------- Item 4. Submission of Matters to a Vote of Security 15 Holders Item 5. Exhibits and Reports on Form 8-K 16 Signature 17 2 PART I: FINANCIAL INFORMATION Item 1: Financial Statements ROCK OF AGES CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS ($ in thousands) June 30, December 31, 2000 1999 (Unaudited) ----------- ------------ ASSETS Current Assets: Cash and cash equivalents $ 3,821 $ 4,877 Trade receivables, net 13,828 14,128 Inventories 24,519 23,292 Prepaid & refundable income taxes 31 - Due from affiliate 182 95 Deferred tax assets 156 156 Other current assets 3,084 2,251 ----------- ------------ Total current assets 45,621 44,799 Property, plant and equipment, net 44,488 44,779 Cash surrender value of life 1,531 1,525 insurance, net Intangibles, net 36,937 37,923 Deferred tax assets 721 721 Due from affiliates 268 - Other 796 922 ----------- ------------ Total assets $ 130,362 $ 130,669 =========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Borrowings under lines of credit $ 10,282 $ 13,620 Current installments of long-term debt 491 616 Trade payables 1,736 1,992 Accrued expenses 4,546 2,405 Income taxes payable - 844 Customer deposits 9,026 7,201 ----------- ------------ Total current liabilities 26,081 26,678 Long-term debt, excluding current installments 12,490 12,620 Deferred compensation 3,531 3,658 Accrued pension 501 501 Accrued postretirement benefit costs 635 635 Other 340 196 ----------- ------------ Total liabilities 43,578 44,288 Commitments 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 4,375,956 and 4,328,171 shares issued and outstanding 44 43 Common Stock - Class B, $.01 par value; 15,000,000 shares authorized 3,075,011 and 3,115,746 shares issued and outstanding 31 31 Additional paid-in capital 67,936 67,909 Retained earnings 19,096 18,577 Accumulated other comprehensive loss (323) (179) ----------- ------------ Total stockholders' equity 86,784 86,381 ----------- ------------ Total liabilities and stockholders' equity $ 130,362 $ 130,669 =========== ============ **SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 3 ROCK OF AGES CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ($ in thousands) Three Months Ended Six Months Ended June 30, June 30, ------------------ ----------------- 2000 1999 2000 1999 -------- -------- -------- -------- Net Revenues: Quarrying $ 6,716 $ 5,520 $ 10,353 $ 9,094 Manufacturing 7,359 11,508 12,845 21,427 Retailing 14,738 11,958 19,849 15,982 -------- -------- -------- -------- Total net revenues 28,813 28,986 43,047 46,503 Gross Profit: Quarrying 3,208 2,386 3,877 3,013 Manufacturing 2,250 2,922 3,347 4,482 Retailing 8,391 6,334 11,149 8,438 -------- -------- -------- ------- Total gross profit 13,849 11,642 18,373 15,933 Selling, general and administrative expenses 8,992 8,195 16,585 14,581 -------- -------- -------- ------- Income from operations 4,857 3,447 1,788 1,352 Loss on sale of Keystone assets - 723 - 723 Interest expense 544 506 1,111 989 -------- -------- -------- ------- Income (loss) before benefit for income taxes and cumulative effect of change in accounting principle 4,313 2,218 677 (360) Income tax expense 1,102 882 158 166 -------- -------- -------- ------- Net income (loss) before cumulative effect of change in accounting principle $ 3,211 $ 1,336 $ 519 $ (526) Cumulative effect in prior years of change in accounting principle (net of taxes of $48) - - - (150) -------- -------- -------- ------- Net income (loss) $ 3,211 $ 1,336 $ 519 $ (676) ======== ======== ======== ======= Per share information: Net income (loss) per share - basic: Net income (loss) before cumulative effect of change in accounting principle $ 0.43 $ 0.18 $ 0.07 $ (0.07) Cumulative effect in prior years of change in accounting principle - - - (0.02) -------- -------- -------- ------- Net income (loss) per share $ 0.43 $ 0.18 $ 0.07 $ (0.09) Net income (loss) per share - diluted: Net income (loss) before cumulative effect of change in accounting principle $ 0.42 $ 0.17 $ 0.07 $ (0.07) Cumulative effect in prior years of change in accounting principle - - - (0.02) --------- --------- -------- ------- Net income (loss) $ 0.42 $ 0.17 $ 0.07 $ (0.09) Weighted average number of common shares outstanding - - basic 7,451 7,604 7,449 7,579 Weighted average number of common shares outstanding - - diluted 7,575 7,940 7,574 7,579 **SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 4 ROCK OF AGES CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ($ in thousands) (Unaudited) Six Months Ended June 30, ------------------ 2000 1999 --------- -------- Cash flows from operating activities: Net income (loss) $ 519 $ (676) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation, depletion and amortization 2,196 2,324 Loss on sale of assets 32 752 Cash surrender value of life insurance (6) - Cumulative effect of change in accounting principles - (150) Deferred taxes - 1 Changes in assets and liabilities: Decrease (increase) in trade receivables 299 (2,722) Increase in due from related parties (355) (53) (Increase) decrease in inventories (1,206) 665 Increase in other assets (705) (656) Increase in trade payables, accrued expenses and income taxes payable 1,011 157 Increase in customer deposits 1,824 1,667 Increase (decrease) in deferred compensation (127) 96 Increase in other liabilities 144 - --------- ------- Net cash provided by operating activities 3,626 1,405 Cash flows from investing activities: Purchases of property, plant and equipment (1,161) (2,501) Increase in intangibles (441) (235) Cash included in sale of subsidiary - (250) Proceeds from sale of property, plant and equipment 700 - Acquisitions, net of cash acquired (1) (167) (5,991) --------- ------- Net cash used in investing activities (1,069) (8,977) Cash flows from financing activities: Net borrowings under lines of credit (3,338) 7,728 Net stock option transactions 26 700 Increase in debt issuance costs - (75) Principal payments on long-term debt (255) (449) --------- ------- Net cash provided by (used in) financing activities (3,567) 7,904 Effect of exchange rate changes on cash (46) 183 --------- ------- Net increase (decrease) in cash and cash equivalents (1,056) 515 Cash and cash equivalents, beginning of period 4,877 4,701 Cash and cash equivalents, end of period $ 3,821 $ 5,216 ========= ======= Supplemental cash flow information: Cash paid during the year for: Interest $ 1,119 $ 991 Income Taxes $ 886 $ 220 **SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (1) Acquisitions: Assets acquired $ 167 $ 7,887 Liabilities assumed and issued - (937) Common stock issued - (640) --------- ------- Cash paid 167 6,310 Less cash acquired - (319) --------- ------- Net cash paid for acquisitions $ 167 $ 5,991 ========= ======= 5 ROCK OF AGES CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (1) Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and notes required by generally accepted accounting principles for complete financial statements are not included herein. In the opinion of management, all adjustments of a normal recurring nature considered necessary for a fair presentation have been included. Results of operations for the interim periods are not necessarily indicative of the results that may be expected for a full year. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Form 10-K 405 (SEC File No. 000-29464, filed March 30, 2000). (2) Inventories ($ in thousands) Inventories consist of the June 30, December 31, following at June 30, 2000 1999 2000 and December 31, 1999: (Unaudited) ------------ ------------ Raw materials $ 10,483 $ 9,650 Work-in-process 2,232 1,704 Finished goods and supplies 11,804 11,938 ------------ ------------ $ 24,519 $ 23,292 ============ ============ (3) Pro Forma Information During the six months ended June 30, 2000, the Company acquired one retail monument company. The Company paid a total of $166,500 in cash. The acquisition has been accounted for under the purchase method. The purchase price has been allocated to the assets acquired and liabilities assumed based upon their respective fair market values, with no resulting goodwill. The following unaudited pro forma information has been prepared assuming that the acquisitions (refer to specifics in the footnotes of Form 10-K 405 mentioned above) during 2000 and 1999 occurred at the beginning of the periods presented. The pro forma information is presented for information purposes only and is not necessarily indicative of what would have occurred if the acquisitions had been made as of those dates. ($ in thousands except per share data) (Unaudited) Six Months Ended June 30, ---------------- 2000 1999 -------- ------- Net revenues $43,098 $47,722 Net income (loss) $ 520 $ (854) Net income (loss) per share - basic $ 0.07 $ (0.11) Net income (loss) per share - diluted $ 0.07 $ (0.11) 6 (4) Earnings Per Share The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share (EPS) computations for net income (loss) for the three and six month periods ended June 30, 2000 and 1999: (in thousands except per share data) Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 ---------- -------- -------- -------- Numerator: Income (loss) available to common shareholders used in basic and diluted earnings per share $ 3,211 $ 1,336 $ 519 $ (676) ========== ======== ======== ======== Denominator: Denominator for basic earnings per share: Weighted average shares 7,451 7,604 7,449 7,579 Effect of dilutive securities: Stock options 124 336 125 - ---------- ------- ------- -------- Denominator for diluted earnings per share: Adjusted weighted average shares 7,575 7,940 7,574 7,579 ========== ======== ======== ======== Basic earnings per share $ 0.43 $ 0.18 $ 0.07 $ (0.09) Diluted earnings per share $ 0.42 $ 0.17 $ 0.07 $ (0.09) Options to purchase 35,000 shares of Class A common stock ranging from $12.375 to $13.688 per share were outstanding in 2000, but were not included in the computation of diluted EPS because the options' exercise price was greater than the average market price of the common shares. (5) Segment Information The Company is organized based on the products and services that it offers. Under this organizational structure, the Company operates in three segments: quarrying, manufacturing, and retailing. The quarrying segment extracts granite from the ground and sells it to both the manufacturing segment and to outside manufacturers, as well as to distributors in Europe and Japan. The manufacturing segment's principal product is granite memorials used primarily in cemeteries, although it also manufactures some specialized granite products for industrial applications. The retailing segment engraves and sells memorials and other granite products at various locations throughout the United States. Inter-segment revenues are accounted for as if the sales were to third parties. 7 The following is the unaudited segment information for the three and six month periods ended June 30, 2000 and 1999 (in thousands): Six month period: 2000 Quarrying Manufacturing Retailing Total --------- ------------- --------- -------- Total net revenues $ 12,206 $ 16,918 $ 19,849 $ 48,973 Inter-segment net revenues 1,853 4,073 - 5,926 --------- ------------- --------- -------- Net revenues 10,353 12,845 19,849 43,047 Total gross profit 4,571 3,071 10,731 18,373 Inter-segment gross profit 694 (276) (418) - --------- ------------- --------- ------- Gross profit 3,877 3,347 11,149 18,373 Selling, general and administrative expenses 2,085 3,302 11,198 16,585 --------- ------------- -------- ------- Income (loss) from operations 1,792 45 (49) 1,788 ========= ============= ======== ======= 1999 Quarrying Manufacturing Retailing Total --------- ------------- --------- -------- Total net revenues $ 12,500 $ 24,711 $ 15,982 $ 53,193 Inter-segment net revenues 3,406 3,284 - 6,690 --------- ------------- --------- -------- Net revenues 9,094 21,427 15,982 46,503 Total gross profit 4,108 3,482 8,343 15,933 Inter-segment gross profit 1,095 (1,000) (95) - --------- ------------- --------- ------- Gross profit 3,013 4,482 8,438 15,933 Selling, general and administrative expenses 2,590 3,333 8,658 14,581 --------- ------------- --------- ------- Income (loss) from operations $ 423 $ 1,149 $ (220) $ 1,352 ========= ============= ========= ======= 8 Three month period: 2000 Quarrying Manufacturing Retailing Total --------- ------------- ---------- ---------- Total net revenues $ 7,861 $ 9,740 $ 14,738 $ 32,339 Inter-segment net revenues 1,145 2,381 - 3,526 --------- ------------- ---------- ---------- Net revenues 6,716 7,359 14,738 28,813 Total gross profit 3,772 1,991 8,086 13,849 Inter-segment gross profit 564 (259) (305) - --------- ------------- ---------- --------- Gross profit 3,208 2,250 8,391 13,849 Selling, general and administrative expenses 1,262 1,810 5,920 8,992 --------- ------------- ---------- --------- Income (loss) from operations 1,946 440 2,471 4,857 ========= ============= ========== ========= 1999 Quarrying Manufacturing Retailing Total --------- ------------- ---------- --------- Total net revenues $ 7,517 $ 13,447 $ 11,958 $ 32,922 Inter-segment net revenues 1,997 1,939 - 3,936 --------- ------------- ---------- --------- Net revenues 5,520 11,508 11,958 28,986 Total gross profit 3,284 2,120 6,238 11,642 Inter-segment gross profit 898 (802) (96) - --------- ------------- ---------- --------- Gross profit 2,386 2,922 6,334 11,642 Selling, general and administrative expenses 1,416 1,693 5,086 8,195 --------- ------------- ---------- --------- Income from operations 970 1,229 1,248 3,447 ========= ============= ========== ========= 9 Net revenues by geographic area is as follows: ($ in thousands) ($ in thousands) Three Months Ended Six Months Ended June 30, June 30, ------------------ ----------------- Net revenues (1): 2000 1999 2000 1999 ------------------ ----------------- United States $ 26,354 $ 25,828 $ 39,068 $ 41,587 Canada 2,459 3,158 3,979 4,916 -------- -------- -------- -------- Total net revenues $ 28,813 $ 28,986 $ 43,047 $ 46,503 ======== ======== ======== ======== (1) Net revenues are attributed to countries based on where product is produced. Long-lived assets by geographic area is as follows: ($ in thousands) June 30, December 31, 2000 1999 Long-lived assets: (Unaudited) ----------------------------- United States $ 42,591 $ 42,798 Canada 1,765 1,976 Japan 132 5 --------- --------- $ 44,488 $ 44,779 ========= ========= (6) Significant Event On March 31, 2000, the Company sold the burial vault business of Rock of Ages Memorials, Inc. for $700,000. Sales for the three month periods ending March 31, 2000 and 1999 amounted to $270,628 and $297,015, respectively. (7) Comprehensive Income Comprehensive income (loss) is as follows: ($ in thousands) ($ in thousands) Three Months Ended Six Months Ended June 30, June 30, ----------------------------------------- 2000 1999 2000 1999 ----------------------------------------- Net income (loss) $ 3,211 $ 1,336 $ 519 $ (676) Cumulative translation adjustment 54 119 (144) 232 -------- ------- ------ ------- Comprehensive income (loss) $ 3,265 $ 1,455 $ 375 $ (444) ======== ======= ======= ======= 10 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations General This Form 10-Q contains certain "forward-looking" statements within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended, including but not limited to those that discuss strategies, goals, outlook or other non-historical matters, or projected or anticipated revenues, income, returns or other financial measures. These forward-looking statements are subject to numerous risks and uncertainties that may cause actual results to differ materially from those contained in or indicated by such statements, including but not limited to the ability of the Company to continue to identify suitable acquisition candidates, to consummate additional retail acquisitions on acceptable terms and to successfully integrate the operations of such acquired entities, demand for the Company's products, as well as general economic, competitive, key employee and other factors described in the Company's Annual Report on Form 10-K or other filings with the Securities and Exchange Commission. The Company assumes no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements. Rock of Ages Corporation (the "Company") is an integrated quarrier, manufacturer, distributor and retailer of granite and products manufactured from granite. The quarry division sells granite blocks both to the manufacturing division and to outside manufacturers, as well as to distributors in Europe and Japan. The manufacturing division's principal product is granite memorials used primarily in cemeteries, although it also manufactures some specialized granite products for industrial applications. The retail division primarily sells granite memorials directly to consumers. In June 1997, the Company acquired the successor to Keystone Memorials, Inc. ("Keystone") and in October 1997, acquired Childs & Childs Granite Company Inc. ("C&C"), granite memorial manufacturers in Elberton, Georgia. In connection with the Keystone and C&C acquisitions, the Company acquired Southern Mausoleums, Inc. ("SMI" and, together with C&C and Keystone, the "Elberton Manufacturing Operations"). Also in connection with the Keystone and C&C acquisitions, the Company acquired three granite quarrying companies operating quarries located in Georgia, Pennsylvania, North Carolina, South Carolina and Oklahoma (the "Quarry Companies"). In November 1998, the Company acquired another quarry company in North Carolina which produces a white granite ("Gardenia" and, together with the Quarry Companies, the "Acquired Quarry Operations"). In October 1997, the Company acquired the Keith Monument Company and related companies which are engaged in the retailing of granite memorials to consumers in the State of Kentucky ("Keith"). In 1998, the Company made acquisitions of thirteen additional retail monument companies (the "1998 Retail Acquisitions"), thereby expanding its retail presence to locations in Georgia, Iowa, Illinois, Minnesota, Nebraska, Ohio, South Dakota, Wisconsin, Pennsylvania and New Jersey. In 1999, the Company acquired an additional thirteen monument retailers (the "1999 Retail Acquisitions"), thereby bringing its total owned retail distribution base to 97 outlets in fifteen states. During the six months ended June 30, 2000, the Company acquired one additional monument retailer. In May 1999, the Company sold certain Keystone assets back to the original owners from whom it had purchased them in June 1997 (the "Keystone Sale"). In exchange for these assets, the Company received 263,441 shares of its Class B stock held by the Keystone owners. These shares were then retired. In connection with this transaction, the company recognized a loss on disposal of assets of approximately $723,000, or $.09 per diluted share, in the three months and six months ended June 30, 1999. This nonrecurring charge had no impact on the Company's tax liability or cash position. The Company records revenues from quarrying, manufacturing and retailing. The granite quarried by the Company is sold both to outside customers and used by the Company's manufacturing division. The Company records revenue and gross profit related to the sale of granite sold to an outside customer either when the granite is shipped or when the customer selects and identifies the blocks at the quarry site. The Company does not record a sale, nor does the Company record gross profit, at the time granite is transferred to the Company's manufacturing division. The Company records revenue and gross profit related to internally transferred granite only after the granite is manufactured into a finished product and sold to an outside customer. Manufacturing revenues related to outside customers are recorded when the finished product is shipped from Company facilities. Manufacturing revenues related to internally transferred finished products are recorded when ultimately sold at retail to an outside customer. Retailing revenues are recorded when the finished monument is placed in the cemetery. 11 The following table sets forth certain operations data as a percentage of net revenues with the exception of quarrying, manufacturing and retailing gross profit, which are shown as a percentage of their respective revenues. Three Months Ended Six Months Ended June 30, June 30, --------------------------------------- 2000 1999 2000 1999 --------------------------------------- Statement of Operations Data: Net Revenues: Quarrying 23.3% 19.0% 24.1% 19.6% Manufacturing 25.5% 39.7% 29.8% 46.1% Retailing 51.1% 41.3% 46.2% 34.3% -------- -------- -------- -------- Total net revenues 100.0% 100.0% 100.0% 100.0% Gross Profit: Quarrying 47.8% 43.2% 37.4% 33.1% Manufacturing 30.6% 25.4% 26.1% 20.9% Retailing 56.9% 53.0% 56.2% 52.8% --------- -------- --------- -------- Total gross profit 48.1% 40.2% 42.7% 34.3% Selling, general & administrative expenses 31.2% 28.3% 38.5% 31.4% Income from operations 16.9% 11.9% 4.2% 2.9% Interest expense 1.9% 1.7% 2.6% 2.1% Loss on disposal of assets - 2.5% - 1.6% Income (loss) before income taxes and cumulative effect of change in accounting principle 15.0% 7.6% 1.6% (0.8%) Income taxes 3.8% 3.0% 0.4% 0.4% Income (loss) before cumulative effect of change in accounting principle 11.1% 4.6% 1.2% (1.1%) Cumulative effect in prior years of change in accounting principle - - - (0.3%) ) Net Income (loss) 11.1% 4.6% 1.2% (1.5%) ========= ======== ======= ======= 12 Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999 Revenues for the three months ended June 30, 2000 decreased $172,000, or .6%, to $28.8 million from $29.0 million for the three months ended June 30, 1999. This decrease was primarily attributable to a decline in manufacturing revenues which was offset by increases in quarrying and retailing revenues. The Company's retailing net revenues increased to 51.1% of total net revenues in the 2000 period from 41.3% in the 1999 period as a result of the Company's retail acquisitions. Gross profit for the three months ended June 30, 2000 increased $2.2 million or 19.0% , to $13.8 million from $11.6 million for the three months ended June 30, 1999. The gross profit percentage increased to 48.1% for the 2000 period from 40.2% for the 1999 period. This increase was attributable to the absolute and relative increases in retailing net revenues during the 2000 period as described above, and to improved performance in all three of the Company's segments relative to the 1999 period. Quarrying gross profit increased $823,000, or 34.5%, to $3.2 million for the 2000 period from $2.4 million for the 1999 period. The quarrying gross profit percentage increased to 47.8% from 43.2% for the 1999 period. These increases were primarily attributable to improved profitability at most of the Company's quarries. Manufacturing gross profit decreased $671,000, or 23.0%, to $2.3 million for the 2000 period from $2.9 million for the 1999 period. The manufacturing gross profit percentage increased to 30.6% from 25.4% for the 1999 period. The decrease in gross profit dollars was caused by a decline in outside shipments by the manufacturing division which was offset by improved profitability on those shipments, especially at the Company's Barre monumental operations. Retailing gross profit increased $2.1 million, or 32.4%, to $8.4 million for the 2000 period from $6.3 million for the 1999 period. This increase was attributable to improved profitability at the 1998 Retail Acquisitions and to profit contributions from the 1999 Retail Acquisitions, most of which the Company did not own during the 1999 period. The retailing gross profit percentage increased to 56.9% from 53.0% for the 1999 period. This increase was mainly caused by improved profitability at the 1998 Retail Acquisitions. Selling, general and administrative expenses ("SGA expenses") increased $797,000, or 9.7%, to $9.0 million from $8.2 million for the 1999 period. As a percentage of net revenues, SGA expenses increased to 31.2% for the 2000 period from 28.3% for the 1999 period. These increases were primarily attributable to SGA expenses of the 1999 Retail Acquisitions which the Company did not own during all of the 1999 period. Interest expense increased $38,000, or 7.5%, to $544,000 from $506,00 for the 1999 period. This increase was caused by increased borrowings under the Company's credit facilities to support its retail acquisition strategy. The Company's effective tax rate decreased to 25.6% due to the nontaxable sale of Keystone assets. 13 Six Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999 Revenues for the six months ended June 30, 2000 decreased $3.5 million, or 7.4%, to $43.0 million from $46.5 million for the six months ended June 30, 1999. This decrease was caused by an $8.6 million decline in reported manufacturing revenues which was partially offset by increases in both quarrying and retailing revenues. The Company's retailing net revenues increased to 46.2% of total net revenues in the 2000 period from 34.4% in the 1999 period. Gross profit for the six months ended June 30, 2000 increased $2.4 million or 15.3% , to $18.4 million from $15.9 million for the six months ended June 30, 1999. The gross profit percentage increased to 42.7% for the 2000 period from 34.3% for the 1999 period. This increase was caused by improved profitability in all three of the Company's segments, and to the relative increase in retailing revenues (which historically have a higher gross margin percentage than the Company's other two segments) described above. Quarrying gross profit increased $864,000, or 28.7%, to $3.9 million for the 2000 period from $3.0 million for the 1999 period. The quarrying gross profit percentage increased to 37.4% from 33.1% for the 1999 period. These increases were caused by improved results at most of the Company's quarries and lower shipments to the Company's manufacturing division. Manufacturing gross profit decreased $1.1 million, or 25.3%, to $3.3 million for the 2000 period from $4.5 million for the 1999 period. The manufacturing gross profit percentage increased to 26.1% from 20.9% for the 1999 period. These results were caused by the decline in manufacturing revenues described above and an increase in profitability at the Company's Barre monumental operations. Retailing gross profit increased $2.7 million, or 32.1%, to $11.1 million for the 2000 period from $8.4 million for the 1999 period. This increase was attributable to improved results from the 1998 Retail Acquisitions and profit contributions from the 1999 Retail Acquisitions, most of which the Company did not own during the 1999 period. The retailing gross profit percentage increased to 56.2% from 52.8% for the 1999 period. This increase was caused primarily by improved profitability at the 1998 Retail Acquisitions. Selling, general and administrative expenses ("SGA expenses") increased $2.0 million, or 13.7%, to $16.6 million from $14.6 million for the 1999 period. As a percentage of net revenues, SGA expenses increased to 38.5% for the 2000 period from 31.4% for the 1999 period. These increases were primarily attributable to SGA expenses of the 1999 Retail Acquisitions which the Company did not own during all of the 1999 period. Interest expense increased $122,000, or 12.3%, to $1.1 million from $989,000 for the 1999 period. This increase was caused by increased borrowings under the Company's credit facilities to support its retail acquisition strategy. The Company's effective tax rate decreased to 23.4% due to the nontaxable sale of Keystone assets. Liquidity and Capital Resources The Company considers liquidity to be its ability to meet its long and short-term cash requirements. Historically the Company has met these requirements primarily from cash generated by operating activities and periodic borrowings under commercial credit facilities. The Company's recent acquisitions have increased its requirements for external sources of liquidity, and the Company anticipates that this trend will continue as it further implements its growth strategy. For the six months ended June 30, 2000, net cash provided by operating activities was $3.6 million compared to $1.4 million for the 1999 period. This increase was primarily due to higher net income and an increase in payables during the 2000 period which was partially offset by inventory decreases in the 1999 period. Net cash used in investing activities was $1.1 million compared to $9.0 million in the 1999 period. This decrease was primarily due to lower levels of acquisitions during the 2000 period. Net cash provided by (used in) financing activities was $(3.6 million), compared to $7.9 million for the 1999 period. This was primarily caused by a decline in acquisition activity in the 2000 period. The Company has credit facilities pursuant to a financing agreement with the CIT Group/Business Credit ("CIT"). The agreement provides for an acquisition term loan line of credit of $25 million and a revolving credit facility of another $25 million. As of June 30, 2000 the revolving credit facility had $10.3 million outstanding and the term loan facility had $12.0 million outstanding. Given the covenants contained in that agreement, the Company's effective incremental credit availability as of that date was approximately $18 million. The interest rate on the revolving facility and term loan as of such date was 9.0% based on a formula of prime less 50 basis points. 14 As of June 30,2000, the Company also had $2.4 million available and non outstanding under a demand revolving line of credit with the Royal Bank of Canada.The Company believes that the combination of cash flow from operations, its existing credit facilities, and cash on hand will be sufficient to fund its operations for at least the next twelve months. Recent Accounting Pronouncements In March 2000, the Financial Accounting Standards Board issued FASB Interpretation No. 44 "Accounting for Certain Transactions involving Stock Compensation - an Interpretation of APB No. 25." The Company has assessed that there is no material impact of the interpretation on the consolidated financial statements. Seasonality Historically, the Company's operations have experienced certain seasonal patterns. Generally the Company's net sales have been highest in the third quarter and lowest in the first quarter of each year due primarily to weather. Cemeteries in northern areas generally do not accept granite memorials during winter months when the ground is frozen because they cannot be properly set. In addition, the Company typically closes certain of its Vermont and Canadian quarries during these months because of increased operating costs attributable to adverse weather conditions. As a result, the Company has historically incurred a net loss during the first three months of each calendar year. Inflation The Company believes that the relatively moderate rates of inflation experienced in recent years have not had a significant effect on its results of operations. Item 3: Quantitative and Qualitative Disclosure About Market Risk The Company has financial instruments that are subject to interest rate risk, principally debt obligations under its credit facilities. Historically, the Company has not experienced material gains or losses due to interest rate changes. Based on the Company's current variable rate debt obligations, the Company believes its exposure to interest rate risk is not material. The Company is subject to foreign currency exchange rate risk primarily from the operations of its Canadian subsidiary. Based on the size of this subsidiary and the Company's corresponding exposure to changes in the Canadian/U.S. dollar exchange rate, the Company does not consider its market exposure relating to currency exchange to be material. PART II. OTHER INFORMATION Item 4: Submission of Matters to a Vote of Security Holders The Company held its annual meeting of stockholders on June 16, 2000 (the "Annual Meeting"), to elect three Class III directors and to ratify the selection of KPMG LLP as the Company's independent auditors for the 2000 fiscal year. Each of Jon M. Gregory, Richard C. Kimball and Kurt M. Swenson was elected to serve as a Class III director for a three year term expiring at the annual meeting of stockholders in 2003 and until their successors are duly elected and qualified. 15 The following table sets forth the number of votes cast for, against or withheld, as well as the number of abstentions and broker non-votes, as to the election of each of Jon M. Gregory, Richard C. Kimball and Kurt M. Swenson and the ratification of the selection of KPMG LLP as the Company's independent auditors for the 2000 fiscal year. Votes Votes For Against/ Abstentions Broker Votes Non- Withheld votes ------------------------------------------------- Election of Jon M. Gregory 6,032,754 378,883 - 1,038,080 Richard C. Kimball 6,032,754 378,883 - 1,038,080 Kurt M. Swenson 6,032,754 378,883 - 1,038,080 KPMG LLP 6,296,658 5,000 109,979 1,038,080 Item 5. Exhibits and Reports on Form 8-K (a) Exhibits Number Exhibits 3.1 Amended and Restated Certificate of Incorporation of the Registrant incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1 (File No. 333-33685) filed with the Securities and Exchange Commission on August 15, 1997 and declared effective on October 20, 1997. 3.2 Amended and Restated By-Laws of the Registrant (as amended through April 6, 1999) incorporated by referenced to Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended March 31.1999. 27 Financial Data Schedule (b) Reports Submitted on Form 8-K: The Registrant did not file any reports on Form 8-K during the quarter ended June 30, 2000. 16 - - - (0.3% 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 10, 2000 By:/s/John L. Forney ----------------- John L. Forney Vice President, Chief Financial Officer and Treasurer 17