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 March 31, 1998
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 03015320
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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 ___
At May 6, 1998, 3,884,785 shares of Class A Common Stock, par value $0.01
per share, and 3,487,957 shares of Class B Common Stock, par value $0.01
per share, of Rock of Ages Corporation were outstanding.
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ROCK OF AGES CORPORATION
INDEX
Form 10-Q for the Quarterly Period
Ended March 31, 1998
PART I FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1998 and
December 31, 1997
Consolidated Statements of Operations - Three Months Ended
March 31, 1998 and 1997
Consolidated Statements of Cash Flows - Three Months Ended
March 31, 1998 and 1997
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Signature
Mar 10Q
PART I: FINANCIAL INFORMATION
ITEM I: FINANCIAL STATEMENTS
ROCK OF AGES CORPORATION
CONSOLIDATED BALANCE SHEETS
($ in thousands)
(Unaudited)
March 31, December 31,
1998 1997
ASSETS $
Current assets:
Cash and cash equivalents 6,602 8,637
Trade receivables, net 14,076 12,857
Inventories 16,908 16,104
Prepaid & refundable income taxes 82
Deferred tax assets 352 352
Other current assets 1,296 1,050
------- -------
Total current assets 39,316 39,000
Property, plant and equipment, net 36,939 36,436
Cash surrender value of life
insurance, net 1,176 1,176
Intangibles, net 15,417 15,596
Deferred tax assets 481 376
Investments in and advances to
affiliated company 131 131
Other assets 431 422
-------- --------
Total assets $ 93,891 93,137
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under lines of credit 2,003 1,328
Current installments of long-term debt 384 384
Trade payables 2,489 2,101
Accrued expenses 3,297 3,012
Due to related parties 16 55
Income taxes payable 234
Current portion of deferred income 300 400
Customer deposits 2,985 2,708
------- -------
Total current liabilities 11,474 10,222
Long-term debt, excluding current
installments 918 975
Deferred compensation 3,572 3,527
Accrued postretirement benefit cost 528 528
-------- --------
Total liabilities 16,492 15,252
Commitments
Stockholder's 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
3,800,641 shares issued and
outstanding 38 38
Common stock-Class B, $.01 par value;
15,000,000 shares authorized
3,487,957 shares issued and
outstanding 35 35
Additional paid-in capital 68,277 68,277
Retained earnings 9,231 9,662
Accumulated other comprehensive loss (182) (127)
-------- --------
Total stockholder's equity 77,399 77,885
-------- --------
Total liabilities and stockholder's
equity $ 93,891 $ 93,137
======== ========
**SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Mar 10Q
ROCK OF AGES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands except per share amounts)
(Unaudited)
Three Months Ended
1998 1997
---- ----
Net Revenues:
Quarrying $ 3,345 1,790
Manufacturing 10,586 6,402
Retailing 1,240
--------- --------
Total net revenues 15,171 8,192
Gross profit:
Quarrying 859 163
Manufacturing 1,930 1,235
Retailing 749
-------- -------
Total gross profit 3,538 1,398
Selling, general and administrative
expenses 4,049 2,239
Loss from operations (511) (841)
Interest expense 58 466
------- -------
Loss before benefit for income
taxes (569) (1,307)
Income tax benefit (138) (329)
------- --------
Net Loss $ (431) (978)
Net loss per share $ (0.06) (0.28)
Net loss per share - assuming (0.06) (0.28)
Weighted average number of common
shares outstanding 7,289 3,500
Weighted average number of common
shares outstanding - assuming
dilution 7,289 3,500
**SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Mar 10Q
ROCK OF AGES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
Three Months Ended
1998 1997
---- ----
Cash flows from operating activities:
Net loss $ (431) (978)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation, depletion and amortization 801 441
Increase in cash surrender value
Loss (gain) on sale of property, plant
and equipment
Deferred taxes (105)
Changes in assets and liabilities
Decrease (increase) in trade receivables (1,219) (177)
Increase in due from related parties (444)
Increase in inventories (804) (1,441)
Decrease (increase) in other assets (336) (1,044)
Increase in trade payables, accrued
expenses and income taxes payable 438 563
Increase in due to related parties (40)
Increase (decrease) in customer deposits 277 50
Increase in deferred compensation 45 408
Decrease in deferred income (100) (100)
Increase in accrued postretirement benefit ______ ______
Net cash provided by operating activitie (1,474) (2,722)
Cash flows from investing activities:
Purchases of property, plant and equipment (1,148) (1,060)
Proceeds from sale of property, plant and
equipment
Decrease (increase) in investments in and
advances to affiliated company ______ ______
Net cash used in investing activities (1,148) (1,060)
Cash flows from financing activities:
Net borrowings under lines of credit 675 3,620
Increase in intangibles
Principal payments on long-term debt (56) (528)
______ ______
Net cash provided by financing activities 619 3,092
Effect of exchange rate changes on cash (32) (46)
______ ______
Net decrease in cash and cash equivalents (2,035) (736)
Cash and cash equivalents, beginning of period 8,637 736
Cash and cash equivalents, end of period $ 6,602 27
========== =======
**SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Mar 10Q
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 Annual Form 10- K (SEC File No.
333-33685, filed March 31, 1998).
(2) Inventories
($ in thousands)
Inventories consist of the following (Unaudited)
at March 31, 1998 and December 31, 1997: March 31, December 31,
1998 1997
---- ----
Raw materials $ 9,708 9,014
Work in-process 2,236 2,262
Finished goods and supplies 4,696 4,828
------- -------
$ 16,908 16,104
============ ======
(3) ProForma Information
The following unaudited pro forma information has been prepared assuming
that the Keith Monument and C&C acquisitions on October 24, 1997, as well
as 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 except per share data)
(Unaudited)
Three Months Ended
March 31,
1997
----
Net revenues $ 15,085
Net loss $ (1,053)
Net loss per share $ (0.30)
Net loss per share - assuming dilution $ (0.30)
(4) Comprehensive Loss
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" on January 1, 1998.
Comprehensive income (loss) is defined as the change in equity of a
business enterprise during a period from transactions and other events and
circumstances from nonowner sources. It includes all changes in equity
during a period except those resulting from investments by owners and
distributions to owners. This pronouncement requires that the accumulated
total of other comprehensive income (loss) be shown as a separate component
of stockholders' equity with additional disclosure of accumulated balances
for each classification within other comprehensive income (loss) in
addition to the reporting of total comprehensive income (loss).
Accumulated other comprehensive loss, a component of stockholders' equity
previously titled "cumulative translation adjustment", consists solely of
foreign currency translation. The 1997 financial statements have been
restated to reflect the income tax benefit related to other comprehensive
loss. The components of total comprehensive loss are as follows:
($ in thousands except per share data)
(Unaudited)
Three Months Ended
March 31,
1998 1997
---- ----
Net loss $ (431) (978)
Other comprehensive loss, before tax (240) (61)
Income tax benefit related to other
comprehensive loss 58 15
--------- -------
Other comprehensive loss, net of tax (182) (46)
--------- -------
Comprehensive loss (613) (1,024)
========= =======
10Q-98-1
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,
manufacturer, distributor and retailer 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. The retail
division primarily sells granite memorials to the general public and will
pursue strategic alliances with funeral home and cemetery owners, including
consolidators.
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., which collectively are referred to as the
"Acquired 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 which are referred to as the
"Acquired Quarrying Operations". In October 1997, the Company acquired the
Keith Monument Company and related companies which are engaged in the
retail sales of granite memorials to consumers in the State of Kentucky
(the "Acquired Retail Operations").
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 March 31,
STATEMENT OF OPERATIONS DATA: 1998 1997
---- ----
Net Revenues:
Quarrying 22.0% 21.9%
Manufacturing 69.8% 78.1%
Retailing 8.2% 0.0%
Total net revenues 100.0% 100.0%
Gross Profit:
Quarrying 25.7% 9.1%
Manufacturing 18.2% 19.3%
Retailing 60.4%
Total gross profit 23.3% 17.0%
Selling, general and administrative expenses 26.7% 27.3%
Loss from operations -3.4% -10.3%
Interest expense 0.4% 5.6%
Loss before benefit for income taxes -3.8% -15.9%
Benefit for income taxes -0.9% -4.0%
Net loss -2.9% -11.9%
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31,
1997
Revenues for the three months ended March 31, 1998 increased 85.2% to $15.2
million from $8.2 million for the three months ended March 31, 1997. The
quarrying division was responsible for $1.6 million of this increase,
essentially all attributable to the Acquired Quarrying Operations, with
existing operations reporting sales levels near last year's levels for the
quarter. The manufacturing division reported an increase of $4.2 million
and likewise the increase was attributable to the Acquired Manufacturing
Operations. The Acquired Retail Operations contributed an increase of $1.2
million of revenues in the quarter.
Gross profit for the three months ended March 31, 1998 increased 153.1% to
$3.5 million from $1.4 million for the three months ended March 31, 1997.
The gross profit percentage increased to 23.3% for the 1998 period from
17.0% for the 1997 period. This increase was primarily attributable to the
introduction of the retailing activities which realize significantly higher
margins.
The quarrying gross profit increased $696,000 to $859,000 for the 1998
period from $163,000 for the 1997 period. The quarrying gross profit
percentage increased to 25.7% for the 1998 period from 9.1% for the 1997
period. This was due to the inclusion of the Acquired Quarry Operations
which operated throughout the first quarter and experienced excellent
results thereby improving the earnings since the existing quarry operations
were, as usual, substantially closed due to the winter season.
The manufacturing gross profit increased $.7 million to $1.9 million for
the 1998 period from $1.2 million for the 1997 period. This increase was
attributable to the Acquired Manufacturing Operations. The manufacturing
gross profit percentage decreased to 18.2% for the 1998 period from 19.3%
for the 1997 period. This decrease was the result of including the Acquired
Manufacturing Operations as they operate with lower margin products.
However, the operating results of the Acquired Manufacturing Operations
showed a significant improvement during the quarter over the results they
achieved in the last six months of 1997.
The Acquired Retailing Operations reported a $749,000 gross profit
and a 60.4% gross profit percentage for the 1998 period which was in line
with the Company's expectations for the first quarter.
Selling, general and administrative expenses ("SGA expenses") for the
three months ended March 31,1998 increased 80.8% to $4.0 million from $2.2
million for the three months ended March 31, 1997. As a percentage of net
revenues, SGA expenses for the 1998 period decreased to 26.7% from 27.3% in
the 1997 period. Included in the 1998 first quarter is a one time
non-recurring charge of $279,000 which is a result of the required
immediate recognition in accordance with FAS 88 of liabilities associated
with the separation of the pension liabilities of the Company and the
Swenson Granite Company LLC (the successor to the former parent of the
Company) in the Rock of Ages Salaried Retirement Plan to separate the
individual pension liabilities of each of the companies.
Interest expense for the three months ended March 31, 1998 decreased
to $58,000 from $466,000 for the three months ended March 31, 1997. This
decrease was the result of the retirement of all existing bank debt, with
the exception of a revolving line of credit with the Royal Bank of Canada,
with the net proceeds of the Company's initial public offering completed in
October of 1997.
Income tax benefit as a percent of the loss before taxes decreased to
24.3% for the 1998 period from 25.2% for the 1997 period. These effective
rates were derived from the previous years' annual rates respectively, and
the use of the 1997 annualized rate for the first quarter of 1998 is
believed appropriate given the losses and their origin by segment during
the first quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company considers liquidity to be adequate 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 and pending 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 three months ended March 31, 1998, net cash used in operating
activities was $1.5 million. This result was primarily attributable to an
increase in trade receivables of $1.2 million and an increase in
inventories of $.8 million. Net cash used in investing activities was $1.1
million for the purchase of property, plant and equipment. Net cash
provided by financing activities was $.6 million primarily from borrowings
under lines of credit.
The Company has entered into 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 March 31, 1998 the revolving credit facility had
$223,000 outstanding. The interest rate under these credit lines as of such
date was 8.00% based on a formula of prime less .50%. As of March 31, 1998,
the Company also had $1.8 million outstanding and $.6 million available
under a demand revolving line of credit with the Royal Bank of Canada. The
interest rate on this facility as of such date was 7.25% based on a formula
of Canadian prime plus .75%. The Company's primary need for capital will be
to finance acquisitions as part of its growth strategy and to maintain and
improve its manufacturing, quarrying and retailing facilities. The Company
has $3.0 million budgeted for capital expenditures in 1998. The Company
believes that the combination of cash flow from operations, its existing
credit facilities, and the remaining proceeds from the IPO will be
sufficient to fund its operations for at least the next twelve months.
SEASONALITY
Historically, the Company's operations have experienced certain
seasonal patterns. Generally the company's net revenues 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. The Company typically closes certain of its
Vermont and Canadian quarries during these months, and did so during the
first quarter of 1998 because of increased operating costs attributable to
adverse weather conditions. The Company has historically incurred a net
loss during the first six months of each calendar year. However, the
Company believes that the variability of its operating results on a
quarterly basis will be lessened as its operations become more
geographically dispersed.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company currently does not invest excess funds in derivative
financial instruments or other market rates sensitive instruments for the
purpose of managing its foreign currency exchange rate risk or for any
other purpose.
PART II: OTHER INFORMATION
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(iii) 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)
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 March 31, 1998.
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
Dated: May 14, 1998 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 (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(iii) 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)
11 Statement re computation of per share earnings
27 Financial Data Schedule