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 September 30, 1997
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 030153200
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
772 Graniteville Road
Graniteville, Vermont 05654
(Address of principal executive (Zip Code)
offices)
(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 __ No _X_(1)
At November 28, 1997, 3,800,641 shares of Class A Common Stock, par value
$0.01 per share, and 3,487,957 shares of Class B Common Stock, par value
$0.01 per share, of Rock of Ages Corporation were outstanding.
_______________________
(1) The registrant has been subject to such filing requirements since
October 20, 1997.
ROCK OF AGES CORPORATION
INDEX
Form 10-Q for the Quarterly Period
Ended September 30, 1997
PART I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1997
and December 31, 1996 3
Consolidated Statements of Operations - Three
Months Ended September 30, 1997 and 1996 and the
Nine Months Ended September 30, 1997 and 1996 4
Consolidated Statements of Cash Flows - Nine Months
Ended September 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 8
PART II OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURE 10
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
ROCK OF AGES CORPORATION
CONSOLIDATED BALANCE SHEETS
($ in thousands)
September 30, December 31,
1997 1996
------------- -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 182 763
Trade receivables, net 11,633 8,525
Due from affiliates 4,009 3,585
Inventories 12,562 11,324
Deferred tax assets 420 420
Other current assets 1,101 322
----------- -----------
Total current assets 29,907 24,939
----------- -----------
Property, plant and equipment, net 22,114 18,596
Intangibles, net 1,963 2,085
Cash surrender value of life insurance, net 936 917
Deferred tax assets 570 598
Intangible pension asset 93 93
Investments in and advances to affiliates 1,929 218
Other assets 44 549
----------- -----------
Total assets $ 57,556 47,995
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under lines of credit $ 8,573 3,500
Current installments of long-term debt 3,044 2,081
Accounts payable 2,598 1,693
Accrued expenses 1,975 1,970
Income taxes payable 219 467
Current portion of deferred income 400 400
Customer deposits 1,247 1,542
----------- -----------
Total current liabilities 18,056 11,653
----------- -----------
Long-term debt, excluding current
installments 12,842 13,054
Deferred compensation 3,566 3,504
Deferred income, excluding current portion 100 400
Accrued pension cost 1,505 1,505
Accrued postretirement benefit cost 507 507
----------- -----------
Total liabilities 36,576 30,623
----------- -----------
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
No shares issued or outstanding
Common stock - Class B, $.01 par value;
15,000,000 shares authorized
3,763,441 and 3,500,000 shares issued
and outstanding in 1997 and 996,
respectively 38 35
Additional paid-in capital 9,490 5,594
Retained earnings 11,508 11,736
Cumulative translation adjustment (56) 7
----------- -----------
Total stockholders' equity 20,980 17,372
----------- -----------
Total liabilities and stockholders'
equity $ 57,556 47,995
=========== ===========
** SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
ROCK OF AGES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ------------------
1997 1996 1997 1996
----- ----- ----- ----
Net revenues:
Manufacturing $12,815 9,301 28,093 24,128
Quarrying 3,559 3,859 9,048 8,975
------- ------ ------ ------
Total net revenues 16,374 13,160 37,141 33,103
Gross profit:
Manufacturing 2,755 2,275 6,395 5,878
Quarrying 1,651 1,617 3,216 3,270
------- ------ ------ ------
Total gross profit 4,406 3,892 9,611 9,148
Selling, general and
administrative expenses 2,776 2,168 7,104 6,817
------- ------ ------ ------
Income from operations 1,630 1,724 2,507 2,331
Interest expense 516 416 1,382 1,350
------- ------ ------ ------
Income before provision
for income taxes 1,114 1,308 1,125 981
Provision for income taxes 281 330 284 247
------- ------ ------ ------
Net income $ 833 978 841 734
------- ------ ------ ------
Net income per share $ .19 .23 .20 .17
Weighted average number
of common shares
outstanding 4,472 4,208 4,299 4,208
** SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
ROCK OF AGES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
Nine Months Ended
September 30,
------------------
1997 1996
------------------
Cash flows from operating activities:
Net income $ 841 734
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation, depletion and amortization 1,509 1,491
Increase in cash surrender value (19) (124)
Loss (gain) on sale of property, plant and
equipment 20 (3)
Deferred taxes 27 5
Changes in assets and liabilities:
Decrease (increase) in trade receivables (1,654) 1,449
Increase in due from affiliates (123) (1,326)
Increase in inventories (107) (1,321)
Decrease (increase) in other assets (726) (641)
Increase in accounts payable,
accrued expenses and income taxes payable 141 1,371
Increase (decrease) in customer deposits (295) 472
Increase in deferred compensation 62 124
Decrease in deferred income (300) (300)
Increase in accrued postretirement benefit
cost 0 103
------------------
Net cash provided by (used in) operating
activities (623) 2,035
------------------
Cash flows from investing activities:
Purchases of property, plant and equipment (2,952) (1,157)
Proceeds from sale of property, plant and
equipment 0 11
Decrease (increase) in investments in and
advances to affiliates (186) 194
Acquisitions, net of cash acquired 73 0
------------------
Net cash used in investing activities (3,064) (952)
------------------
Cash flows from financing activities:
Net borrowings under lines of credit 5,073 801
Increase in intangibles 0 (209)
Principal payments on long-term debt (1,903) (3,202)
------------------
Net cash provided by (used in) financing
activities 3,169 (2,610)
------------------
Effect of exchange rate changes on cash (63) (29)
------------------
Net decrease in cash and cash equivalents (581) (1,557)
Cash and cash equivalents, beginning of period 763 1,995
------------------
Cash and cash equivalents, end of period $ 182 438
==================
**SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
ROCK OF AGES CORPORATION
NOTES TO 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 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 Registration
Statement on Form S-1 (SEC File No. 333-33685, effective October 20,
1997).
(2) Inventories
($ in thousands)
Inventories consist of the following at September (Unaudited)
30, 1997 and December 31, 1996:
---------------------------
September 30, December 31,
1997 1996
------------- ------------
Raw materials $ 7,745 7,065
Work-in-process 1,934 1,695
Finished goods and supplies 2,883 2,564
----------- ------------
$ 12,562 11,324
=========== ============
(3) Subsequent Events and Pro Forma Information
On October 24, 1997, the Company completed an initial public offering
(the "Offering") of 3,225,000 shares of Class A Common Stock at $18.50
per share. Certain expenses incurred in connection with the Offering of
$587,000 (excluding the underwriter's commission and other expenses
incurred after September 30, 1997) have been recorded as prepaid expenses
as of September 30, 1997. For further information, refer to the Company's
Registration Statement on Form S-1 (SEC File No. 333-33685, effective
October 20, 1997).
On October 24, 1997, the Company acquired Keith Monument Company and its
affiliated companies ("Keith Monument") and Childs & Childs Granite
Company, Inc. and a related company ("C&C"). These acquisitions will be
accounted for under the purchase method of accounting. For further
information on these acquisitions, refer to the "Unaudited Pro Forma
Combined and Condensed Financial Data" and "Prospectus Summary - Recent
and Concurrent Acquisitions" sections of the Company's Registration
Statement on Form S-1 (SEC File No. 333-33685, effective October 20,
1997).
The following unaudited pro forma information has been prepared assuming
that the Keith Monument and C&C acquisitions, as well the acquisition of
the successor to Keystone Memorials, Inc. on June 30, 1997, occurred at
the beginning of the periods presented. The pro forma information is
presented for information purposes only and is not necessarily indicative
of what would have occurred if the acquisitions had been made as of those
dates.
($ in thousands) (Unaudited)
Nine Months Ended
September 30,
1997 1996
--------------- --------------
Net revenues $ 56,563 53,703
Net income $ 2,053 1,898
Net income per share $ 0.48 0.45
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Rock of Ages Corporation (the "Company") is an integrated quarrier
and manufacturer of granite and products manufactured from granite. The
quarry division sells granite 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. In June 1997, the Company
acquired the successor to Keystone Memorials, Inc. ("Keystone"), the
largest granite memorial manufacturer in Elberton, Georgia. The operating
results of Keystone are being reported for the first time.
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1996
Revenues for the three months ended September 30, 1997 increased
24.2% to $16.4 million from $13.2 million for the three months ended
September 30, 1996. This growth was attributable to an increase of $1.1
million in revenues from existing manufacturing operations and an
increase of $2.4 million in revenues from acquired manufacturing
operations. This increase was offset by a decrease in quarry revenues due
to reduced exports to Japan and European markets.
Gross profit for the three months ended September 30, 1997
increased 12.8% to $4.4 million from $3.9 million for the three months
ended September 30, 1996.
The gross profit percentage fell to 26.9% for the 1997 period from
29.6% for the 1996 period. The gross profit percentage for manufacturing
declined from the 1997 period due to the lower margins realized from
acquired operations. The gross profit percentage in quarry operations
increased due to higher productivity in the Barre quarries.
Selling, general and administrative expenses for the three months
ended September 30, 1997 increased 27.3% to $2.8 million from $2.2
million for the three months ended September 30, 1997. As a percentage of
sales, these expenses increased to 17.0% from 16.5% for the 1996 period.
This increase during the most recent period resulted from the addition of
the acquired operations plus higher expense levels associated with the
acquisitions and the initial public offering.
Interest expense for the three month period ended September 30,
1997 increased to $516,000 from $416,000 for the three month period ended
September 30, 1996. The increase in interest expense was the result of
increased borrowings to fund working capital demands required for the
expansion of manufacturing facilities, acquisitions and expenses
associated with the Company's initial public offering.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1996
Revenues for the nine months ended September 30, 1997 increased
12.1% to $37.1 million from $33.1 million for the nine months ended
September 30, 1996. This growth was attributable to an increase of $1.6
million in revenues from existing manufacturing operations and an
increase of $2.4 million in revenues from acquired manufacturing
operations. Quarry revenues remained unchanged at $9.0 million.
Gross profit for the nine months ended September 30, 1997 increased
5.5% to $9.6 million from $9.1 million for the nine months ended
September 30, 1996. The gross profit percentage for manufacturing
declined to 22.8% for the 1997 period from 24.4% for the 1996 period.
This decline in gross profit percentage reflects a slight shift in
product mix toward lower margin products in existing manufacturing
operations plus lower operating margins at the acquired operations.
Quarry margins and percentages remained virtually unchanged for the
periods.
Selling, general and administrative expenses for the nine months
ended September 30, 1997 increased 4.4% to $7.1 million from $6.8 million
for the nine months ended September 30, 1996. This increase resulted from
expenses related to the acquired operations offset by cost savings as a
result of the integration of acquisitions consummated during 1996.
Interest expense for the nine months ended September 30, 1997 was
virtually unchanged from the nine months ended September 30, 1996. This
was the result of lower long term debt levels offset by the debt service
of the acquired operations plus the higher current working capital needs
of investment activities.
Income taxes as a percent of earnings before taxes remain at 25.2%
for the nine months ended September 30, 1997 and 1996. This percentage
reflects the annualized effective rate for the fiscal year ended December
31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically met its liquidity requirements from
cash generated by operating activities and periodic borrowings under
credit facilities. For the nine months ended September 30, 1997, net cash
used in operating activities was $623,000. The nine month period results
were primarily attributable to an increase in trade receivables and costs
associated with acquisitions and the offering discussed below. Net cash
used in investing activities was $3.1 million for the nine month period,
which was primarily attributable to purchases of property, plant and
equipment in connection with the consolidation of its Barre manufacturing
operations. Net cash provided by financing activities was $3.2 million
for the nine month period, which was primarily attributable to borrowings
under lines of credit that were partially offset by principal payments on
long-term debt. As of September 30, 1997 the Company had approximately
$2.9 million available under its revolving credit facility.
On October 24, the Company completed its initial public offering
(the "Offering") of 3,225,000 shares of Class A Common Stock (the "Class
A Common Stock"), at $18.50 per share, of which Raymond James &
Associates, Inc. was the managing underwriter (the "Underwriter"). The
Company registered 3,335,000 shares (including 435,000 shares subject to
the Underwriter's overallotment option, the "Option") of Class A Common
Stock on Form S-1 (file number 333-33685) which was declared effective on
October 20, 1997. Pursuant to Rule 462 under the Securities Act of 1933,
as amended, the Company registered an additional 373,750 shares
(including 48,750 shares subject to the Option) of Class A Common Stock
on Form S-1 (file number 333-7826) which was effective on October 21,
1997.
The aggregate offering price for the Class A Common Stock sold in
the Offering, including the 483,750 shares sold upon exercise of the
Option, was $68,611,875. The net cash proceeds to the Company from the
Offering (including the proceeds from the exercise of the Option on
November 25, 1997) after deducting the underwriting discount of $4.4
million and expenses of the Offering of approximately 2.0 million, were
57.1 million. With the net proceeds of the Offering prior to the exercise
of the Option ($48.8 million), the Company retired all of its existing
bank debt with the exception of a revolving line of credit with the Royal
Bank of Canada. The net proceeds from the Underwriter's exercise of the
Option ($8.3 million) will be used to satisfy a long-term pension
obligation of $1.5 million which is currently reflected on the balance
sheet of the Company. The remaining proceeds from the Option exercise
will be invested in short-term U.S. Treasury BILLS and will be available
for the Company to use in pursuing its growth strategy.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company currently does not invest excess funds in derivative
financial instruments or other market rate sensitive instruments for the
purpose of managing its foreign currency exchange rate risk or for any
other purpose.
PART II: OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
USE OF PROCEEDS
Please refer to the second and third paragraphs of Part I, Item 2,
"Management's Discussion and Analysis of Financial Condition and Results
of Operations - Liquidity and Capital Resources" above which are
incorporated by reference herein.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Prior to and in connection with the Offering, the Company's two
stockholders, acting by unanimous written consent, on August 13, 1997
approved the reorganization merger of Swenson Granite Company, Inc., the
former parent of the Company, with and into the Company, and on August
18, 1997, approved an amendment and restatement of the Company's Amended
and Restated 1994 Stock Plan.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Number Exhibits
------ --------
3(i) Amended and Restated Certificate of Incorporation of
the Company (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(ii) By-Laws of the Company (incorporated by reference to
Exhibit 3.2 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)
10.1 Letter Agreement dated as of July 25, 1997 between the
Company and Dakota Granite Company (incorporated by
reference to Exhibit 10.11 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)
11 Statement re computation of per share earnings
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 September 30, 1997.
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 thereunto duly authorized.
ROCK OF AGES CORPORATION
Date: December 2, 1997 By: /s/ George R. Anderson
---------------------------
George R. Anderson
Vice-President, Chief Financial
Officer and Treasurer
Exhibit Index
Exhibits
3(i) Amended and Restated Certificate of Incorporation of the
Company (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(ii) By-Laws of the Company (incorporated by reference to Exhibit
3.2 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)
10.1 Letter Agreement dated as of July 25, 1997 between the
Company and Dakota Granite Company (incorporated by reference
to Exhibit 10.11 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)
11 Statement re computation of per share earnings
27 Financial Data Schedule