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, 1999
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 or 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 ___
As of April 30, 1999, 4,255,193 shares of Class A Common Stock, par value
$0.01 per share, and 3,425,087 shares of Class B Common Stock, par value
$0.01 per share, of Rock of Ages Corporation were outstanding.
------------------------------
ROCK OF AGES CORPORATION
INDEX
Form 10-Q for the Quarterly Period
Ended March 31, 1999
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - March 31, 1999 and
December 31, 1998
Condensed Consolidated Statements of Operations - Three Months
Ended March 31, 1999 and 1998
Condensed Consolidated Statements of Cash Flows - Three Months
Ended March 31, 1999 and 1998
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Signature
PART I: FINANCIAL INFORMATION
Item I: Financial Statements
ROCK OF AGES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in thousands)
(Unaudited)
March 31, December
31,
1999 1998
----------------------
ASSETS
Current assets:
Cash and cash equivalents $ 3,621 4,701
Trade receivables, net 16,156 14,004
Inventories 25,685 24,075
Prepaid & refundable income taxes 1,406 586
Deferred tax assets 352 352
Other current assets 2,675 1,549
----------------------
Total current assets 49,895 45,267
Property, plant and equipment, net 45,613 44,475
Cash surrender value of life insurance, net 1,426 1,426
Intangibles, net 31,993 29,487
Deferred tax assets 111 110
Investments in and advances to affiliated 131 131
company
Intangible pension asset 219 219
Other investments 343 343
Other 483 436
----------------------
Total assets $ 130,214 121,894
======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under lines of credit $ 13,634 6,687
Current installments of long-term debt 413 803
Trade payables 2,984 2,674
Accrued expenses 2,902 3,478
Due to related parties 4
Customer deposits 7,869 5,100
----------------------
Total current liabilities 27,802 18,746
Long-term debt, excluding current 12,879 12,880
installments
Deferred compensation 3,740 3,692
Accrued pension cost 34 34
Accrued postretirement benefit cost 570 570
Other 135 135
----------------------
Total liabilities 45,160 36,057
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
4,253,575 and 3,896,178 shares issued
and outstanding 43 39
Common stock - Class B, $.01 par value;
15,000,000 shares authorized
3,426,705 and 3,484,957 shares issued
and outstanding 34 35
Additional paid-in capital 70,463 69,350
Retained earnings 14,886 16,898
Accumulated other comprehensive loss (372) (485)
----------------------
Total stockholders' equity 85,054 85,837
----------------------
Total liabilities and stockholders' equity $ 130,214 121,894
======================
**SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
ROCK OF AGES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands except per share amounts)
(Unaudited)
Three Months Ended
March 31,
------------------
1999 1998
------------------
Net Revenues:
Quarrying $ 3,574 3,345
Manufacturing 9,920 10,586
Retailing 4,024 1,240
------------------
Total net revenues 17,518 15,171
Gross profit:
Quarrying 626 859
Manufacturing 1,560 1,930
Retailing 2,104 749
------------------
Total gross profit 4,290 3,538
Selling, general and administrative expenses 6,386 4,049
------------------
Loss from operations (2,096) (511)
Interest expense 483 58
------------------
Loss before benefit for income taxes (2,579) (569)
and cummulative effect of change in
accounting principles
Income tax benefit (717) (138)
------------------
Net Loss before cumulative effect of (1,862) (431)
change in accounting principles
Cumulative effect in prior years of
change in accounting principles net
of taxes of $39 (150) -
------------------
Net Loss $ (2012) (431)
==================
Per share information:
Net loss per share - basic
Net Loss before cumulative effect
of change in accounting principles $ (0.25) (0.06)
Cumulative effect in prior years of
change in accounting principles (0.02) -
------------------
Net Loss $ (0.27) (0.06)
Net loss per share - diluted
Net Loss before cumulative effect
of change in accounting principles $ (0.25) (0.06)
Cumulative effect in prior years of
change in accounting principles (0.02) -
------------------
Net Loss $ (0.27) (0.06)
Weighted average number of common shares
Outstanding - basic 7,553 7,289
Weighted average number of common shares
outstanding - diluted 7,553 7,289
**SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ROCK OF AGES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
Three Months Ended
March 31,
--------------------
1999 1998
--------------------
Cash flows from operating activities:
Net loss $ (2,012) (431)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation, depletion and amortization 1,071 801
Loss on sale of property, plant and equipment 36
Cummulative effect of change in accounting (150) -
principles
Deferred taxes (1) (105)
Changes in assets and liabilities:
Increase in trade receivables (1,960) (1,219)
Increase in due from related parties (4)
Increase in inventories (475) (804)
Increase in other assets (1,204) (336)
Increase (decrease) in trade payables,
accrued expenses and income taxes
payable (1,203) 438
Decrease in due to related parties (40)
Increase in customer deposits 2,573 277
Increase in deferred compensation 48 45
Decrease in deferred income (100)
--------------------
Net cash used in operating activities (3,281) (1,474)
Cash flows from investing activities:
Purchases of property, plant and equipment (1,361) (1,148)
Increase in intangibles (105)
Acquisitions, net of cash acquired (1) (3,644)
--------------------
Net cash used in investing activities (5,110) (1,148)
Cash flows from financing activities:
Net borrowings under lines of credit 6,948 675
Net stock option transactions 691
Principal payments on long-term debt (441) (56)
--------------------
Net cash provided by financing activities 7,198 619
Effect of exchange rate changes on cash 113 (32)
--------------------
Net decrease in cash and cash equivalents (1,080) (2,035)
Cash and cash equivalents, beginning of period 4,701 8,637
Cash and cash equivalents, end of period $ 3,621 6,602
====================
**SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
(1) Acquisitions:
Assets acquired $ 4,608
Liabilities assumed and issued (411)
Common stock issued (425)
----------
Cash paid 3,771
Less cash acquired (127)
----------
Net cash paid for acquisitions $ 3,644
==========
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 31, 1999).
(2) Inventories
($ in thousands)
Inventories consist of the following (Unaudited)
at March 31,
1999 and December 31, 1998: March 31, December 31,
1999 1998
-------------------------
Raw materials $ 10,511 9,815
Work-in-process 4,172 5,724
Finished goods and supplies 11,002 8,536
-------------------------
$ 25,685 24,075
=========================
(3) Pro Forma Information
During the three months ended March 31, 1999, the Company acquired three
retail monument companies. The Company paid a total of $3,771,104 in cash
and issued 32,065 shares of Class A Common Stock with a value of $424,997
for the acquired companies. In addition, various employment, noncompetition
and lease agreements were entered into or assumed.
The acquisitions have 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, resulting in
approximately $2,637,860 of cost in excess of net assets acquired which has
been allocated to intangible assets, primarily names and reputations.
The following unaudited pro forma information has been prepared assuming
that the acquisitions during 1998 (refer to specifics in the footnotes of
Form 10-K 405 mentioned above) and 1999 occurred at the beginning of the
periods presented. The pro forma information is presented for information
purposes only and is not necessarily indicative of what would have occurred
if the acquisitions had been made as of those dates.
($ in thousands except per
share data)
(Unaudited)
Three Months Ended
March 31,
---------------------------
1999 1998
---------------------------
Net revenues $ 17,574 18,515
Net loss $ (2,107) (1,211)
Net loss per share - basic $ (0.28) (0.17)
Net loss per share - diluted $ (0.28) (0.17)
(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 loss for
the three months ended March 31, 1999 and 1998:
($ in thousands except per
share data)
(Unaudited)
Three Months Ended
March 31,
----------------------------
1999 1998
----------------------------
Numerator:
Loss available to common shareholders
used in basic and diluted earnings
per share $ (1,862) (431)
============================
Denominator:
Denominator for basic earnings per
share:
Weighted average shares 7,553 7,289
Effect of dilutive securities:
Stock options - -
Denominator for diluted
earnings per share:
----------------------------
Adjusted weighted average
shares $ 7,553 7,289
============================
Basic earnings per share $ (0.25) (0.06)
Diluted earnings per share $ (0.25) (0.06)
Options to purchase 553,252 shares of Class A common stock ranging from
$12.50 to $18.50 per share were outstanding in 1999, 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
On December 31, 1998 the Company adopted SFAS No. 131, Disclosures about
Segments of Enterprise Related Information. SFAS No. 131 established
standards for reporting information about operating segments in annual
financial statements and requires selected information about operating
segments in interim financial reports issued to stockholders. It also
established standards for related disclosures about products and services
and geographic areas.
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.
The following is the unaudited segment information for the periods ended
March 31, 1999 and 1998 (in thousands):
1999 Quarrying Manufacturing Retailing Total
----------------------------------------------------
Total net revenues $ 4,983 11,264 4,024 20,271
Inter-segment net revenues 1,409 1,344 2,753
----------------------------------------------------
Net revenues 3,574 9,920 4,024 17,518
Total gross profit 824 1,362 2,104 4,290
Inter-segment gross profit 198 (198)
----------------------------------------------------
Gross profit 626 1,560 2,104 4,290
Selling, general and administrative 1,174 1,640 3,844 6,658
expenses
----------------------------------------------------
Loss from operations (548) (80) (1,740) (2,368)
Interest expense 28 455 483
----------------------------------------------------
Loss before benefit for income taxes $ (548) (108) (2,195) (2,851)
====================================================
1998 Quarrying Manufacturing Retailing Total
----------------------------------------------------
Total net revenues $ 5,061 11,756 1,240 18,057
Inter-segment net revenues 1,716 1,170 2,886
----------------------------------------------------
Net revenues 3,345 10,586 1,240 15,171
Total gross profit 1,038 1,751 749 3,538
Inter-segment gross profit 179 (179) -
----------------------------------------------------
Gross profit 859 1,930 749 3,538
Selling, general and administrative 1,379 1,791 879 4,049
expenses
----------------------------------------------------
Income (loss) from operations (520) 139 (130) (511)
Interest expense 12 46 58
----------------------------------------------------
Income (loss) before provision (benefit) $ (532) 93 (130) (569)
for income tax
====================================================
Net revenues by geographic area is as follows:
($ in thousands)
(Unaudited)
Three Months Ended
March 31,
---------------------------
Net revenues (1): 1999 1998
---------------------------
United States $ 15,759 13,254
Canada 1,759 1,917
---------------------------
Total net revenues $ 17,518 15,171
===========================
(1) Net revenues are attributed to countries based on where product is
produced.
Long-lived assets by geographic area is as follows:
($ in thousands)
(Unaudited)
March 31, December 31,
Long-lived assets: 1999 1998
---------------------------
United States $ 43,791 42,811
Canada 1,818 1,660
Japan 4 4
---------------------------
$ 45,613 44,475
===========================
(6) Accounting Change
The Company adopted "SOP 98-5, Reporting on the Costs of Start-Up
Activities", as of January 1, 1999. The SOP requires the costs of start-up
activities, including organization costs, to be expensed as incurred. As a
result, acquisition costs of $197,340 (net of taxes of $47,559), were
expensed in the period ending March 31, 1999 as the cumulative effect of a
change in accounting principle.
The following table summarizes the pro forma net loss and per share amounts
assuming a change in application of accounting principles applied
retroactively:
($ in thousands)
(Unaudited)
Three Months
Ended
March 31,
----------------
1999
----------------
Net loss $ (1,862)
Net loss per share - basic (0.25)
Net loss per share - diluted (0.25)
Pro forma information for March 31, 1998 is not readily available.
(7) Comprehensive Loss
Comprehensive Loss is as follows:
($ in thousands)
(unaudited)
Three Months Ended
March 31,
1999 1998
---------- -----------
Net Loss $ (2,012) (431)
Cumulative translation adjustment (113) (55)
Minimum liability adjustment - -
---------- -----------
Comprehensive loss $ (1,899) (486)
========== ===========
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 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 to the general
public.
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 that will be a companion stone for the Company's
Bethel White Quarry ("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 the three months ended March 31, 1999, the Company acquired an
additional three monument retailers (the "1999 Retail Acquisitions").
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.
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,
1999 1998
----------- -----------
Statement of Operations Data:
Net Revenues:
Quarrying 20.4% 22.0%
Manufacturing 56.6% 69.8%
Retailing 23.0% 8.2%
Total net revenues 100.0% 100.0%
Gross Profit:
Quarrying 17.5% 25.7%
Manufacturing 15.7% 18.2%
Retailing 52.3% 60.4%
Total gross profit 24.5% 23.3%
Selling, general & administrative expenses 36.5% 26.7%
Loss from operations (12.0%) (3.4%)
Interest expense 2.8% 0.4%
Loss before income tax benefit and cumulative
change in accounting principle (14.8%) (3.8%)
Income tax benefit 4.1% 0.9%
Loss before cumulative effect of change in
accounting principle (10.7%) (2.8%)
Cumulative effect in prior years of change
in accounting principle 0.8% -
Net Loss (11.5%) (2.8%)
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
Revenues for the three months ended March 31,1999 increased $2.3
million, or 15.5%, to $17.5 million from $15.2 million for the three months
ended March 31, 1998. This increase was primarily attributable to revenues
from the 1998 Retail Acquisitions and 1999 Retail Acquisitions, none of
which the Company owned during the 1998 period. The Company's retailing net
revenues increased to 23.0% of total net revenues in the 1999 period from
8.2% in the 1998 period as a result of these acquisitions.
Gross profit for the three months ended March 31, 1999 increased
$800,000, or 21.3%, to $4.3 million from $3.5 million for the three months
ended March 31, 1998. The gross profit percentage increased to 24.5% for
the 1999 period from 23.3% for the 1998 period. These increases were
attributable to the increase in retailing net revenues during the 1999
period as described above.
Quarrying gross profit decreased $233,000, or 27.1%, to $626,000
for the 1999 period from $859,000 for the 1998 period. The quarrying gross
profit percentage decreased to 17.5% for the 1999 period from 25.7% for the
1998 period. These decreases were primarily attributable to the Company's
Barre quarries being closed for a longer time during the 1999 period than
during the 1998 period. These quarries are usually closed during the winter
months; however, during the 1999 period the Company reopened them
approximately three weeks later than it did during the 1998 period.
Manufacturing gross profit decreased $370,000, or 19.2%, to $1.6
million for the 1999 period from $1.9 million for the 1998 period. The
manufacturing gross profit percentage decreased to 15.7% for the 1999
period from 18.2% for the 1998 period. These decreases were primarily
attributable to poor results at the Elberton Manufacturing Operations.
Retailing gross profit increased $1.4 million, or 181.0%, to $2.1
million for the 1999 period from $750,000 for the 1998 period. This
increase was attributable to the 1998 Retail Acquisitions and 1999 Retail
Acquisitions, none of which the Company owned during the 1998 period. The
retailing gross profit percentage decreased to 52.3% for the 1999 period
from 60.4% for the 1998 period. This decrease was caused primarily by the
seasonality of the business of the 1998 Retail Acquisitions and the 1999
Retail Acquisitions, which are mostly located in the Midwestern United
States where monuments cannot generally be set in cemeteries during the
first three months of the year.
Selling, general and administrative expenses ("SGA expenses")
increased $2.3 million, or 57.7%, to $6.4 million for the 1999 period from
$4.0 million for the 1998 period. As a percentage of net revenues, SGA
expenses increased to 36.5% for the 1999 period from 26.7% for the 1998
period. These increases were primarily attributable to SGA expenses of the
1998 Retail Acquisitions and the 1999 Retail Acquisitions and to the
Company's continuing investment in people and infrastructure to support its
retailing growth.
Interest expense increased $425,000, or 732.8%, to $483,000 for the
1999 period from $58,000 for the 1998 period. This increase was caused by
increased borrowings under the Company's credit facilities to support its
retail acquisition strategy.
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 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, 1999, net cash used in
operating activities was $3.1 million. This was the result of the operating
loss in the quarter, a decrease in accounts payable and an increase in
accounts receivable, all of which were partially offset by an increase in
customer deposits. Net cash used in investing activities was $5.3 million.
This was mostly due to acquisitions of monument retailers during the
quarter. Net cash provided by financing activities was $7.2 million, most
of which was provided by borrowings under the company's credit facilities.
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 March 31, 1999 the revolving credit
facility had $12.5 million outstanding and the term loan facility had $12
million outstanding. The interest rate on the revolving facility as of such
date was 7.25% based on a formula of prime less .50%. The interest rate on
the term loan as of such date was 6.97% based on a formula of LIBOR plus
1.75%. As of March 31, 1999, the Company also had $1.1 million outstanding
and $1.2 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 is in the
process of negotiating a revised and expanded credit facility with a group
of lenders; it expects to have this facility in place during the second or
third quarter of 1999. The Company's primary need for capital will be to
finance acquisitions of monument retailers as part of its growth strategy
and to maintain and improve its existing manufacturing, quarrying and
retailing facilities. The Company has $3.0 million budgeted for capital
expenditures in 1999. 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.
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.
YEAR 2000
The Company has developed a plan to address the Year 2000 issue and
is currently in the process of implementing that plan.
Scope of Readiness. A large part of the Company's legacy IT systems
would require substantial resources to become Year 2000 compliant. Instead
of remediating those core systems, the Company decided to replace those
systems with a purchased package that is Year 2000 compliant in addition to
software written in house that is also Year 2000 compliant. This decision
was based on Year 2000 compliance requirements as well as the need to
upgrade the software to meet current and future business requirements.
Installation of the purchased software was complete in 1998 and
implementation of those systems is expected to be complete by mid- 1999. In
house programming and the installation and implementation of purchased
software packages is being performed by three information technology
employees as well as two external programmer/analysts. Other IT
infrastructure equipment is generally Year 2000 compliant, however, some
hardware systems will be replaced by year end 1999. Support software is
being evaluated by in-house personnel and will be remediated or replaced by
mid-1999.
Non-IT systems (HVAC systems, machine controls, and other similar
systems) have been evaluated and are not materially affected by the Year
2000 compliance issue. Suppliers to the Company have been evaluated and
management believes that critical suppliers do not have any Year 2000
compliance issues. The Company believes that products sourced from a
non-critical supplier facing a Year 2000 compliance issue could be sourced
elsewhere.
Products manufactured by the Company do not utilize programmable
logic to function and are not affected by Year 2000 compliance issues.
Costs to Address Year 2000 Issues. Expenditures for Year 2000
remediation are not separable from the costs of software and hardware
associated with the normal course of business. Year 2000 remediation costs
are not expected to be material to the Company's financial position.
Risk of Year 2000 Issues. The timing of a Year 2000 related
disruption would coincide with a seasonal low in the Company's business
cycle and thus have less impact on the business than it otherwise would
during other parts of the cycle. The Company estimates the most likely
worst case Year 2000 scenarios as follows:
1. A portion of non-core IT systems experience temporary
disruption. Such disruption is not expected to have a
material impact on the Company's ability to
function.
2. A portion of the manufacturing operations experience
temporary disruption. Such disruption is not expected to
have a material impact on the Company's ability to
function.
3. A portion of the supplier base experiences disruption. Such
disruption is not expected to have a material impact on the
Company's ability to function.
Contingency Plans. Although the Company has not yet developed a
contingency plan for each of the scenarios above, the Company would respond
to those scenarios as follows:
1. A contingency plan will be developed if the perceived risk
increases.
2. It is expected that normal safety block levels would cover
such a scenario. Appropriate levels will be determined by
business conditions and perceived risk.
3. The Company would source materials from alternative suppliers.
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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Number Exhibits
3.1 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)
3.2 Amended and Restated By-Laws of the Company (as amended
through April 6, 1999)
11 Statement regarding 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, 1999.
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: May 17, 1999 By: /s/ John L. Forney
-----------------------------
John L. Forney
Vice President, Chief Financial
Officer and Treasurer
Exhibit Index
Exhibits
3.1 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)
3.2 Amended and Restated By-Laws of the Company (as amended
through April 6, 1999)
11 Statement regarding computation of per share earnings
27 Financial Data Schedule
EXHIBIT 3.2
EXHIBIT 11
Statement Regarding Computation of Net Loss Per Share
(Unaudited)
Net loss per share - basic, is computed by dividing losses available for
common shares by the weighted average number of common shares outstanding
during each year. Net loss per share - diluted, is computed by dividing
losses available for common shares by the weighted average number of
common shares outstanding during each year, adjusted to include the
additional number of common shares that would have been outstanding if
the dilutive potential common shares had been issued. Potential common
shares are not included in the diluted earnings per share calculations
where the effect of their inclusion would be antidilutive.