**UNITED STATESSECURITIES AND EXCHANGE COMMISSION  Washington, D.C. 20549**

 

**FORM 10-K**

| **(Mark One)**                                                                                                                                                                                                                                                                          |
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| ****x                                                                                                                                                                                                                                                                                   | **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT  OF 1934** |
| **For the fiscal year ended December 31, 2008**                                                                                                                                                                                                                                         |
| **OR**                                                                                                                                                                                                                                                                                  |
| **o**                                                                                                                                                                                                                                                                                   | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |
| **For the transition period from                                           to** |
|                                                                                                                                                                                                                                                                                         |
| **Commission file Number: 000-29464**                                                                                                                                                                                                                                                   |

**ROCK OF AGES CORPORATION**(Exact name of registrant as specified inits charter)

| **Delaware**  (State or other jurisdiction of   incorporation or organization)                              |  | **030153200**(I.R.S. Employer  Identification No.) |
|------------------------------------------------------------------------------------------------------------------|--|----------------------------------------------------|
|                                                                                                             |
| **560 GRANITEVILLE ROAD,****GRANITEVILLE, VERMONT 05654**  (Address of principal executive offices and zip code) |
|                                                                                                             |
| **(802) 476-3121**  (Registrant's telephone number, including area  code)                                        |

 

Securities registered pursuant to Section 12(b) of theAct: None

Securities registered pursuant to Section 12(g) of theAct:

**CLASS A COMMON STOCK, PAR VALUE $0.01**(Title of Class)

 

| Indicate by check mark whether the registrantis a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes      o   No      x                                                                                                                                                                                                                                                                                                                               |
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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| Indicate by check mark whether the registrantis not required to file reports pursuant to Section 13 or Section 15(d) of theAct.  Yes o        No x                                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| Indicate by check mark whether the registrant (1) has      filed all reports required to be filed by Section 13 or 15(d) of the      Securities Exchange Act of 1934 during the preceding 12 months (or for      such shorter period that the registrant was required to file such      reports), and (2) has been subject to such filing requirements for the      past 90 days.  Yes x  No o                                                                               |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| Indicate by check mark if disclosure of delinquent      filers pursuant to Item 405 of Regulation S-K is not contained herein, and      will not be contained, to the best of registrant's knowledge, in      definitive proxy or information statements incorporated by reference in      Part III of this Form 10-K or any amendment to this Form 10-K. o                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| Indicate by check mark whether the registrantis a large accelerated filer, an accelerated filer, a non-accelerated filer ora smaller reporting company. See definition of "large accelerated filer","accelerated filer", a "non-accelerated filer" or a smallerreporting company in Rule 12b-2 of the Exchange Act. (Check one):  Largeaccelerated filer o  Accelerated filer      o  Non-acceleratedfiler o       Smaller Reporting Company x |
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| Indicate by check mark whether the registrantis a shell company (as defined in Rule 12b-2 of the Exchange Act.)  Yes      o  No x                                                                                                                                                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| As of June 30, 2008, the aggregate marketvalue of the registrant's voting stock held by non-affiliates of the registrantwas $16,398,062. As of March 20, 2009, there were outstanding 4,677,467 sharesof Class A Common Stock and 2,738,596 shares of Class B Common Stock.                                                                                                                                                                                                                      |

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**TABLEOF CONTENTS**

|    |                                                                                                                | **PAGE** |
|--------------|----------------------------------------------------------------------------------------------------------------|----------|
|              |                                                                                                                |          |
|              | **PART I**                                                                                                     |          |
|              |                                                                                                                |          |
| ITEM 1.      | BUSINESS                                                                                                       | 4        |
| ITEM 1A.     | RISK FACTORS                                                                                                   | 8        |
| ITEM 1B.     | UNRESOLVED STAFF COMMENTS                                                                                      | 13       |
| ITEM 2.      | PROPERTIES                                                                                                     | 13       |
| ITEM 3.      | LEGAL PROCEEDINGS                                                                                              | 15       |
| ITEM 4.      | SUBMISSION OF MATTERS TO A  VOTE OF SECURITY HOLDERS                                                           | 16       |
|              |                                                                                                                |          |
|              | **PART II**                                                                                                    |          |
|              |                                                                                                                |          |
| ITEM 5.      | MARKET FOR REGISTRANT'S  COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY  SECURITIES | 16       |
| ITEM 6.      | SELECTED FINANCIAL DATA                                                                                        | 16       |
| ITEM 7.      | MANAGEMENT'S DISCUSSION AND  ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                         | 16       |
| ITEM 8.      | FINANCIAL STATEMENTS AND  SUPPLEMENTARY DATA                                                                   | 26       |
| ITEM 9.      | CHANGES IN AND  DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                          | 26       |
| ITEM 9A(T).  | CONTROLS AND PROCEDURES                                                                                        | 26       |
| ITEM 9B.     | OTHER INFORMATION                                                                                              | 27       |
|              |                                                                                                                |          |
|              | **PART III**                                                                                                   |          |
| ITEM 10.     | DIRECTORS, EXECUTIVE  OFFICERS AND CORPORATE GOVERNANCE                                                        | 27       |
| ITEM 11.     | EXECUTIVE COMPENSATION                                                                                         | 29       |
| ITEM 12.     | SECURITY OWNERSHIP OF  CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS                | 35       |
| ITEM 13.     | CERTAIN RELATIONSHIPS AND  RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE                                     | 37       |
| ITEM 14.     | PRINCIPAL ACCOUNTANT FEES  AND SERVICES                                                                        | 39       |
|              |                                                                                                                |          |
|              | **PART IV**                                                                                                    |          |
|              |                                                                                                                |          |
| ITEM 15.     | EXHIBITS AND FINANCIAL  STATEMENT SCHEDULES                                                                    | 40       |
|              | SIGNATURES                                                                                                     | 79       |
|              | INDEX TO CONSOLIDATED  FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE                              |          |

 

 

 

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| **SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS** *This Annual Report on Form10-K, including "Management's Discussion and Analysis of FinancialCondition and Results of Operations" in Item 7, contains forward-lookingstatements that involve risks and uncertainties, as well as assumptions that,if they never materialize or prove incorrect, could cause the results of Rockof Ages Corporation ("Rock of Ages" or the "Company") andevents to differ materially from those contained in such statements. Allstatements other than statements of historical fact could be deemedforward-looking statements, and may include projections of revenue, grossprofit, expenses, earnings or losses from operations or other financial items;any statements of the plans, strategies and objectives of the Company or itsmanagement for future operations; any statements regarding future economicconditions or performance; any statements of expectation or belief; and anystatements of assumptions underlying any of the foregoing. The risks,uncertainties and assumptions may include material weaknesses in our internalcontrols over financial reporting, which may affect our ability to accuratelyreport financial results;  the challenge of successfully implementing ourstrategic plan intended to enhance our overall profitability; our ability tomaintain compliance with our covenants in our credit facility;  our ability toform and maintain strategic alliances with cemeteries, funeral homes andmemorial retailers; uncertainties involving quarry yields and demand for Rockof Ages' dimension stone; and other risks and uncertainties described herein,including, but not limited to the items discussed in "Risk Factors ThatMay Affect Future Results" in Item 1A of this report, and that areotherwise described from time to time in Rock of Ages' reports filed with theSecurities and Exchange Commission  after the date of filing of thisreport.* 
*We assume no obligation toupdate these forward-looking statements to reflect actual results or changes infactors or assumptions affecting such forward-looking statements.*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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**PART I**

**ITEM 1.**

**BUSINESS**

**GENERAL**

Rock of Ages is a Delaware corporation founded in 1885 and is an integrated granite quarrier and manufacturer  whose principal product is granite memorials used primarily in cemeteries. We  own and operate nine active quarry properties and five manufacturing and  sawing facilities in North America, principally in Vermont and the Province of     Quebec. We sell memorials wholesale to approximately 115 independent  authorized Rock of Ages retailers in the United States as well as  approximately 116 independent retailers in Canada. We market and sell our  memorials at various price points:*Square Seal, Round Seal and Signature*.  Our memorials are offered in granites of various colors and are covered by a  full perpetual or a limited perpetual warranty, depending on the particular  granite and brand. We believe the *Rock of Ages* trademark is one of the  oldest and best-known brand names in the granite memorialization industry,  and we actively promote our brand name and place a seal bearing the brand  name on each branded memorial. The Company also sells unbranded memorials.

** **

*Rock of Ages, Signature,  Sealmark, American Black, Barre Gray, Bethel White, Salisbury Pink, Gardenia  White,**Laurentian Pink*and *Galactic  Blue*are trade names or trademarks of the Company. We rely on both  registered and common-law trademarks in the United States and in other countries  to protect the goodwill associated with these brands.

* *

Until January 17, 2008, we  were also engaged in the retail sale of memorials. We embarked upon our  retail strategy soon after our initial public offering in 1997 and from 1997  to 2005 we acquired 28 retail monument companies with approximately 80  locations in 16 states.  Early in the second quarter of 2006, we made  significant changes in our retail operations.  A more streamlined management  structure was put into place and a "back to basics" philosophy was  adopted by the new retail leadership.  The new retail management team, led by  Richard M. Urbach, succeeded in stabilizing our retail operations during the  second half of 2006 and during 2007 was able to earn a modest profit.   

* *

However, with the  continuing prospect of low growth in the retail division, and the still  significant management infrastructure costs associated with our retail  operations, beginning in early 2007 our Board of Directors, assisted by our  financial advisors, began to explore available strategic alternatives with  respect to the retail division, including, but not limited to, the possible  sale of our retail operations.  After engaging in an extended and robust  process, the Board determined that it was in the best interests of the  Company and its stockholders to exit the retail business, simplify and reduce  the cost of the existing management infrastructure, and focus on our core  quarrying and manufacturing business, including our wholesale memorial  distribution system.  

* *

In December 2007, the Board  authorized the sale of the retail division to PKDM Holdings, Inc.  ("PKDM"), a company owned by Richard M. Urbach, the President and  Chief Operating Officer of the retail division, and James Barnes, the  financial manager of the retail division, for approximately $8 million.  The  sale was completed on January 17, 2008.  In connection with the sale of the  retail division, we entered into an Authorized Retailer, Supply and License  Agreement whereby PKDM was appointed an authorized Rock of Ages® retailer in  the existing retail territories formerly serviced by our retail stores.    PKDM also agreed to purchase $3.5 million of product under the supply  agreement during each year of the five-year term, subject to reduction in the  event of the sale or closure of the retail locations covered by the supply  agreement.  Effective January 16, 2009, the supply agreement was amended to  adjust the minimum purchase requirement due to the sale of some of the retail  locations by PKDM. The minimum purchase for 2008 was reduced to $1.7 million  and the minimum purchase for 2009 and the remaining years of the term was  reduced to $1.2 million. In addition, the Company retained $2,125,000 of  inventory located at various retail locations and PKDM is responsible for  purchasing the inventory, at its current book value, as it is sold, plus any  inventory remaining after the tenth anniversary of the transaction. The  balance of consigned inventory with PKDM at December 31, 2008 was $2,075,000.  Our retail operations were classified as discontinued operations as of  December 31, 2007, and we recorded a write down in the carrying value of the  retail division of approximately $5.9 million as of that date.

* *
VIKA Ltd. ("VIKA"), a  quarry company in which we have held a 1/3 equity interest since 2002,  experienced continuing operational difficulties leading to reductions in both  the production and sale of Galactic Blue granite blocks. At the end of the  fourth quarter of 2007 the Company decided that it would no longer advance  any additional funds to VIKA and concluded its advances to VIKA should be  fully reserved and determined that its investment in VIKA of $386,000 had  experienced an impairment in value that was other than temporary. Accordingly,  a charge of $1,361,000 was recognized in the fourth quarter of 2007. 
During 2008, we had operations in two  business segments: Quarry and Manufacturing. Included within the business  segments are operations that are conducted through unincorporated divisions of  Rock of Ages and other operations 

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 that are conducted by separately  incorporated subsidiaries. Financial information by business segment and  geographic area is incorporated herein by reference to note 14 of the Notes to  Consolidated Financial Statements included in this report. In addition,  information regarding the revenues of each business segment is incorporated  herein by reference to Item 7, "Management's Discussion and Analysis of  Financial Condition and Results of Operations." Risks attendant to foreign  operations are also incorporated herein by reference to "Risk Factors that May  Affect Future Results" in Item 1A. Additional information regarding each  business segment and Rock of Ages in general is set forth herein.

**STRATEGY**

We seek to  enhance the overall profitability of the Company's businesses through a  strategy which includes the following principal elements:
   -  *Direct sales of mausoleums       and estate and civic memorials to cemeteries and consumers*. We expect to continue to expand sales of       private mausoleums, and estate and civic memorials direct to the       customer through our mausoleum and special features sales force based at       our Barre, Vermont manufacturing plant.*Strategic    alliances with cemeteries, funeral homes and memorial retailers to expand    our wholesale distribution in North America.* We have formed and will continue to pursue       strategic alliances with memorial retailers, funeral directors and       cemetery owners to sell mausoleums, estate memorials, features and       granite memorials in cooperation with them as authorized Rock of Ages       retailers or other relationships, in order to increase both pre-need and       at-need sales of granite memorials. *Enhancing quarry and       manufacturing productivity.*        We seek to substantially reduce our costs of quarrying and manufacturing       and enhance our productivity through investments in equipment and       technology and maintaining a flexible workforce.*Branding.* We believe the Rock of Ages brand is one of       the best-known brand names in the memorial industry.  We will continue       to promote and support the Rock of Ages brand sold at independent       authorized Rock of Ages retailers.*Acquisitions of quarries       and distribution rights.* While       we own or control many of the highest quality granite quarries in North       America, we will continue to explore the possibility of acquiring       selected granite quarriers in North America and internationally to       assure we will continue to have the colors and grades of granites sought       by retail purchasers of granite memorials in North America, as well as       exclusive granites for other uses. We will also continue to explore the       acquisition of distribution rights to certain colors and grades of       granites.*Personalization.* We intend to continue to expand and enhance our  memorial product lines in color, design and style. Our objective is to  provide a full range of memorials available at various price ranges.*Reducing unallocated corporate  overhead and corporate infrastructure.* We consolidated our corporate    headquarters in the manufacturing plant's existing administrative offices    and decreased staff in conjunction with this move and the sale of the retail    division. We continue to seek ways to streamline our operations and cut    overhead costs.**PRODUCTS**Our principal  products may be classified into two general product lines: granite quarry  products (with limited value added manufacturing performed) and manufactured  granite products, primarily granite memorials. The principal raw material for  both granite product lines is natural granite as it comes from the ground,  with the primary difference between the product lines being the extent of the  processing or manufacturing of the granite. For each of the last two years,  2008 and 2007, revenues derived from the sale of granite quarry products have  accounted for 51% and 53%, respectively, of consolidated revenues; and  revenues derived from the sale of manufactured granite products at wholesale  have accounted for 49% and 47%, respectively, of consolidated revenues.    
**Granite Quarry Products**
Our principal quarry  product is granite blocks, the raw material of the dimension granite  industry. These blocks are extracted from quarries in various sizes through a  drilling, blasting and wire sawing process in the quarry. The range of block  sizes is large, but most manufacturers of granite memorials and other  products generally require minimum dimensions of height, width and length to  maximize the efficiency of their block sawing equipment in meeting the  required dimensions of the finished product. Granite blocks are normally sold  in heights from 2'6" to 5', widths of 3' to 5', and lengths from 7' to  10'. These blocks typically weigh between 20 and 30 tons. Our quarry revenues  are also derived, to a lesser degree, from the sale of blocks purchased from  other quarries for resale through our distribution system, and from the sale  of rough or sawn slabs.   Granite differs from  deposit to deposit by color, grade and/or quality. We quarry and sell blocks  of (i)*Barre Gray*granite from our Barre, Vermont quarries and gray  granite from our Stanstead, Quebec quarry, (ii) black granite from our *American*
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*Black* quarry in Pennsylvania, (iii) pink granites from our *Laurentian  Pink* quarry in Quebec and our *Salisbury Pink*quarry in North  Carolina, and (iv) white granites from our *Bethel White* quarry in  Vermont and our *Gardenia White*quarry in North Carolina. We also sell  black granite with prominent blue feldspar from the *Galactic Blue*  quarry in the Ukraine under an exclusive world-wide sales agreement.

We sell granite blocks for  memorial, building and other uses. While each of our quarries sells granite  for memorial use and for building use, the output of the *Bethel White*  quarry, the *Gardenia White* quarry, the *Salisbury Pink*quarry  and the *Galactic Blue*quarry are primarily sold and used for building  granite use (such as building cladding, tiles, pavers, steps, countertops and  other building products) outside North America. The output of the other  quarries is primarily for memorial use in North America.

A quarry sales force both  in and outside North America sells our granite blocks. The quarry sales force  markets and advertises our granite blocks in various trade publications and  by attending trade shows worldwide. Outside of North America, our quarry  sales force generally sells directly to manufacturing plants or to independent  distributors who buy blocks and resell them.

Other quarry products  include waste pieces not of a shape or size suitable for manufacturing, which  are sold for erosion control for embankments, bridges or piers, and for other  uses. In certain quarries, we have arrangements with crusher operators who  operate on or near our quarries and sell crushed stone. The revenues and  profits of these products are not material. We have no marketing and  advertising programs for these other quarry products.

**Manufactured Products**

The principal manufactured  product of Rock of Ages is granite memorials, which are sold to retailers of  granite memorials and substantially all of which are placed in cemeteries in  remembrance of the life of a person. Our memorials encompass a wide range of  granites, including granite blocks purchased from others, as well as a wide  array of sizes, styles and shapes ranging from small, inexpensive markers set  flush to the ground, to very elaborate and expensive personal mausoleums available  at various price ranges. The broad classifications of granite memorials used  by the industry are generally markers, hickeys, slants, standard uprights,  estate uprights, pre-assembled mausoleums and conventional mausoleums. We  also sell public and civic memorials not placed in cemeteries, both on a  wholesale basis and directly to the customer. From time to time, memorial  retailers or others order granite products such as benches, steps and other  products that may or may not be for cemetery use, but are classified as  memorial sales.
   Rock of Ages is widely  recognized for the personalized granite memorials it produces and the very  large memorials it can produce. We have made many large private and public memorials,  including a full size granite replica of a Mercedes-Benz automobile and the  massive Atlantic and Pacific arches of the World War II memorial in Washington DC.   Our granite memorials are  sold to retailers by our memorial sales force that regularly speaks with  customers by phone and makes personal visits to customers. Our mausoleums and  special features group sells both to retailers and direct to the customer. We  provide various point of sale materials to independent authorized Rock of  Ages retailers, we advertise in trade publications and attend trade shows in  the United States and Canada.   Rock of Ages also  manufactures certain precision granite products which are made at our Barre, Vermont plant. These products include surface plates, machine bases, bases for coordinate  measuring devices, press rolls and other products manufactured to exacting  dimensions. These products are sold to the manufacturers of precision  measuring devices or end users. A precision products sales force that phones  or visits customers, sells these products. We also advertise our precision  products in various trade publications, provide printed sales materials to  prospective customers and attend industry conventions.   
**Retail Products**
During 2007 we owned and  operated approximately 80 retail outlets in 16 states that marketed and sold  granite, bronze and marble memorials primarily to consumers. The granite  memorials sold at retail included a wide variety of sizes, styles and shapes,  and were sourced from our own plants and a number of additional manufacturers  in North America and elsewhere in the world. On January 17, 2008, we completed the sale of our retail operations to PKDM and exited the retail business  entirely.     **MANUFACTURING AND RAW  MATERIALS**Rock of Ages quarries and manufactures granite in the United  States and Canada at the locations indicated in Item 2 "Properties." We also  outsource the manufacturing of certain memorial products pursuant to supply  agreements with other manufacturers.  There were no plants acquired in 2008. We moved  our saw plant operations in Barre, Vermont by closing and putting up for sale  our old saw plant and moving the equipment into a new addition to our  manufacturing plant. The
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cost for the new saw plant facility with  equipment was $1.4 million and became operational in the fourth quarter of  2008. We believe our manufacturing and quarrying capacity, together with our  manufacturing outsourcing arrangements, are generally sufficient to meet  anticipated production requirements for the foreseeable future.

The most significant raw  material we use in our manufacturing operations is granite blocks primarily  from our quarries. We believe we have an adequate supply from our quarries to  supply our manufacturing operations. We also purchase certain colors of  granite, primarily red and black, from other quarriers. We believe there is  an adequate supply of memorial granite available from our quarries and  quarries owned by others for the foreseeable future.

Significant supplies used  in our manufacturing operations include industrial diamond segments for saw  blades and wires, drill steel, drill bits and abrasives. There are a number  of sources for these supplies at competitive prices.

We had manufacturing  backlogs of $7.1 million and $9.5 million as of December 31, 2008 and 2007,  respectively. These backlogs occurred in the normal course of business. We do  not have a material backlog in our quarrying operations. Of the backlog  orders as of December 31, 2008, we expect 100% to be filled during the 2009  fiscal year. 
We do not normally maintain  a significant inventory of finished manufactured products in anticipation of  future orders in our manufacturing operations. In connection with the sale of  our retail operations to PKDM on January 17, 2008, we retained finished  memorial inventory which is located at the various retail locations sold to  PKDM and at December 31, 2008 has an aggregate book value of approximately  $2.1 million.  This inventory has been consigned to PKDM for sale to  customers.  Any finished inventory not sold by PKDM within 10 years of the  closing date will be purchased by PKDM at book value. Approximately 75% of  our manufactured product orders are delivered within two to twelve weeks of  the order date, as is customary in the granite memorial industry. The  delivery time depends on the size and complexity of the memorial. Our quarry  operations have inventories of granite blocks.   **RESEARCH AND DEVELOPMENT**We do not have a research  and development department for any of our products.  From time to time, we  conduct market research, as well as research on new product designs and on  equipment to improve the Company's technology. These activities are not  separately accounted for as research, and we had no expenditures classified  for financial reporting purposes as research in 2008 or 2007.   
**COMPETITION**
The dimension stone  industry is highly competitive. We compete with other dimension stone  quarriers, including quarriers of granite, marble, limestone, travertine and  other natural stones. We also compete with manufacturers of so-called  "engineered stone" as well as manufacturers of other building  materials like concrete, aluminum, glass, wood and other materials. The  competition with providers of these materials is based on price, availability  of supply, end-user preference for certain colors, patterns or textures, and  other factors.   The granite memorial  industry is also highly competitive. We compete with other granite quarriers  and manufacturers in the sale of granite blocks for memorial use, and  finished memorials, on the basis of price, color, quality, geographic  proximity, service, design, production capability, availability of supply and  delivery options. All of our colors of granite are subject to competition  from memorial grade granite blocks of similar color supplied by quarriers  located throughout the world. There are approximately 130 manufacturers of  granite memorials in North America with a majority of them being located in  the Elberton, Georgia area.    Our quarrying and  manufacturing competitors include both domestic and international companies,  some of which may have greater financial, technical, manufacturing, marketing  and other resources than we have. Foreign competitors may have access to  lower cost labor and extensive commercial deposits of memorial and building  grade granite, and may be subject to less restrictive regulatory  requirements. For example, companies in South Africa, India, China and Portugal manufacture and export finished granite memorials into North America,  which compete with our products.   **PATENTS, TRADEMARKS AND  LICENSES**** **We hold a number of  domestic and foreign patents, trademarks and copyrights, including the  original registered trademark "Rock of Ages," which we first  registered in 1913. We believe the loss of a single patent, trademark or  copyright, other than the "Rock of Ages" trademark, would not have  a material adverse effect on our business, financial condition or results of  operations. See Item 1A - "Risk Factors That May Affect Future Results."
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**EMPLOYEES**
We had approximately 268  employees as of December 31, 2008. We had approximately 557 employees as of  December 31, 2007 and 334 employees on January 18, 2008 after the sale of our  retail operations.

The  collective bargaining agreements with the Granite Cutters Association and the  United Steelworkers of America, respectively, which together represent  approximately 107 employees in our Vermont manufacturing and quarrying  operations, expire on April 24, 2009. We expect to commence negotiations with  union representatives shortly. See Item 1A - Risk Factors That May Affect  Future Results. We also have collective bargaining agreements with two unions  representing approximately 55 employees in our Canadian operations. These  agreements expire on October 31, 2009 and January 31, 2010.

We believe our relations  with our employees are generally good, and recognize that our employees are among  our most important assets.

**SEASONALITY**
Historically, our  operations have experienced certain seasonal patterns. Generally, our net  sales are highest in the second or third quarter and lowest in the first  quarter of each year due primarily to weather. See Item 7 "Management's  Discussion and Analysis of Financial Conditions and Results of Operations -  Seasonality."   **REGULATION  AND ENVIRONMENTAL COMPLIANCE**
Our quarry and manufacturing operations are subject  to substantial regulation by federal, state and foreign governmental agencies  and other authorities, including OSHA, the Mine Safety and Health  Administration and similar state and Canadian authorities. Our operations are  also subject to extensive laws and regulations administered by the United  States Environmental Protection Agency and similar state and Canadian  authorities for the protection of the environment, including those relating  to air and water quality, noise levels, and solid and hazardous waste  handling and disposal. These laws and regulations may require us to fund  remedial action or to pay damages regardless of fault. Environmental laws and  regulations may also impose liability with respect to divested or terminated  operations even if the operations were divested or terminated many years ago.  In addition, current and future environmental or occupational health and  safety laws, regulations or regulatory interpretations may require  significant expenditures for compliance which could require us to modify our  operations. We cannot predict the effect of such laws, regulations or  regulatory interpretations on our business, financial condition or results of  operations.
   
**AVAILABLE  INFORMATION**
We  maintain a website with the address www.rockofages.com. We are not including  the information contained on our website as a part of, or incorporating it by  reference into, this Annual Report on Form 10-K. We make available free of  charge through our website our Annual Report on Form 10-K, Quarterly Reports  on Form 10-Q and Current Reports on Form 8-K (in each case without exhibits),  and amendments to these reports (without exhibits) filed as soon as  reasonably practicable after such reports are electronically filed with the  Securities and Exchange Commission.   **ITEM 1A.**
**RISK FACTORS**
**Risk Factors That May  Affect Future Results**   *The risks and  uncertainties described below are not the only ones we face. Additional risks  and uncertainties not presently known to us or which are currently deemed  immaterial may also impair our business, financial condition and results of  operations. If any of these risks actually occur, our business, financial  condition and results of operations could be materially adversely affected.*   **If we or our independent  registered public accounting firm are unable to affirm the effectiveness of  our internal control over financial reporting in future years, the market  value of our common stock could be adversely affected.**Our independent registered  public accounting firm must audit and report on our internal controls over  financial reporting as of December 31, 2009 and subsequent fiscal year end  dates, respectively, and such report must be included in our Annual Report on  Form 10-K for the year ending December 31, 2009, and in subsequent Annual  Reports on Form 10-K for subsequent years, respectively.  In 2007 we  disclosed material weaknesses in our internal control over financial  reporting in Item 9A(T) - Controls and Procedures of the Annual Report  on Form 10-K. In 2008 we remediated the weaknesses and accordingly reported  no material weaknesses in our internal control over financial reporting as of  December 31, 2008. However, we cannot assure you that we or our independent  registered public accounting firm will continue to be able to report that our  internal control over financial reporting are effective as of December 31,  2009 and subsequent fiscal year end dates, respectively. In this event,  investors could lose confidence in the reliability of our financial  statements, which could result in a decrease in the market value of our Class  A Common Stock.
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Moreover, even though we  believe we have corrected the material weaknesses reported in 2007, our internal  controls may not prevent all potential errors, because any system of controls  and procedures, regardless of its design, can provide only reasonable, and  not absolute, assurance that the objectives of the control system will be  achieved.  There are inherent limitations to the effectiveness of any system  of controls and procedures, including the possibility of human error and the  circumvention or overriding of the controls and procedures.
**Our credit facility with  CIT includes restrictions on our business operations that we must comply  with, and financial tests that we must meet in order to continue to borrow  under the facility to support our operations.**

The terms of our credit  facility with CIT restrict our ability to, among other things, consummate  asset sales, participate in mergers, incur additional debt, pay dividends,  repurchase stock or make investments or guarantees without the prior consent  of CIT. The terms also contain covenants that require us to meet financial  tests, including a minimum Fixed Charge Coverage Ratio and a maximum Total  Liabilities to Net Worth Ratio, in order to continue to borrow under the  facility and avoid a default that might lead to an early termination of the  facility. The restrictions in our credit facility may prevent us from taking  actions that we believe would be in the best interest of the Company and its  shareholders and make it difficult to execute our business strategy  successfully.  The terms of this credit facility, including these covenants,  are generally described in Item 7 of this report under the caption  "Liquidity and Capital Resources - Credit Facility."

As described under such  caption, we were in violation of our credit facility because we sustained a  net loss during 2008, and we failed to meet the Fixed Charge Coverage Ratio  covenant for the four fiscal quarters ending December 31, 2008.  These  violations were primarily as a result of two non-cash charges taken during  the fourth quarter of 2008.  First, we took a $3,930,000 charge for the  write-down of second grade block inventory at three of our export quarries,  and second, we took a $1,348,000 charge for the write-down of our former  headquarters building in Barre, Vermont, which was taken out of service when  we consolidated our offices in Barre.  We received a waiver from our lenders  allowing us to be in compliance with our credit facility and our lenders  agreed to allow us, in calculating the Fixed Charge Coverage Ratio, to add  back the non-cash write-downs taken with respect to the second grade inventory  and the vacated building for the first three quarters of 2009.  After the  third quarter of 2009, we expect to be in compliance with all existing  covenants through the remaining term of the credit facility. However, we  cannot provide assurances that we will be able to maintain compliance with  the covenants in our credit facility,  Moreover, if we fail to maintain  compliance  with such covenants we cannot provide assurances that we will  continue to receive waivers of any non-compliance.  If we are unable to  comply with the financial or other covenants of our credit facility, and we  could not obtain waivers of such non-compliance, we will likely be unable to  borrow additional amounts under the facility and amounts owed under the  facility could be accelerated and become due and payable immediately, which  would materially impact our liquidity and financial conditions and could  require us to cease operations or seek protection under state or federal  insolvency or bankruptcy laws.
**Changes in the securities  laws and regulations have increased, and are likely to continue to increase,  our costs, and may also adversely affect our ability to attract and retain  qualified directors.**The Sarbanes-Oxley Act has  required changes in some of our corporate governance, securities disclosure  and compliance practices.  Pursuant to the requirements of that Act, the SEC  and the Nasdaq Stock Market have promulgated rules and listing standards  covering a variety of subjects.  Compliance with these new rules and  listing standards has increased our legal costs, and significantly increased  our accounting and auditing costs, and we expect these costs to continue to  increase, and to materially impact our financial results.  In particular, we have incurred and will continue to incur  substantial expense in the on-going evaluation and testing of our internal  control over financial reporting as we comply with Section 404 of the  Sarbanes-Oxley Act.  These changes in securities laws and regulations may  make it more difficult and more expensive for us to obtain directors' and  officers' liability insurance.  Likewise, these developments may make it  more difficult for us to attract and retain qualified members of our board of  directors, particularly independent directors, or qualified executive  officers.
**The pension funding requirements  may adversely affect our cash flow.**
Compliance with pension funding requirements could adversely  affect our cash flow.  We have a qualified defined benefit pension plan  which covers eligible employees as of March 31, 2009. On January 5, 2009, the  Company's Board of Directors approved actions to proceed with amendments to  its defined benefit pension plan by freezing membership and future benefits in  the plan. This action is effective as of March 31, 2009.  At December 31, 2008, this plan is underfunded,  which means that promised pension benefits could potentially exceed the funds  available. In August 2006, the Pension
9

  Protection Act (the "Act") was signed into law in the U.S. Among other things,  the Act is aimed at strengthening pension plans by requiring most pension  plans to become fully funded over a seven-year period.  The new law  allows employers to deduct the cost of making additional contributions to fund  the pension, provides strict funding guidelines, and imposes a 10% excise tax  on companies that fail to correct their funding deficiencies. The recent  significant worldwide decline in equity prices and in the value of other  financial investments has significantly increased our pension liabilities.  Without an increase in the value of the plan assets we could be required to  fund the plan with significant amounts of cash.  Additionally, if we are  unable to meet the funding targets imposed by the Act, we may incur  significant penalties.  See Item 7 of this report, *Management Discussion  and Analysis of Financial Condition and Results of Operations - Liquidity and  Capital Resources.*
   
**If we are unable to  maintain our relationships with independent retailers, our sales may not grow  and could decline. **
We have historically sold  our granite memorials to consumers through independent retailers. We are  dependent in part on our independent retailers for the successful  distribution of our products to the ultimate customer. We have no control  over the independent retailers' operations, including such matters as retail  price, advertising and marketing. We cannot assure you we will be able  to maintain our existing relationships or establish new relationships with  independent retailers. Disruption in our relationships with independent  retailers could impede our sales growth or cause sales to decline, which  would adversely affect our business and financial results.    
**Declining general  economic, business, or industry conditions may cause reduced revenues and  profitability.**
Recently, concerns over  inflation, energy costs, geopolitical issues, the availability and cost of  credit, the U.S. mortgage market and a declining real estate market in the U.S. have contributed to increased volatility and diminished expectations for the global  economy and expectations of slower global economic growth going forward.  These factors, combined with volatile oil prices, declining business and  consumer confidence and increased unemployment, have precipitated a global  recession. If the economic climate in the U.S. or abroad does not improve  from its current condition or continues to deteriorate, our customers or  potential customers could reduce or delay their purchases of our products,  which would adversely impact both our quarrying and manufacturing business  segments.   
**Our international  operations may expose us to a number of risks related to conducting business  in foreign countries.**
We derived approximately 38%  of total revenues in fiscal 2008 from sales to customers outside the United States, including approximately 17% from sales in Canada by our Canadian subsidiary. Foreign  sales are subject to numerous risks, including currency conversion risks,  limitations (including taxes) on the repatriation of earnings, slower and  more difficult accounts receivable collection and greater complication and  expense in complying with foreign laws. Our sales of granite blocks to  foreign countries are primarily for building use and are subject to various  cyclical factors in foreign countries, foreign exchange rate fluctuations,  policies of foreign governments and numerous other factors over which we have  no control.   In 2005, our sales of  granite blocks into China declined significantly as a result of economic  conditions in China. While we saw significant signs of recovery in our  Chinese markets in 2007 and 2008 and we have taken and are continuing to take  steps to develop sales to customers in other countries, we cannot assure you  that sales of granite blocks to our Chinese and other Asian customers will  recover and remain at historic levels.   We own a 1/3 equity  interest in VIKA, Ltd., ("VIKA") a Ukrainian closed joint stock company that  has a long-term license from the Ukraine government to quarry certain stone  known as "Galactic Blue" on certain property located in Zhytomyr,  Ukraine. We also have the exclusive worldwide rights to distribute Galactic  Blue. Historically, political and governmental instability has been a feature  in Ukraine, and the political and regulatory climate is subject to rapid  change. Our investment in VIKA is subject to risks inherent in international  operations, including adverse governmental actions, political risks,  expropriation of assets and the risk of civil unrest and war. As the  political and regulatory environment changes, we may face uncertainty about  the interpretation of the agreements to which we are party and, in the event  of dispute, we may have limited recourse within the legal and political  system.   In addition, the financial  viability of VIKA is uncertain.  Since our initial investment in VIKA in  2002, the Galactic Blue quarry has failed to produce commercially significant  quantities of saleable stone.  We are a minority investor in VIKA, and we do  not directly or indirectly operate the quarry. Therefore, we are heavily  dependent on the efforts of our Ukraine partners, which hold the majority  interest in VIKA, to improve quarry production.  If VIKA is unable to produce  and profitably sell commercially significant quantities of saleable stone in  the near future, the financial viability of VIKA would be threatened and we  may be unable to recover our investment in VIKA. Management concluded, with  the approval of the audit committee of our Board of Directors that our  investment in VIKA was impaired as of December 31, 
10
2007, and we recorded an impairment charge related to our VIKA assets of approximately $1,361,000. In  2008 there was very little change in the financial viability of VIKA. They  continue to quarry very small amounts and we continue to sell all that is  quarried. 
**Employee strikes and  other labor-related disruptions may adversely affect our operations.**
Our business is labor  intensive, and our workforce includes, among other employees, highly skilled  quarrying and manufacturing personnel such as stone cutters, sand blasters,  sculptors and other skilled artisans. Approximately 60% of our workforce is  unionized. Strikes or labor disputes with our unionized employees may  adversely affect our ability to conduct our business.Our collective bargaining  agreements with the Granite Cutters Association and the United Steelworkers  of America, which together represent approximately 107 employees in our Vermont manufacturing and quarrying operations, expire on April 24, 2009.  We expect to  commence negotiations with union representatives shortly.  If we are unable  to reach agreement with any of our unionized work groups in future  negotiations regarding the terms of their collective bargaining agreements,  or if additional segments of our workforce become unionized, we could be  subject to work interruptions or stoppages in 2009 which could adversely  affect our operations and our business.
**If we lose key  personnel, or are unable to attract and retain additional qualified  personnel, our business could suffer.**
Our operations and the  implementation of our strategies to enhance overall Company profitability are  management intensive. We are substantially dependent upon the abilities and  continued efforts of our senior management. Our business is also dependent on  our ability to continue to attract and retain a highly skilled quarry and  manufacturing workforce, including stone cutters, sand blasters, sculptors  and other skilled artisans. The loss of the services of our senior management  or other highly skilled personnel could adversely affect our business and  operating results.   
**We face intense  competition and, if we are unable to compete successfully, we may be unable  to increase our sales, which would adversely affect our business and  profitability. **
The dimension stone  industry is highly competitive. We compete with other dimension stone  quarriers, including quarriers of granite, marble, limestone, travertine and  other natural stones. We also compete with manufacturers of so-called  "engineered stone" as well as manufacturers of other building  materials like concrete, aluminum, glass, wood and other materials. We  compete with providers of these materials on the basis of price, availability  of supply, end-user preference for certain colors, patterns or textures, and  other factors. 
The granite memorial  industry is also highly competitive. We compete with other granite quarriers  and manufacturers in the sale of granite blocks for memorial use on the basis  of price, color, quality, geographic proximity, service, design availability,  production capability, and delivery options. All of our colors of  granite are subject to competition from memorial grade granite blocks of  similar color supplied by quarriers located throughout the world. There are  approximately 130 manufacturers of granite memorials in North America. There  are also manufacturers of granite memorials in India, South Africa, China and Portugal that sell finished memorials in North America. 

Our quarrying and  manufacturing competitors include both domestic and international companies,  some of which may have greater financial, technical, manufacturing, marketing  and other resources. Foreign competitors may have access to lower cost labor  and better commercial deposits of granite, and may be subject to less  restrictive regulatory requirements.

We cannot assure you  domestic or foreign competition will not adversely impact our business.

**The increasing trend  toward cremation, and potential declines in memorialization for other  reasons, may result in decreased sales of our products.**

There is an increasing  trend toward cremation in the United States. The latest statistics from the  Cremation Association of North America, or CANA, indicate cremation was used  in approximately 33% of the deaths in the United States in 2006, compared to  approximately 29% in 2003. To the extent increases in cremation rates result  in decreases in memorialization rates, this decrease will result in a decline  in our memorial sales, which will adversely affect our business and results  of operations.

Our business is also  subject to the risk that memorialization rates may decline over time for  other reasons. Certain cemeteries have in the past and may in the future  limit the use of granite memorials as a memorialization option. To the extent  general memorialization rates or the willingness of cemeteries to accept  granite memorials declines, this decline could adversely affect our business.

11

**Sales of our products  are seasonal and may cause our quarterly operating results to fluctuate.** 

Historically, our  operations have experienced certain seasonal patterns. Generally, our net  sales are highest in the second or third quarter and lowest in the first  quarter of each year due primarily to weather. Cemeteries in northern regions  generally do not accept granite memorials during winter months when the  ground is frozen because they cannot be properly set. We typically close our Vermont and Canadian quarries from January to late March because of increased operating  costs attributable to weather conditions. We have historically incurred an  aggregate net loss during the first three months of each calendar year. Our  operating results may vary materially from quarter to quarter due to, among  other things, changes in product mix, shipping conditions and limitations on  the timing of price increases, making quarterly year-to-year comparisons less  meaningful. 

** **

**Our competitive position  could be harmed if we are unable to protect our intellectual property rights.** 

We believe our tradenames,  trademarks, brands, designs and other intellectual property are of great  value, and we rely on trademark, copyright and other proprietary rights laws  to protect our rights to this valuable intellectual property. Third parties  may, in the future, try to challenge our ownership of our intellectual  property. In addition, our business is subject to the risk of third parties  counterfeiting our products or infringing on our intellectual property  rights. We may need to resort to litigation in the future to protect our  intellectual property rights, which could result in substantial costs and  diversion of resources. Our failure to protect our intellectual property  rights, most notably the Rock of Ages trademark, could have a serious adverse  effect on our business and competitive position. 

** **

**Our business is subject  to a number of operating risks that are difficult to predict and manage.**

Our quarry and  manufacturing operations are subject to numerous risks and hazards inherent  in those industries, including among others, unanticipated surface or  underground conditions, varying saleable granite recovery rates due to  natural cracks and other imperfections in granite deposits, equipment  failures, accidents and worker injuries, labor issues, weather conditions and  events, unanticipated transportation costs and price fluctuations. As a  result, actual costs and expenditures, production quantities and delivery  dates, as well as revenues, may differ materially from those anticipated  which could adversely affect our operating results.

** **

**Sales of our ancillary  products are cyclical, which may adversely affect our operating  results. **

The markets for our  industrial precision products, which include machine base and surface plates  that are utilized in the automotive, aeronautic, computer, machine tool,  optical, precision grinding and inspection industries, and granite press  rolls used in the manufacture of paper, are subject to substantial cyclical  variations. Sales of these products are subject to decline as a result of  general economic downturns, or as a result of uncertainties regarding current  and future economic conditions that generally affect such industries. We  cannot assure you changes in the industries to which we sell our precision  products will not adversely affect our operating results.
**Existing stockholders  are able to exercise significant control over us.**
Kurt M. Swenson and his  brother, Kevin C. Swenson, collectively have 66% of the total voting power of  all outstanding shares of our common stock, and will therefore be in a  position to control the outcome of most corporate actions requiring  stockholder approval, including the election of directors and the approval of  transactions involving a change in control of the Company.

**Our common stock is  thinly traded; therefore, our stock price may fluctuate more than the stock  market as a whole.**

Although our shares are  traded on the Nasdaq Stock Market, our stock is thinly traded. As a result,  its market price may fluctuate significantly more than the stock market as a  whole or the stock prices of similar companies. Without a larger float, our  common stock will be less liquid than the stock of companies with broader  public ownership, and as a result, the trading prices for our common stock  may be more volatile. Among other things, trading of a relatively small  volume of common stock may have a greater impact on the trading price than  would be the case if the public float were larger.

**We may incur substantial  costs to comply with government regulations.**

Our quarry and manufacturing operations are  subject to substantial regulation under federal, state and foreign  governmental statutes and by federal, state and foreign governmental agencies,  including the federal Occupational Safety and Health Act, the Mine Safety and  Health Administration and similar state and Canadian authorities. Our  operations are also subject to extensive laws and regulations administered by  the United States Environmental Protection Agency and similar state and  Canadian authorities, for the protection of the environment, including but not  limited to those relating to air and water quality, and solid and hazardous  waste handling and disposal. These laws and regulations may require parties to  fund remedial action or to pay damages regardless of fault. Environmental laws  and regulations may also impose liability with respect to divested or  terminated operations even if the operations were divested or terminated many  years ago. 

12

 
In addition, current and future      environmental or occupational health and safety laws, regulations or      regulatory interpretations may require significant expenditures for      compliance, which could require us to modify or curtail our operations. We      cannot predict the effect of such laws, regulations or regulatory      interpretations on our business, financial condition or results of      operations. Any material non-compliance could adversely affect our      business and results of operations.  
**Provisions of our  corporate organizational documents and Delaware law could delay or prevent a  change in control of the Company, even if it would be beneficial to our  stockholders.**
 
Certain provisions  contained in our Certificate of Incorporation and By-laws: 
- grant ten votes per share       to each share of Class B Common Stock;  
- divide the Board of Directors       into three classes, each of which will have a different three-year term;    
- provide that stockholders       may remove directors from office only for cause and by a supermajority       vote;
- provide that special       meetings of the stockholders may be called only by the Board of       Directors or certain Company officers and not by stockholders;  
- establish certain advance       notice procedures for nomination of candidates for election as directors       and for stockholder proposals to be considered at annual stockholders'       meetings;  
- authorize the issuance of       preferred stock. Accordingly, the Board of Directors is empowered,       without stockholder approval, to issue preferred stock with dividend,       liquidation, conversion, voting or other rights that could materially       adversely affect the voting power or other rights of, or be dilutive to,       the holders of our Common Stock.

Certain of these provisions  may have the effect of discouraging, delaying or preventing a change in  control or unsolicited acquisition proposals a stockholder may consider  favorable. In addition, because we are incorporated in Delaware, we are  governed by the provisions of Section 203 of the Delaware General Corporation  Law, which may prohibit or delay large stockholders, in particular those  owning 15% or more of our outstanding voting stock, from merging or combining  with us.
 **Our  Financing Requirements May Increase and We Could Have Limited Access to  Capital Markets.** The United States and worldwide capital      and credit markets have recently experienced significant price volatility,      dislocations and liquidity disruptions, which have caused market prices of      many stocks to fluctuate substantially and the spreads on prospective debt      financings to widen considerably. In addition, declining capital ratios of      many lending institutions and the very weak commercial paper market have      adversely impacted various lending institutions including our long-term      lender CIT, which may adversely impact our ability to borrow under our      existing lines of credit. While we believe that our current resources and      access to capital markets are adequate to support operations over the near      term and foreseeable future, we cannot assure you that these circumstances      will remain unchanged. Our need for capital is dependent on operating      results and may be greater than expected. Our ability to maintain our      current sources of debt financing depends on our ability to remain in      compliance with covenants contained in our financing agreements,      including, among other requirements, maintaining a minimum total net worth      and minimum cash flow and debt coverage ratios. If changes in capital      markets restrict the availability of funds or increase the cost of funds,      we may be required to modify, delay or abandon some of our planned      expenditures, which could have a material adverse effect on our business,      financial condition, results of operations and cash flows.  
**ITEM 1B.       UNRESOLVED STAFF COMMENTS -**

**Not      applicable.**

 
**ITEM 2.**

**PROPERTIES**

Rock of Ages owns the  following quarry and manufacturing properties: 

**PROPERTY**

**FUNCTION**

**VERMONT**

** **

Barre

     Quarry  Properties

          E.  L. Smith Quarry

Quarrying of dimensional  Barre Gray granite blocks

          Adam-Pirie  Quarry

Quarrying of dimensional  Barre Gray granite blocks
 
13
      
     Manufacturing  Properties

          Rock  of Ages Manufacturing Plant

Manufacturing of memorials  and precision products

          Press  Roll and Saw Plant

Manufacturing of granite  press rolls and slabbing of granite blocks

Bethel

     Quarry  Property

          Bethel Quarry

Quarrying of dimensional  Bethel White granite blocks

**CANADA**

** **

Stanstead, Quebec 

     Quarry  Property 

          Stanstead  Quarry 

Quarrying of dimensional  Stanstead Gray granite blocks 

    Manufacturing Properties

          Rock  of Ages Manufacturing Plant 

Manufacturing of memorials

          Adru  Manufacturing Plant

Manufacturing of memorials

Guenette, Quebec 

     Quarry  Property 

          Laurentian  Quarry 

Quarrying of dimensional  Laurentian Pink granite blocks 

**PENNSYLVANIA**

** **

St. Peters 

     Quarry  Property 

          American  Black Quarry

Quarrying of dimensional  American Black granite blocks

     Manufacturing  Property 

          Saw  Plant

Slabbing of granite blocks

**NORTH CAROLINA**

** **

Salisbury

     Quarry  Property

          Salisbury Pink Quarry

Quarrying of dimensional  Salisbury Pink granite blocks

Rockwell

     Quarry  Properties

          Gardenia  White Quarry

Quarrying of dimensional  Gardenia White granite blocks

In addition, until January 17, 2008 Rock of  Ages owned or operated approximately 80 retail sales outlets and 4 associated  sand blasting facilities in the states of Iowa, Illinois, Indiana, Minnesota,  Connecticut, Massachusetts, Rhode Island, Nebraska, Pennsylvania, Ohio, South  Dakota, Kentucky, Tennessee, Vermont, West Virginia and Wisconsin. In certain  cases, we leased, under customary lease arrangements, the land or other real  estate associated with these outlets and facilities. On January 17, 2008, we  sold all of our retail operations to PKDM Holdings, Inc. and exited the retail  business entirely.
The following table sets forth certain      information relating to our principal quarry properties. Each of the      quarries listed below: (i) is an open-pit quarry; (ii) contains granite      suitable for extraction as dimension granite for memorial or other use;      (iii) is serviced by electricity provided by local utility companies; and      (iv) has adequate and modern extraction and other equipment. We presently      have no exploration plans. We own each of the quarries listed below. In      the Rockwell quarry, we own part of the land comprising the quarry and we      also lease an additional 14 acres on which we conduct quarry operations      with 7 years remaining on the lease. We also own the Laurentian Pink      quarry in Guenette, Quebec, which produces dark pink memorial grade      granite. As described in Item 1 of this report, we also own a 1/3 interest      in VIKA, Ltd., which owns the Galactic Blue quarry in Zhytomyr, Ukraine.      However, while we consult from time to time on the development of the      quarry, we do not directly or indirectly operate the quarry. The Galactic      Blue quarry is currently under development and currently produces granite      in small commercial quantities. We do not expect the quarry to achieve      significant commercial production quantities in 2009. We do not consider      the Laurentian Pink or Galactic Blue properties to be currently      significant or material to our business.
 

 

14

 

**QUARRY**

**APPROXIMATE  DATE OF  COMMENCEMENT  OF OPERATIONS**

**PRIOR OWNER  (DATE ACQUIRED)**

**MEANS  OF  ACCESS**

**ORIGINAL COST  OF EACH PROPERTY**

**ESTIMATED NET SALEABLE  RECOVERABLE  RESERVES (1)  (CUBIC FEET)**

**ESTIMATED NET SALEABLE  RECOVERABLE  RESERVES  YEARS (2)**

E.L. Smith

1880

E.L. Smith Quarry Co. (1948)

Paved road

     $7,562,676

2,459,534,000

4,916

Adam-Pirie

1880

J.K. Pirie Quarry (1955)

Paved road

     $4,211,363

984,886,000

6,557

Bethel

1900

Woodbury Granite Company,  Inc. (1957)

Dirt road

    $   174,024

76,529,000

271

Stanstead

1920

Brodies Limited and  Stanstead Granite Company (1960)

Paved road

    $   505,453

32,563,000

155

American Black

1973

Pennsylvania Granite Inc.  (1997)

Paved road

     $2,900,000

14,615,000

137

Salisbury

1918

Pennsylvania Granite Inc.  (1997)

Paved road

     $3,886,592

19,344,000

100

Gardenia White*

1995

J. Greg Faith  Thomas E. Ebans, Sr.  David S. Hooker  William L. Comolli (1998)

Dirt road

     $4,633,000

2,602,000

16

Rockwell White*

1993

Rockwell Granite Company  (2005)

Dirt road

     $1,930,000

5,950,000

78

* The Gardenia White and  Rockwell White quarries are side by side, produce the same type of granite  and are being joined together. For operating purposes we report all granite  extracted and sold from the properties as Gardenia White.

(1)

Net saleable recoverable reserves are based  on internal Company estimates, except for the reserves for the E.L. Smith,  Adam-Pirie and Bethel quarries, which are based on independent assessments by  CA Rich Consultants, Inc in 1993; and for the Gardenia White quarry, which  are based on an independent assessment by Geomapping Associates in 1997. The  Rockwell White reserves are based on information contained in a report dated  September 1993 by a geologist employed by The Marlin Group. It is impossible  to know the exact percentage of recoverable reserves that will not be  saleable as a result of natural cracks, seams, color variations, or other  natural defects in the quarry that are not discoverable through random core  drilling samples. Likewise, reductions in recovery rates of saleable stone  can dramatically increase the cost of the saleable stone making the quarry  not commercially viable. Accordingly, these quantities are purely estimates  based on observable surface area size times commercially feasible depths for  quarrying granite, adjusted for historic recovery rates. Thus, the actual  quantities and years of net saleable reserves could vary materially from the  estimates set forth in the table.

(2)

See Note 1 above. Based on internal Company  estimates using historical and current production levels.

The  estimates of saleable reserves are based on historical quarry operations,  workable reserves in the existing quarries and immediately adjacent areas,  current work force sizes and current demand. While quarry operations decrease  the granite deposits, the size of the granite deposits in which our quarries  are located are large and extend well beyond existing working quarry  perimeters. We have historically expanded quarry perimeters or opened other  quarries in the deposit as necessary to utilize reserves and we believe we  have adequate acreage for expansions as and when necessary. Currently, we  have no reason to believe we will deplete our granite reserves more quickly  than is shown in the table, assuming recovery rates and demand remain at  current levels.

Dimension granite is not  considered a valuable mineral or commodity such as gold, nor is it traded on  any commodities exchange. The prices we charge to third parties for granite  blocks depend on characteristics such as color of and costs to quarry each  granite block, as well as market conditions. The price per cubic foot we  currently charge for our granite blocks is generally comparable to other  granite suppliers and typically does not exceed $45.
   
**ITEM 3. **
**LEGAL  PROCEEDINGS**
We are a party to legal  proceedings that arise from time to time in the ordinary course of our  business. While the outcome of these proceedings cannot be predicted with  certainty, we do not expect these matters to have a material adverse effect  on our business or financial condition. 

15

 
We carry insurance with  coverages we believe to be customary in our industry. Although there can be  no assurance that such insurance will be sufficient to protect us against all  contingencies, we believe our insurance protection is reasonable in view of  the nature and scope of our operations.   
**ITEM 4.**

**SUBMISSION OF MATTERS TO A VOTE OF  SECURITY HOLDERS**

No matters were submitted to a vote of Rock  of Ages' security holders, through solicitations of proxies or otherwise,  during the fourth quarter covered by this Annual Report on Form 10-K. 

**PART II**

**ITEM 5. **

** MARKET FOR THE  REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES  OF EQUITY SECURITIES**
   
Our Class A Common Stock is  traded on the Nasdaq Global Market under the symbol "ROAC." There  is currently no established public trading market for the Class B Common  Stock, however, the Class B Common Stock is convertible at any time into  shares of Class A Common Stock. The table below sets forth the range of high  and low per share sales prices for the Class A Common Stock as reported on  the Nasdaq Global Market for the periods indicated. 
         
**2008**

**HIGH**

**LOW**

First  Quarter...............................................................................................................................  

$5.45

$3.98

Second  Quarter.........................................................................................................................  

4.33

3.27

Third  Quarter..............................................................................................................................  

3.36

1.85

Fourth  Quarter............................................................................................................................

3.39

1.29
      
**2007**

**HIGH**

**LOW**

First  Quarter...............................................................................................................................  

$5.70

$4.05

Second  Quarter.........................................................................................................................  

5.23

4.50

Third  Quarter..............................................................................................................................  

8.00

4.95

Fourth  Quarter............................................................................................................................

7.50

4.54
      
As of March 20, 2009, based  upon information provided by our transfer agent, there were 203 record  holders of Class A Common Stock and 26 record holders of Class B Common  Stock, which numbers do not include stockholders who beneficially own shares  held in street name by brokers.
   
Holders of the Common Stock  are entitled to receive such dividends as may be legally declared by the  Board of Directors and, in the event of dissolution and liquidation, to  receive the net assets of Rock of Ages remaining after payment of all  liabilities, in proportion to their respective holdings. No dividends were  paid in 2008 or 2007. In October 2007, we renewed our credit facility with  our lenders, which, in relevant part, prohibits the Company from paying  dividends without their prior consent. 
   
**RECENT SALES OF  UNREGISTERED SECURITIES**

We made no sales of  unregistered securities during fiscal 2008.
   
**ISSUER PURCHASES OF  EQUITY SECURITIES**

Neither we nor our  affiliates made any purchases of the Company's equity securities during  fiscal 2008.
   **ITEM 6.****SELECTED FINANCIAL DATA**Not applicable.   
**ITEM 7. **

**MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**
The following discussion  should be read in conjunction with the Consolidated Financial Statements,  including the related Notes, contained elsewhere in this document.
16

 

**General**

Rock of Ages is an  integrated quarrier and manufacturer of granite and products manufactured  from granite. Until January 17, 2008, we were also engaged in the retail sale  of memorials. On January 17, 2008, we sold all of our retail operations and  exited the retail business entirely. The retail division was classified as  discontinued operations as of December 31, 2007. Accordingly, during 2008, we had two business segments:  quarry and manufacturing. The quarry division  sells granite blocks to the manufacturing division and to outside  manufacturers, as well as to customers outside North America. The  manufacturing division's principal product is granite memorials and  mausoleums used primarily in cemeteries, although it also manufactures some  specialized granite products for industrial applications. The retail division  primarily sold granite memorials directly to consumers. 

In 2008, revenue from our  quarry division was flat at $29 million and divisional operating income decreased  to $1.2 million compared to $3.3 million in 2007.  The decrease in divisional  operating income is solely due to the $3.9 million inventory write-down taken  in the fourth quarter of 2008 in our export quarries of Bethel, Salisbury and Gardenia. (See the discussion of the inventory write-down in this Item 7 at  "*Results of Operations - Year Ended December 31, 2008 Compared to  Year Ended December 31, 2007 - Quarry Segment Analysis* for a more  complete discussion of the reasons for the inventory write-down). Excluding  the effect of the inventory write-down, quarry divisional income would have  been $5.1 million, a 52% increase from the prior year.

During 2008, demand for our  granites in export markets continued to rebound from the sharp decline we  suffered in 2005, however, domestic demand for our Barre Gray granite  continues to decline slowly.  Following is a brief analysis of each of the  individual quarries.
- We continue to see a       slight decline in sales of Barre Gray granite which is mainly used for       memorials. Due to cost cutting measures and production improvements, the       gross margin percentage improved 4.1 percentage points, even though       sales were down 4.4% from 2007 levels yielding higher gross margin       dollars of $244,000 or a 7.2% increase over 2007. We believe that       imported granites, which generally are less expensive, are being       substituted in the lower end of the memorials market and the color       choices among granites in the memorial market has reduced the share of       gray granite as a percentage of the market.
- The Bethel quarry had a       good year with a 7.7% increase in sales. Due to the inventory write-down       the gross profit was $2.5 million or an 11% decrease from the prior       year. Excluding the inventory write-down the quarry had an 18.9% or       $539,000 increase in gross margin dollars. Bethel White is popular for       building purposes and demand for this granite is still strong with our       international customers.
- The Salisbury Pink quarry       in North Carolina saw a 12.4% decline in net sales to $4.0 million and prior       to the inventory write-down a $108,000 decline in gross profit to       $529,000. After the inventory write-down this quarry had a gross loss of       $1.9 million. We continue to implement a number of measures in the       Salisbury Pink quarry to increase productivity and reduce costs per       cubic foot. We expect to see more of the benefit of these actions in       2009. This granite is also mainly used for building purposes.  
- Our Gardenia and Rockwell       White quarries had another difficult year as they continued to struggle       with production recovery issues and continued to have negative gross       margins, although due to aggressive cost cutting measures and production       improvements the cost per cubic foot decreased $1.67 or 5.7% in 2008       from the year before.  
- The Pennsylvania Black       quarry net revenue was up $386,000 or 14.5% from 2007 and ended with a       positive gross profit for the year for the first time in a number of       years. We implemented changes in management and production methods in       2007 and 2008 and we saw improvements in both recovery and costs per       cubic foot.  
- Net sales from our       Canadian quarries decreased by 19.2% or $479,000 from 2007. The loss of       a large customer during 2008 accounted for most of the decrease in       sales. Gross profit was down $150,000 or 23.9% because with the lower       level of sales, fixed costs impacted our cost per cubic foot to a       greater extent and we incurred more costs as we moved to a better area       in the quarry. We are in a good position to decrease costs in 2009.  
- Revenue and gross margin       were both up in the Galactic Blue quarry in the Ukraine. The Galactic Blue quarry is owned by VIKA Ltd in the Ukraine, in which we own a one third       interest. In addition, we have exclusive distribution rights to the       Galactic Blue granite. This granite continues to generate interest and       orders; however, production is still poor as VIKA continues to develop   and open the quarry.

VIKA experienced continuing  operational difficulties in 2008. As of December 31, 2007 the Company had  determined that its investment in VIKA of $386,000 had experienced an  impairment in value that was other than temporary. Based on that assessment,  the Company also concluded that its advances to VIKA should be fully reserved  as of December 31, 2007. Accordingly, a charge of $1,361,000 was recognized  in the fourth quarter of 2007 and is separately presented in the accompanying  statement of operations for the year ended December 31, 2007. 
   We will continue to  aggressively market our granite blocks in the U.S. and abroad and make productivity  improvements to control costs and recovery rates. We believe that most of the  productivity challenges we encountered in 2008 have been addressed as we move  into 2009. 
17

 

The manufacturing division's  2008 net revenue increased by $930,000 compared to 2007. However, in 2007,  sales to our retail division were excluded from net revenue, whereas 2008 net  revenue includes approximately $2.5 million in sales to the previously owned  retail locations. If sales to our retail division were included in net  revenue for 2007, then net revenue in 2008 would have decreased by $1.6  million. In 2008, Mausoleum sales decreased by $3 million; other monumental  sales increased by $1 million and sales of industrial products increased by $400,000  in 2008 compared to 2007. Gross margins decreased in 2008 due to the  decreased sales of the higher margin mausoleums. SG&A remained relatively  flat. Demand for memorials remains steady but mausoleum sales were  significantly affected by the continued downturn in the economy. Our backlog  at December 31, 2008 is down $2.4 million from year-end 2007 and the decrease  in the mausoleum backlog is $2.2 million of the decrease. We will continue to  pursue a strategy of focusing on the mausoleum and large features market  where our product is superior and margins are generally higher, as well as  increasing our efforts to expand our wholesale distribution system to the  cemetery, funeral home and traditional memorial retailers to grow our  traditional monument business.  

As of December 31, 2007 the retail division was classified as a discontinued operation. The $5.2 million  loss from discontinued operations in 2007 includes a $5.9 million impairment  charge to write the book value of the division to fair value and $700,000 in  income from operations, which is net of $670,000 of interest expense  allocated to the discontinued operations. Also see note 15 of the Notes to  Consolidated Financial Statements included in this report.

**Critical  Accounting Policies**

General

Management's Discussion and  Analysis of Financial Condition and Results of Operations is based upon our  Consolidated Financial Statements, which have been prepared in accordance  with accounting principles generally accepted in the United States of America  (U.S. GAAP). The preparation of these financial statements requires  management to make estimates and assumptions that affect the reported amounts  of assets, liabilities, revenue and expenses, and related disclosure of  contingent assets and liabilities. Management bases its estimates on  historical experience and on various other assumptions that are believed to  be reasonable under the circumstances. Management has discussed the  development, selection and disclosure of these estimates with the Audit  Committee and our independent auditor. Actual results may differ from these  estimates.

An accounting policy is  deemed to be critical if it requires an accounting estimate to be made based  on assumptions about matters that are highly uncertain at the time the  estimate is made, and if different estimates that reasonably could have been  used, or changes in the accounting estimates that are reasonably likely to  occur periodically, could materially impact the financial statements. 

Our critical accounting  policies are as follows:  revenue recognition, impairment of long-lived  assets and long-term investments, valuation of deferred tax assets,  accounting for pensions and other post-employment benefits and excess  inventory. 

Revenue  Recognition

*Quarry  Division*

The granite we quarry is sold both to  outside customers and used by our manufacturing group. Our quarry division  recognizes revenue from sales of granite blocks to outside customers when the  granite is shipped and invoiced from the quarry, except for cases noted below.  We generally provide a 5% discount for domestic customers if payment is made  within 30 days of purchase, except in the case of December terms described  below. Sales to foreign customers are typically secured by a letter of  credit.

At our Barre, Vermont quarries, we allow  customers to purchase granite blocks and at their request we store the blocks  for them. Many of our customers do not have adequate storage space at their  facilities and want to ensure an adequate supply of blocks, especially when the  Barre quarries are closed from mid-December through March because of weather.  Our quarry division recognizes revenue in accordance with Staff Accounting  Bulletin No. 104, Revenue Recognition ("SAB 104"). Blocks are sold when:  the customer selects and identifies the block at the quarry site, requests the  block be stored and they have significant business reasons to do so. At that  time, the block is removed from our inventory, the customer's name is printed  on the block, and title and risk of loss pass to the buyer. The customer is  invoiced and normal payment terms apply, except in the case of December terms  described below. Granite 
   blocks owned by customers remain on our property for varying  periods of time after title passes to the buyer. We retain a delivery  obligation using our trucks. However, we consider the earnings process  substantially complete because the cost of 
18
delivery service is inconsequential (less than 3%) in relation  to the price. Further, under industry terms of trade, title passes and the  payment obligation is established when the block is identified at the quarry.   
Each December, we offer  special payment terms to our Barre quarries' customers. As noted above, from  approximately mid-December to approximately March, our Barre quarries are closed  due to weather. During this time, manufacturing plants remain open and many  customers prefer to ensure they own blocks of a size and quality selected by  them prior to the quarries' closure. All blocks purchased in December are  invoiced on or about December 31 and, at that time, the blocks are removed  from inventory, the customer's name is printed on the blocks, and title and  risk of loss pass to the buyer. Payment terms are one-third of the invoice  amount on January 15, one-third on February 15, and one-third on March 15.  The program provides essentially the normal 30-day payment terms during the  months when the Barre quarries are closed notwithstanding the customer  purchases a three-month supply in December and makes payments over 90 days.  Customers need not use these special December terms and may buy from  inventory during the closure period on a first-come, first-served basis with  the normal 30-day payment terms.

*Manufacturing Division*

We record revenue 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 our facilities or set in the cemetery, if we are responsible for  the setting, which is when risk of ownership transfers, assuming the other  criteria for revenue recognition (persuasive evidence of an arrangement  exists and collectibility is reasonably assured) have been met. Revenues  related to finished products transferred internally to our owned retail  outlets were recorded as revenue by the retail division when ultimately sold  to an outside customer.
   
Impairment of long-lived  assets 

Our long-lived assets  consist primarily of property and equipment. Long-lived assets are reviewed  for impairment whenever events or changes in circumstances indicate the  carrying amount of such an asset may not be recoverable in accordance with  the provisions of Statement of Financial Accounting Standards (SFAS) No. 144,  "Accounting for the Impairment of Long-Lived Assets", ("SFAS  No. 144"). Such events or circumstances include, but are not limited to,  a significant decrease in the fair value of the underlying business or change  in utilization of property and equipment.
   
Recoverability of the  undepreciated cost of property and equipment is measured by comparison of the  carrying amount to estimated future undiscounted net cash flows the assets  are expected to generate. Those cash flows include an estimated terminal value  based on a hypothetical sale at the end of the assets' depreciation period.  Estimating these cash flows and terminal values requires management to make  judgments about the growth in demand for our products, sustainability of  gross margins, and our ability to achieve economies of scale. If assets are  considered to be impaired, the impairment to be recognized is measured as the  amount by which the carrying amount of the long-lived asset exceeds its fair  value.

Valuation of deferred  tax assets

In assessing the  realizability of deferred tax assets, management considers whether it is more  likely than not some portion or all of the current and deferred tax assets  will not be realized. The ultimate realization of current and deferred tax  assets depends upon the generation of future taxable income during the  periods in which those temporary differences become deductible. Management  considers the scheduled reversal of deferred tax liabilities, projected  future taxable income and tax planning strategies in making this assessment.  This assessment is made each reporting period. At the end of the second  quarter of 2005, based on the level of taxable income and projections for  future taxable income, the Company believed it was no longer more likely than  not that it would generate the required taxable income to fully realize the  benefit of the net U.S. deferred tax assets.  Therefore, we adjusted our  valuation allowance against the deferred tax assets by recording a tax  expense of $9.2 million in the second quarter of 2005 to fully reserve for  the entire net U.S. deferred tax asset.  At the end of each of the subsequent  periods we reached a similar conclusion, therefore we have continued to fully  reserve for the entire net U.S. deferred tax asset. We will continue to  assess the valuation allowance on a regular basis and may reduce the  valuation allowance when the Company has taxable income from its U.S. operations in the future.  
   
Accounting for pensions  and other post-employment benefits
We provide defined benefit pension and other post-employment  benefit plans for certain employees. Accounting for these plans requires the  use of actuarial assumptions including estimates on the expected long-term  rate of return on assets, discount rates and, to a lesser extent, the rate of  increase in health care costs (due to the small number of individuals  receiving this benefit). The expected long-term rate of return has remained  the same at 8% and reflects the average rate of earnings expected on the funds  invested or to be invested to provide for the benefits included in the  projected benefit
19

 
obligation. In 2008, we kept the discount rate used to determine  our liability in the pension plans at 6.3%, the same discount rate used at  December 31, 2007. In both years this rate was determined on a bond matching model  which uses data on individual high-quality corporate bonds and the timing and  amount of the future benefit payments in our plan to develop a weighted  discount rate specific to our plan. On January 5, 2009, the Company's Board of  Directors approved actions to proceed with amendments to its defined benefit  pension plan by freezing membership and future benefits in the plan. This  action is effective as of March 31, 2009. In order to make informed  assumptions, we rely on outside actuarial experts as well as public market  data and general economic information. Any changes in one or more of these  assumptions may materially affect certain amounts reported on our balance  sheet. In particular, a decrease in the expected long-term rate of return on  plan assets or a decrease in discount rate could result in an increase in our  pension liability and a charge to equity as well as increases in pension  expenses over time. 
Inventory

Inventories are valued at  the lower of cost or market. Cost is determined using the specific annual  average cost method for the quarry segment and the specific cost method for  the manufacturing segment. Inventory is reviewed regularly for excess  inventory based on an estimated forecast of product demand. Inventories that  are in excess of future requirements are written down to their estimated  value based upon projected demand. Demand for our products can be forecasted  based on current orders, age of the inventory and discussions with customers.  Although management makes every effort to ensure the accuracy of its  forecasts of future product demand, any significant unanticipated changes in  demand could have an impact on the level of excess material in our  inventories and operating results could be affected accordingly.
   **Results of Operations**The following table sets  forth certain historical statement of operations data as a percentage of net  revenues with the exception of quarry and manufacturing gross profit and  SG&A, which are shown as a percentage of their respective divisions'  revenues.
 **YEAR ENDED  DECEMBER 31,**

**2008**

**2007**

**STATEMENT OF OPERATIONS  DATA:**

** **

** **

** **

** **

Net revenues:

     Quarry

51.3%

52.7%

     Manufacturing

48.7%

47.3%

          Total  net revenues

100.0%

100.0%

Cost of goods sold:

     Quarry

74.4%

78.1%

     Quarry inventory write-down

13.7%

-

     Manufacturing

72.5%

68.7%

          Total  cost of goods sold

80.5%

73.7%

Gross profit:

** **

** **

     Quarry

11.9%

21.9%

     Manufacturing

27.5%

31.3%

          Total  gross profit

19.5%

26.3%

Selling, general and  administrative expenses:

     Quarry

7.9%

10.5%

     Manufacturing

27.5%

16.1%

     Corporate overhead

6.5%

9.3%

    Impairment of long  lived asset

2.4%

-

     Impairment of  investment and advances

-

2.5%

     Insurance recovery -  quarry asset

-

(0.4%

)

     Foreign exchange loss

0.0%

0.2%

     Other income, net

(0.8%

)

(0.3%

)

          Total  SG&A expenses

20.0%

24.4%

 

20

 

 

Income (loss) from  continuing operations

(0.5%

)

1.9%

Interest expense

(2.4%

)

(3.3%

 )

Loss from continuing  operations before income taxes

         (2.9%

)

(1.4%

)

Provision for income taxes

0.7%

1.0%

Loss from continuing  operations

(3.6%

)

(2.4%

)

Discontinued operations

(0.3%

)

(9.4%

)

Net loss

(3.9%

)

(11.8%

)

 

**Year Ended December  31, 2008 Compared To Year Ended December 31, 2007**

On a consolidated basis for  all segments for the year ended December 31, 2008 compared to the year ended  December 31, 2007, revenue increased slightly, gross profit decreased due to  the inventory write-down and total selling, general and administrative  ("SG&A") expenses decreased 19% for reasons discussed in detail  in the segment analysis below.

Quarry Segment Analysis

Revenues in our quarry  operations for the year ended December 31, 2008 decreased 2% from 2007.  Shipments in 2008 were higher than 2007 in our Bethel, Pennsylvania and  Galactic Blue quarries. All of the other quarries saw decreases from 4% to  20%. See the discussion in this Item 7 *-**Management Discussion and  Analysis of Financial Condition and Results of Operations -* "General" for  a detailed discussion of each quarry. 

Gross profit decreased $3.7  million solely due to the $3.9 million inventory write-down taken in the  fourth quarter of 2008 in our export quarries of Bethel, Salisbury and  Gardenia. With the rapid increase in freight costs and changing economic  conditions, we have seen a change in what our export customers will accept  for inventory. In the past, a second grade or "B" block would be accepted if  the price was right and the customer felt it would be worthwhile to take the  block and try to trim off the imperfections. Now that the shipping costs can  be up to 50% of the price of the block, fewer customers are willing to purchase  "B" blocks and therefore we are selling fewer of them. We reevaluated the "B"  block inventory and removed any blocks that we believe export customers would  not buy. This resulted in a non-cash charge of $3.9 million taken in the  fourth quarter of 2008. 

SG&A expenses in our  quarry segment for 2008 decreased 26% or $795,000 from 2007 primarily due to a  $300,000 decrease in administrative and sales salaries and benefits, a  $170,000 decrease in administrative office expenses due to the move from our  former corporate headquarters, gain on the sale of non-productive quarry  assets of $200,000 and $125,000 in decreased travel and related expenses.  
   
Manufacturing Segment  Analysis

The manufacturing division's  2008 net revenue increased by $930,000 compared to 2007. However, in 2007,  sales to our retail division were excluded from net revenue, whereas 2008 net  revenue includes approximately $2.5 million in sales to the previously owned  retail locations. If sales to our retail division were included in net  revenue for 2007, then net revenue in 2008 would have decreased by $1.6  million. In 2008, mausoleum sales decreased by $3 million; other monumental  sales increased by $1 million and sales of industrial products increased by  $400,000 in 2008 compared to 2007. 

Gross profit dollars from  the manufacturing group decreased 9% or $749,000 and gross profit as a  percentage of revenue decreased 4 percentage points for the year ended  December 31, 2008 compared to 2007. The decrease in gross profit margin is  due to the decreased sales of higher margin mausoleums.  Demand for memorials  remains steady but mausoleum sales were significantly affected by the  continued downturn in the economy.

SG&A expenses for the  manufacturing group were up $169,000 or 4% from the prior year primarily as a  result of increased sales salaries, benefits and related expenses and bad  debt expense offset by a decrease in commissions due to the decrease in  mausoleum sales.  
   
Consolidated Items

 

21

 

Unallocated corporate  overhead decreased 30%, or $1.5 million from the prior year. We consolidated  our corporate headquarters in the manufacturing plant's existing  administrative offices and decreased staff in conjunction with this move and  the sale of the retail division.  The majority of this decrease can be  attributed to decreased salary and benefit costs  of $900,000; no Canadian withholding tax of $150,000 in 2008; decreased  professional service fees of $200,000;  decreased office supplies, postage, telephone, vehicles and related  expenses due to decreased staff of $200,000 and decreased investor relations  costs of $50,000. 
   
Due to the consolidation of  our corporate headquarters in the manufacturing plant's existing offices, the  Company had a change in the use of its corporate headquarters building  located at 772 Graniteville Road, which we concluded to be a triggering event  under SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived  Assets" ("SFAS No. 144").  We determined that the forecasted  undiscounted cash flows related to the building and land was less than its  carrying value. As a result, we recorded an impairment charge of   $1,348,000 to reduce the carrying value of the building and land to its  estimated fair value.  The estimated fair value was  based on a discounted cash flow analysis and included consultation with an outside professional  real estate appraiser.  No assurance can be given that the underlying  estimates and assumptions utilized in our determination of an asset's new  carrying value will materialize as anticipated.  At December 31, 2008,  management had not made the decision to sell this building and continued to  classify it as part of property, plant and equipment.
   
In 2007 a charge of  $1,361,000 was recognized in the fourth quarter due to our investment in VIKA  experiencing an impairment in value that was other than temporary and fully  reserving for advances to VIKA.

Late in 2005, an incident  with a derrick in our Barre quarry resulted in significant damage to the  derrick. We have received insurance recoveries totaling $312,000 that  restored the derrick to usefulness. These payments have been recognized in  the period they were received and $212,000 was received in 2007.

Foreign exchange gains in 2008  were $27,000 compared to a loss in 2007 of $120,000 resulting from the effect  of the fluctuating value of the US dollar compared to the Canadian dollar on  transactions that are originated in US dollars in our Canadian operations.

Total interest expense was  approximately $1.4 million in 2008 as compared to $2.5 million in 2007. Total  interest expense in 2007 is made up of $1.8 million in continuing operations  and $674,000 in discontinued operations. Total interest expense decreased  $1.1 million or 45% from 2007 primarily as a result of the decrease in debt as  well as lower interest rates in 2008. Interest expense from continuing  operations decreased 26% from $1.8 million to $1.4 million in 2008. 

The income tax expense for  2008 was $395,000 compared with $536,000 for 2007. The tax expense in both  years reflects taxes at our Canadian subsidiary. At the end of the second  quarter of 2005, based on the level of taxable income and projections for  future taxable income, the Company determined it was no longer more likely  than not that it would generate the required taxable income to fully realize  the benefit of the net U.S. deferred tax asset. This resulted in a charge to  tax expense of $9.2 million in the second quarter of 2005. This action did  not affect the cash taxes paid by the Company. In each subsequent quarter  since then, we have reached a similar conclusion, therefore we have continued  to fully reserve for the entire net U.S. deferred tax asset. We will continue  to assess the valuation allowance on a regular basis and may reduce the  valuation allowance when the Company has taxable income from U.S. operations in the future.   
We had a loss from  discontinued operations of $142,000 in 2008 compared to $5.2 million in 2007.  The 2008 loss is made up of $119,000 of operating losses and $23,000 of allocated  interest. The 2007 loss is made up of income from the discontinued retail  operations of $1,358,000; an impairment charge to write down the retail  division to its fair market value of $5.9 million and interest expense  allocated to discontinued operations of $674,000. 
 

**Liquidity and Capital  Resources**

* *

In light of the current economic situation, we have also  evaluated our future liquidity needs, both from a short-term and long-term  (>1year) basis. We believe that cash on hand plus cash generated from  operations along with cash available under credit lines are expected to be  sufficient in 2009 to service debt, finance capital expenditures, fund  operations and fund the pension plan, if necessary. To provide for long-term  liquidity, we believe we can generate substantial positive cash flow, as well  as obtain additional capital, if necessary, from the use of subordinated debt  or equity. In the event that our  current capital resources are not sufficient to fund requirements, we believe  our access to additional capital resources would be sufficient to meet our  needs, although the financing terms available could be significantly  different than our current terms.

22
 
Historically, we have met  our short-term liquidity requirements primarily from cash generated by  operating activities and periodic borrowings under the commercial credit  facilities described below. Our credit facility with our Lenders was renewed  on October 27, 2007 for a term of five years.

In January 2008, we  received $7.6 million in net proceeds from the sale of the retail division.  We applied $4.5 million of these proceeds to the long-term debt and $3.1  million to the revolving credit facility.

Due to the recent  significant worldwide decline in equity prices and the value of other financial  investments, the fair value of the assets held by our defined benefit pension  plan decreased by $5.4 million in 2008. As a result, the plan is  significantly under-funded. We have historically contributed between $750,000  and $1.0 million per year to the plan. We contributed $750,000 in 2008 and  expect to contribute $390,000 for 2009 contributions. Due to the large  decrease in our funded status we may be required to contribute an additional amount  of between $2.8 million and $4.3 million, depending on the value of the plan  assets as of the end of 2009. In August 2006, the Pension Protection Act  was signed into law. Among other things, the Act is  aimed at strengthening pension plans by requiring most pension plans to  become fully funded over a seven-year period. The Worker, Retiree, and  Employer Recovery Act of 2008 (H.R. 7327) was signed into law in late  December 2008. The Company is studying the impact of this legislation on the  funding requirements of the Act.  We will continue  the process of funding the unfunded liability which, we believe, we  will be able to fund either from cash from operations or borrowing under our  credit facilities. See Item 1A, Risk Factors and note 9 of the Notes to  Consolidated Financial Statements.

Our primary need for  capital will be to maintain and improve our quarrying and manufacturing  facilities. We have approximately $2.1 million budgeted for capital  expenditures in 2009. 

Cash Flow 

At December 31, 2008, we  had cash and cash equivalents of approximately $888,000 and working capital  of approximately $21 million, compared to approximately $2.0 million of cash  and cash equivalents and working capital of approximately $23.6 million at  December 31, 2007. The decrease in working capital is mainly due to the  decrease in inventory of $4.8 million, of which $3.9 million was related to  the non-cash impairment charge. This decrease was offset by a $1.7 million  increase in accounts receivable due to very late in the year quarry sales.  The decrease in current assets was offset by an $8.2 million decrease in  current borrowings, which is made up of $7.6 million from the proceeds of the  sale of the retail division plus an additional $600,000 from operations.

*Cash from Operations.*Net cash provided by operating activities was $2.3  million in 2008 compared to**$3.6 million in 2007. The $2.2 million net  loss in 2008 is adjusted by the non-cash impairment charges of $5.3 million  and depreciation of $2.4 million and offset by a large increase in accounts  receivable along with decreases in accounts payable, customer deposits and  pension liabilities. The $6.6 million 2007 net loss is adjusted by the  non-cash impairment charge on the write-down of the retail division of $5.9  million and the impairment charge on our VIKA related assets of $1.4 million  and depreciation of $3.7 million. This was offset by a $1.2 million increase  in inventory coupled with decreases in accounts payable and accruals of $900,000.

*Cash from Investing  Activities.* Cash flows provided by  investing activities were $4.9 million in 2008 compared to cash flows used in  investing activities of $1.2 million in 2007. In 2008 our capital spending  was $3.1 million compared to $1.3 million in 2007. In 2008, proceeds from the  sale of the retail division totaled $7.7 million and proceeds from sales of  property, plant and equipment totaled $473,000 compared to $114,000 in 2007.  

* *

*Cash from Financing  Activities*. Financing activities  used $8.0 million in 2008 compared to $4.4 million in 2007. In 2008 our line  of credit was reduced by $3.1 million and $5.0 million was paid on our  long-term debt.  This compares to a $2.7 million decrease under our line of  credit and $1.6 million paid on our long-term debt in 2007. In 2007 we also  had $100,000 in cash provided from employees exercising stock options which  was offset by increased debt issuance costs of $161,000 associated with the  renewal of our credit facility.

* *

*Cash Flow from  Discontinued Operations.* The cash  flow from discontinued operations are included in the cash flow from continuing  operations in the Consolidated Statements of Cash Flows. If stated  separately, the net cash flow from discontinued operations was an increase of  $77,000 made up of $2,932,000 provided by operations, $43,000 provided by  investing activities and $2,898,000 used in financing activities in 2007. The  absence of cash flows due to discontinued operations is not expected to significantly  affect the Company's future liquidity or capital resources.

 

23

 

Credit Facility

We have a credit facility  with the CIT Group/Business Credit and Chittenden Trust Company  ("Lenders") that is scheduled to expire in October 2012 and is  secured by substantially all assets of the Company located in the United States. The facility consists of an acquisition term loan line of credit of up to  $30.0 million and a revolving credit facility of up to another $20.0 million  based on eligible accounts receivable, inventory and certain fixed assets.  Amounts outstanding were $7,428,085 and $14,106,939 as of December 31, 2008  and $10,478,260 and $19,021,439 as of December 31, 2007, on the revolving  credit facility and the term loan line of credit, respectively.  Unused availability  under the revolving credit facility was $10,501,457 as of December 31, 2008.   The weighted average interest rate was 4.7% and 7.6% on the revolving credit  facility in 2008 and 2007, respectively. The credit facility loan agreement  places restrictions on our ability to, among other things, sell assets,  participate in mergers, incur debt, pay dividends, make capital expenditures,  repurchase stock and make investments or guarantees, without pre-approval by  the Lenders.  The credit facility agreement also contains certain covenants  for a Minimum Fixed Charge Coverage Ratio and a limit on the Total  Liabilities to Net Worth Ratio of the Company.

  * *

*Minimum Fixed Charge  Coverage Ratio*. The facility  requires the ratio of the sum of earnings before interest, taxes,  depreciation and amortization (EBITDA), to the sum of income taxes paid,  capital expenditures, interest and scheduled debt repayments be at least 1.00  for any trailing twelve-month period at the end of a quarter through December  31, 2008 and 1.10 beginning with the first quarter of 2009. Primarily as a  result of operating losses in 2006 and first quarter 2007, we were in  violation of this covenant in the first quarter of 2007 and received a waiver  of this covenant from the Lenders. Due to the non-cash impairment charges on  the write-down of inventory and the corporate building we were in violation of  the covenant at December 31, 2008. We received a waiver of this covenant from  the Lenders and amended the agreement. As a result of the amendment the unused  line fee went from .25% to .50% and the existing interest rate pricing grid  was changed as follows:

**Revolving Credit Facility**

**Term Loan**

Previous Rate Formula

Prime or Libor +2%  

Prime + .25% or Libor +2.25%

Amended Rate Formula

Prime + 3% or Libor + 4%

Prime + 3.5% or Libor + 4.5%

*Total Liabilities to Net  Worth Ratio.* Our credit facility  also requires that the ratio of our total liabilities to net worth (the  "Leverage Ratio") not exceed 2.0. The Leverage Ratio excludes from  the calculation the change in tangible net worth directly resulting from the  Company's compliance with SFAS No. 158 of up to $6.0 million. In relevant  part, SFAS No. 158 required us to place on our books certain unrecognized and  unfunded retirement liabilities as of December 31, 2006. As of December 31, 2008, we were in compliance with the Leverage Ratio covenant.

*Interest Rates.* We have a multi-tiered interest rate structure on  our outstanding debt with the Lenders. We can elect the interest rate  structure under the credit facility based on the prime rate or LIBOR for both  the revolving credit facility and the term loan. The incremental rate above  or below prime and above LIBOR is based on our Funded Debt to Net Worth  Ratio. Based on this ratio, our current rates are 25 basis points higher than  the lowest incremental rates currently available to us.
   
The rates in effect as of  December 31, 2008 were as follows:

**AmountOutstanding**

** **

**Formula**

** **

**Effective Rate**

Revolving Credit Facility

$

7.4 million

Prime  

3.25%

Term Loan A

14.1 million

Prime + .25 pts.

3.50%
   
*Canadian Credit Facility*

The Company's Canadian  subsidiary has a line of credit agreement with the Royal Bank of Canada that is renewable annually. Under the terms of this agreement, a maximum of $4.0  million CDN may be advanced based on eligible accounts receivable, eligible  inventory, and tangible fixed assets.  The line of credit bears interest at  the U.S. prime rate. There was -0- and $20,000 CDN outstanding as of  December 31, 2008 and 2007, respectively.

**Off-Balance Sheet  Arrangements**

With the exception of our  operating leases, we do not have any off-balance sheet arrangements, and we  do not have, nor do we engage in, transactions with any special purpose  entities.
   
24

**Seasonality**

Historically, the Company's  operations have experienced certain seasonal patterns. Generally, our net  sales have been highest in the second or third quarter and lowest in the  first quarter of each year due primarily to weather. Cemeteries in northern  areas generally do not accept granite memorials during winter months when the  ground is frozen because they cannot be properly set under those conditions.  In addition, we typically close certain of our Vermont and Canadian quarries  during these months because of increased operating costs attributable to  adverse weather conditions. As a result, we have historically incurred a net  loss during the first three months of each calendar year.

**Recent Accounting  Pronouncements**

In February 2008, the FASB issued FASB  Staff Position No. 157-2, "Effective Date of FASB Statement No. 157", ("FSP  157-2") that amended SFAS 157 to delay the effective date for all  non-financial assets and non-financial liabilities, except those that are  recognized or disclosed at fair value in the financial statements on a  recurring basis (that is, at least annually). FSP 157-2 defers the effective  date of SFAS 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for items within the scope. We are currently  evaluating the effect, if any, that the adoption of FSP 157-2 may have on our  financial statements.

In February 2007, the FASB issued SFAS No.  159 "The Fair Value Option for Financial Assets and Financial  Liabilities-Including an amendment of FASB Statement No. 115",  ("SFAS No. 159"). This Statement permits  entities to choose to measure many financial assets and financial liabilities  at fair value that are not currently required to be measured at fair value.  Entities that elect the fair value option will report unrealized gains and  losses in earnings at each subsequent reporting date. SFAS No. 159 amends  previous guidance to extend the use of the fair value option to  available-for-sale and held-to-maturity securities. This statement is  effective for fiscal years beginning after November 15, 2007. The adoption of SFAS No. 159 had no effect on our financial statements.

In December  2007, the FASB issued SFAS No. 141 (Revised 2007), "Business Combinations",  ("SFAS No. 141(R)"). This Statement improves the relevance, representational  faithfulness, and comparability of the information that a reporting entity  provides in its financial reports about a business combination and its  effects. It establishes principles and requirements for how the acquirer  recognizes and measures in its financial statements the identifiable assets  acquired, the liabilities assumed, and any non-controlling interest in the  acquiree; recognizes and measures the goodwill acquired in the business  combination or a gain from a bargain purchase and determines what information  to disclose to enable users of the financial statements to evaluate the  nature and financial effects of the business combination. This statement is  effective for fiscal years beginning after December 15, 2008. SFAS No. 141(R) will have an impact on accounting for  business combinations once adopted, but the effect is dependent on  acquisitions subsequent to that time.

In December 2007 the FASB  issued SFAS No. 160, "Non-controlling Interests in Consolidated Financial  Statements - an amendment of ARB No. 51". ("SFAS No. 160"). This Statement improves the relevance,  comparability, and transparency of the financial information that a reporting  entity provides in its consolidated financial statements by establishing  accounting and reporting standards that require the  ownership interests in subsidiaries held by parties other than the parent be  clearly identified, labeled, and presented in the consolidated statement of  financial position within equity; the amount of consolidated net income  attributable to the parent and to the non-controlling interest be clearly identified  and presented on the face of the consolidated statement of income; changes in  a parent's ownership interest while the parent retains its controlling  financial interest in its subsidiary be accounted for consistently as equity  transactions and establishes a single method of accounting for changes  in a parent's ownership interest in a subsidiary that do not result in  deconsolidation. This statement is effective for  fiscal years beginning after December 15, 2008. We are currently  evaluating the effect, if any, that the adoption of SFAS No. 160 may have on  our financial statements.

In March 2008, the FASB  issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging  Activities - an amendment of FASB No. 133". ("SFAS No. 161"). This statement  amends SFAS No. 133 by requiring enhanced disclosures about an  entity's derivative instruments and hedging activities, but does not change  SFAS No. 133's scope or accounting. SFAS No. 161 requires  increased qualitative, quantitative and credit-risk disclosures about the  entity's derivative instruments and hedging activities. SFAS 161 is  effective for fiscal years, and interim periods within those fiscal years,  beginning after November 15, 2008, with earlier adoption permitted. We  do not expect the adoption of this standard to have an effect on our  financial position or results of operations.

In April 2008, the FASB  issued FASB Staff Position 142-3,*Determination of the Useful Life of  Intangible Assets* ("FSP FAS 142-3"), which amends the factors to be  considered in renewal or extension assumptions used to determine the useful  life of a recognized intangible asset.  FSP FAS 142-3 is effective  for interim periods and fiscal years beginning after December 15,  2008.  The Company will adopt FSP FAS 142-3 effective January 1,  2009.  The Company is currently assessing the impact of FSP FAS  142-3 on its financial statements.

25

In December 2008, the  FASB issued FASB Staff Position ("FSP") FAS No. 132(R)-1, "*Employer's  Disclosures about Postretirement Benefit Plan Assets*." This FSP amends  SFAS No. 132(R), "*Employers' Disclosures about Pensions and Other  Postretirement Benefits - An Amendment of FASB Statements No. 87, 88,  and 106*" to require more detailed disclosures about plan assets of a  defined benefit pension or other postretirement plan, including investment  strategies; major categories of plan assets; concentrations of risk within  plan assets; inputs and valuation techniques used to measure the fair value  of plan assets; and the effect of fair-value measurements using significant  unobservable inputs on changes in plan assets for the period. FSP 132(R)-1 is  effective for fiscal years ending after December 15, 2009, with earlier  application permitted. The adoption of this standard will only impact our  financial statement disclosures.

**ITEM 8.  **

**FINANCIAL STATEMENTS  AND SUPPLEMENTARY DATA**

The information required  for this item is included in this Annual Report on Form 10-K on Pages 44  through 77, inclusive, and is incorporated herein by reference.
   
**ITEM 9. **

**CHANGES IN AND  DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

None.

**ITEM 9A(T).**

**CONTROLS AND  PROCEDURES**

*Evaluation of Disclosure  Controls and Procedures*

The Company, with the  participation of our Chief Executive Officer and Chief Financial Officer, has  evaluated the effectiveness of our disclosure controls and procedures, as  such term is defined under Rules 13a-15(e) and 15d-15(e) promulgated  under the Securities Exchange Act of 1934, as amended, as of  December 31, 2008. Based on this evaluation, our Chief Executive Officer  and Chief Financial Officer have determined, that such disclosure controls and  procedures are effective to ensure that  information required to be disclosed in our filings under the Securities  Exchange Act of 1934 is recorded, processed, summarized and reported within  the time periods specified in the Securities and Exchange Commission's rules  and forms. Disclosure controls and procedures  include controls and procedures designed to  reasonably ensure that such information is accumulated and communicated to  our management, including our Chief Executive Officer and Chief Financial  Officer, as appropriate to allow timely decisions regarding required  disclosure. Management has concluded that the consolidated financial  statements in this Form 10-K fairly present, in all material respects, the  Company's financial position, results of operations and cash flows for the  periods and dates presented.  

*Management's Report on  Internal Control Over Financial Reporting.*

Management is responsible  for establishing and maintaining adequate internal control over financial  reporting (as defined in Rule 13a-15(f) under the Securities Exchange  Act of 1934, as amended).  Management assessed the effectiveness of our  internal control over financial reporting as of December 31, 2008.  In  making this assessment, management used the framework in "Internal  Control-Integrated Framework" issued by the Committee of Sponsoring  Organizations of the Treadway Commission ("COSO").  Based on these criteria,  management has concluded that, as of December 31, 2008, the Company's  internal control over financial reporting is effective.

This annual report does not  include an attestation report of our independent registered public accounting  firm regarding internal control over financial reporting. Management's report  was not subject to attestation by our independent registered public  accounting firm pursuant to temporary rules of the Securities and Exchange  Commission that permit us to provide only management's report in this annual  report.

*Material Weaknesses  Reported in Prior Year*

In previous filings the Company  reported material weaknesses in internal control over financial reporting and  detailed the plans for remediating those weaknesses as follows: 
   - With the sale of the       retail division in 2008, our remaining financial operations can be fully       consolidated into our existing financial software program which will reduce       the use of manual spreadsheets and, as a result, the burden on current       employees responsible for financial reporting. 
- We have implemented and       will continue to consider additional monitoring procedures by corporate       level accounting and finance personnel in our Barre, Vermont office to       mitigate the segregation of duties weakness identified at Rock of Ages       Canada.
   
26

 
- With the sale of our       retail operations in January 2008 and the consolidation of our two Barre       office locations in March 2008, we will continue to evaluate the       structure of the existing accounting and finance group to determine       whether additional personnel are needed or increased training on SEC       reporting and US GAAP matters for employees responsible for financial       reporting is required to ensure the completeness and accuracy of the       Company's financial statements.

All of the remediation  measures described above were implemented during 2008 and we believe these  measures have been successful in the remediation of the material weaknesses  previously identified and have further strengthened and enhanced our internal  control over financial reporting. Management has  tested the effectiveness of the newly implemented controls and found them to  be operating effectively.

*Changes in Internal  Control over Financial Reporting*

The material weaknesses in  our internal control over financial reporting that were previously reported have  been entirely remediated during the quarter ended December 31, 2008. Other  than these remediation changes there have been no other changes in the fourth  quarter in our internal controls over financial reporting that has materially  affected, or is reasonably likely to materially affect our internal control  over financial reporting.  

**ITEM 9B.**

**OTHER INFORMATION**

Not applicable.

**ITEM 10.**

**DIRECTORS, EXECUTIVE  OFFICERS AND CORPORATE GOVERNANCE**

Certain information  concerning directors and executive officers of the Company is set forth  below.

Unless otherwise indicated,  none of the companies or organizations referred to below is a parent,  subsidiary or affiliate of the Company.

 
   
 

**NAMES OF DIRECTORS AND  EXECUTIVE OFFICERS (1)**

**AGE**

**POSITIONS WITH THE  COMPANY**

James L. Fox

57

Director

Paul H. Hutchins

53

Vice  President/Administration

Richard C. Kimball 

68

Director and Vice Chairman

Donald Labonte

47

President and Chief  Executive Officer 

Laura Plude

51

Vice President, Chief  Financial Officer, Treasurer and Assistant Secretary

Pamela G. Sheiffer

62

Director

Kurt M. Swenson

64

Chairman of the Board of  Directors

Charles M. Waite

76

Director

Frederick E. Webster Jr.

71

Director
   
 (1) Each executive  officer serves for a term of one year (and until his successor is chosen and  qualified) at the discretion of the Board of Directors.
   
James L. Fox has been a  director of the Company since October 1997. Since January 2007, he has been  President and Chief Executive Officer, and from October 2005 to December 2006,  he was Executive Vice President and Chief Operating Officer of FundQuest,  Inc., a global provider of turnkey, open architecture wealth management  programs and services for financial institutions and advisors. From September  2003 to October 2005, he was Executive Vice President and Chief Financial  Officer of The BISYS Group, Inc. He was President of Fund Services Division  of The BISYS Group, Inc. from April 2003 to September 2003. From August 2001  to April 2003, he was President and Chief Executive Officer of govOne  Solutions, L.P., an electronic government payment service. From June 2000 to  August 2001, he was Vice President-Corporate Development and Chief Financial  Officer of Gomez, Inc., a research and consulting firm specializing in  Internet quality measurement. Prior to joining Gomez, Mr. Fox had been Vice  Chairman of PFPC Inc., a division of the PNC Financial Services Group, Inc.  from December 1999 to June 2000. Before joining PFPC, Inc., Mr. Fox had an  eleven year career with the Investor Services Group of First Data  Corporation, a provider of processing and mutual fund and retirement services  for mutual fund complexes, banks, insurance companies and advisory firms,  including serving as President and Chief Executive Officer (1999) and Chief  Operating Officer (1997-1999). Mr. Fox has also been a director of Pegasus  Solutions, Inc. since June 2006. Mr. Fox's current term as a director of the  Company will expire at the Company's 2010 Annual Meeting.
   
27
 
Richard C. Kimball has been  a director of the Company since 1986, and Vice Chairman since 1993. From 1993  to January 2001, he was Chief Operating Officer - Memorials Division of the  Company and from January 2001 to December 2004, he was Chief Strategic and  Marketing Officer. Prior to joining the Company, Mr. Kimball served as a  director, principal and President of The Bigelow Company, Inc., a strategic  planning and investment banking firm from 1972 until 1993. Mr. Kimball  retired as an employee of the Company on December 31, 2004 and served as a consultant to the Company during 2005 and 2006. He returned to The Bigelow  Company, Inc. in 2006, where he has been a Senior Director. His current term  as a director will expire at the Company's 2009 Annual Meeting.

Paul H. Hutchins has been  Vice President/Administration since October 2004.  From September 1993 to  October 2004, he was Manager of Administration.  Mr. Hutchins has held  numerous other positions during his 27 year career at Rock of Ages, including  Director of Information Services (June 1989 - September 1993), Production  Manager (Rock of Ages Canada, Inc., October 1987 - June 1989), Purchasing and  Transportation Manager (June 1984 - October 1987) and Staff Engineer  (December 1981 - June 1984).
   
Donald   Labonte has been  President and Chief Executive Officer since July 2008 and was Chief Operating  Officer from February 2008 to June 2008.  He was President and Chief  Operating Officer/Quarry Division from December 2007 to February 2008, and  President and Chief Operating Officer/Manufacturing Division from August 2002  to February 2008.  Mr. Labonte has been President of Rock of Ages Canada,  Inc., a wholly owned subsidiary of the Company, since 1999. From January 2002  to July 2002, he was Vice President/Manufacturing of the Company. From 1998  to 1999, he was Vice President/General Manager of Rock of Ages Canada, Inc.  From 1993 to 1998, Mr. Labonte was Director of Operations of Rock of Ages  Canada, Inc. From 1980 to 1993, Mr. Labonte held various positions in the  manufacturing plant at Rock of Ages Canada, Inc. At the Company's 2008 Annual  Meeting Mr. Labonte was elected as a director. His current term will expire  at the Company's 2011 Annual Meeting. 

Laura  Plude has been Vice President and CFO since August 2007.  She served briefly  as Vice President/Finance from July 2007 to August 2007.  Ms. Plude was  Director of Finance of the Company from August 2004 to July 2007. She was a  staff accountant at the Company from August 1999 to August 2004. Prior to  joining the Company, Ms. Plude was a self-employed CPA.

Pamela G. Sheiffer has been  a director of the Company since June 2004. Since 1997, she has been President  of P. Joyce Associates, Inc., a consulting firm specializing in retail and  apparel sectors, plus providing services to the investment community. Prior  to that, Ms. Sheiffer held various senior management positions in the retail  and apparel industry including Senior Vice President of May Department  Stores. She has been a director of New York & Company (NYSE: NWY), a  specialty retailer of fashion oriented, moderately priced women's apparel,  since August 2006, and a Trustee of the American Management Association since  June 2007. She is currently Vice Chairman of Learning Lenders, New York City's largest educational nonprofit with over 12,000 volunteers in New York City schools. Ms. Sheiffer's current term as a director will expire at the  Company's 2011 Annual Meeting.

Kurt M. Swenson has been  Chairman of the Board of Directors of the Company since 1984. From 1984 to  June 30, 2008 he also served as Chief Executive Officer and President of the  Company. Prior to the Company's initial public offering in 1997, Mr. Swenson  had been the Chief Executive Officer and a director of Swenson Granite  Company, Inc. from 1974 to September of 1997. Mr. Swenson currently serves as  non-executive Chairman of the Board of Swenson Granite Company, LLC, a Delaware limited liability company engaged in the granite curb and landscaping business.  Swenson Granite Company, LLC may be deemed an affiliate of the Company. He is  also a director of the National Building Granite Quarries Association, an  industry association of United States-based dimension granite quarriers. Mr.  Swenson's current term as a director will expire at the Company's 2009 Annual  Meeting.

Charles M. Waite has been a  director of the Company since 1985. Since 1989, Mr. Waite has been managing  partner of Chowning Partners, a financial consulting firm that provides  consulting services to New England companies. Mr. Waite's current term as a  director will expire at the Company's 2010 Annual Meeting.

Frederick E. Webster Jr.,  Ph.D. has been a director of the Company since October 1997. He was a  Professor of Management at the Amos Tuck School of Business Administration of  Dartmouth College from 1965 until 2002, and is now the Charles Henry Jones  Professor of Management Emeritus. He is also a management consultant and  lecturer, and is the Jon Underwood Distinguished Research Fellow in Marketing  at the Eller College of Management, University of Arizona. Mr. Webster's  current term as a director will expire at the Company's 2011 Annual Meeting.

28

**SECTION 16(A) BENEFICIAL  OWNERSHIP REPORTING COMPLIANCE**

Section 16(a) of the  Exchange Act requires directors, certain officers and beneficial owners of  more than 10% of our Common Stock to file reports of initial beneficial  ownership and changes in beneficial ownership of our Class A Common Stock  with the Securities and Exchange Commission. Based solely upon a review of  reports filed pursuant to Section 16(a) of the Exchange Act and written  representations by directors and such officers, the Company believes that  during 2008 such persons made all required filings, except that Mr. Fox filed  a late Form 4 (Statement of Changes In Beneficial Ownership) reporting the  acquisition of 3,965 shares of Class A Common Stock. The late report was the  result of an inadvertent clerical error.
   
**AUDIT COMMITTEE**

Rock of Ages has a  separately designated standing Audit Committee established in accordance with  Section 3(a)(58)(A) of the Exchange Act. The members of the Audit Committee  are James L. Fox (Chairman), Charles M. Waite and Richard C. Kimball. The  Board of Directors has determined that James L. Fox, Chairman of the Audit  Committee is an audit committee financial expert as defined by Item 407(d)(5)  of Regulation S-K of the Exchange Act, and is independent under Rule  10A-3(b)(1) under the Exchange Act and as independence is defined for audit  committee members in the listing standards of The Nasdaq Stock Market, Inc.
   
**CODE OF ETHICS**

On October 20, 2008, the  Board of Directors adopted a revised code of business ethics for directors,  officers (including Rock of Ages' principal executive officer and principal  financial and accounting officer) and employees. The revised code of business  ethics is available on Rock of Ages' website at www.rockofages.com.  Stockholders can also request a free copy by making such request in writing  to Rock of Ages Corporation, PO Box 482, Barre, Vermont 05641, attn: Vice President of Administration. We intend to satisfy the disclosure requirement  under Item 5.05 of Form 8-K regarding an amendment to, or a waiver from, a  provision of our code of ethics that applies to our principal executive  officer, principal financial officer, or principal accounting officer or  controller by disclosing such information on our website in accordance with  Item 5.05 of Form 8-K.

**ITEM 11.**

**EXECUTIVE  COMPENSATION**

**SUMMARY COMPENSATION  TABLE**

The  following table sets forth compensation information concerning the  compensation of our Chief Executive Officer and our other two most highly  compensated executive officers who served in such capacities during the year  ended December 31, 2008 (the "Named Executive Officers").
                              
Name and Principal Position

Year

Salary

($)

Bonus

($)

Stock Awards

($)

Option Awards

($)

Non-Equity Incentive Plan Compensation

(1)

Nonqualified Deferred Compensation Earnings

($)

All Other Compensation 

($)

Total

 ($)

(a)

(b)

(c)

(d)

(e)

(f)

(g)

(h)

(i)

(j)

Kurt M. Swenson,  Chairman, Former CEO*

2008

2007

$334,876 (2)

$446,500 (2)

-

-

-

-

-

-

-

-

$62,645 (3)

$46,125 (3)

$1,750 (4)

$1,301 (4)

$399,271

$493,926

Donald Labonte, President/CEO

2008

2007

$253,800 (5)

$253,800 (5)

$40,000 (6)

$10,300 (7)

-

-

$7,947

-

-

$29,700

-

-

$33,537 (8)

$33,538 (9)

$335,284

$327,338

Paul H. Hutchins, 

Vice President  Administration

2008

2007

$125,004

$125,004

$10,000 (10)

$  5,000 (11)

-

-

$467

-

-

-

-

-

$ 1,385(4)

$1,525 (4)

$136,856

$131,529

Laura A. Plude, CFO

Vice President Finance

2008

2007

$100,008

$  88,140

$10,000 (10)

$  5,000 (11)

-

-

$14,550

$5,581

-

-

-

$1,750 (4)

$1,547 (4)

$126,308

$100,268

 
   
29

 

* Mr.  Swenson resigned as CEO on June 30, 2008 and retired on September 30, 2008.
      
(1)

Incentive payments under  the 2008 Annual Incentive Plan were accrued in 2008 but paid in 2009.   
      
(2)

For 2008 and 2007, includes  $100,000 of salary earned but deferred in each year at the election of Mr.  Swenson pursuant to the Rock of Ages Key Employees Deferred Salary Plan (the  "DS Plan").  
      
(3)

Interest credited on  deferred salary pursuant to the DS Plan in excess of 120% of the applicable  federal long term rate for 2008 and 2007, respectively.
      
(4)

For 2008 and 2007,  respectively, amount represents Company match on 401(k) deferrals.   
      
(5)

For 2007 and 2008, Mr.  Labonte was paid an annual base salary of $253,800 ($270,000 CDN).  For the  purposes of this table, to calculate his 2007 and 2008 annual base salary in  U.S. dollars, we used a currency conversion rate of $.94 U.S. to $1.00 CDN, which represents the average of the exchange rates as of each month during fiscal  2007 and 2008, as published in the Wall Street Journal. 
      
(6)

Discretionary bonus of $40,000  ($42,554 CDN) paid in 2009 for 2008 performance. To calculate the amounts  paid in U.S. dollars, we used a currency conversion rate of $.94 U.S. to $1.00 CDN, which represents the average of the exchange rates as of the end of each  month during fiscal 2008, as published in the Wall Street Journal.
      
(7)

Discretionary bonus of  $10,300 ($10,958 CDN) paid in 2008 for 2007 performance. To calculate the  amounts paid in U.S. dollars, we used a currency conversion rate of $.94 U.S. to $1.00 CDN, which represents the average of the exchange rates as of the end of each  month during fiscal 2007, as published in the Wall Street Journal.
      
(8)

Includes $19,740 ($21,000  CDN) paid by the Company to Mr. Labonte's self-directed retirement account  under the Retirement Plan for Salaried Employees of Rock of Ages Canada, Inc.  and $837 ($890 CDN) paid for a life insurance policy on Mr. Labonte's life,  payable to his heirs. Rock of Ages Canada paid $12,960 ($13,787 CDN) into the  supplemental retirement plan for Mr. Labonte for 2008. For the purposes of  this table, to calculate the amounts paid in 2008 for Mr. Labonte's  retirement arrangements, we used a currency conversion rate of $.94 USD to  $1.00 CDN, which represents the average of the exchange rates as of each  month during fiscal 2008, as published in the Wall Street Journal. See  "Narrative to Summary Compensation Table" and "PENSION AND  POST-RETIREMENT BENEFITS - Canadian Retirement Plans" at page 35 of this  report.
      
(9)

Includes $18,800 USD  ($20,000 CDN) paid by the Company to Mr. Labonte's self-directed retirement  account under the Retirement Plan for Salaried Employees of Rock of Ages  Canada, Inc. and $838 ($891 CDN) paid for a life insurance policy on Mr.  Labonte's life, payable to his heirs. Effective during fiscal 2007, Rock of  Ages Canada, Inc. established a supplemental retirement plan for Mr. Labonte,  which is intended to take the place of the unfunded supplemental deferral  account referred to in Note 9 to the Consolidated Financial Statements.  Rock  of Ages Canada has funded the supplemental retirement account with $106,693  USD ($113,503 CDN) which represents the amount of the unfunded liability of  the supplemental deferral account. This amount was accrued over a number of  years with deferred bonuses and salary increases. In addition, Rock of Ages  Canada paid $13,900 USD ($14,787 CDN) into the supplemental retirement plan  for Mr. Labonte for 2007. For the purposes of this table, to calculate the  amounts paid in 2007 for Mr. Labonte's retirement arrangements, we used a  currency conversion rate of $.94 USD to $1.00 CDN, which represents the  average of the exchange rates as of each month during fiscal 2007, as  published in the Wall Street Journal. See "Narrative to Summary Compensation  Table" and "PENSION AND POST-RETIREMENT BENEFITS - Canadian  Retirement Plans" at page 35 of this report.
      
(10)

Discretionary bonus paid in  2009 for 2008 performance.
      
(11)

Discretionary bonus paid in  2008 for 2007 performance.

30

 

**Narrative to Summary Compensation Table**
The Compensation Committee  of the Board of Directors (the "Compensation Committee") is  primarily responsible for reviewing, approving, and overseeing the Company's  compensation plans and practices, and works with management to establish the  Company's executive compensation programs.  Our executive compensation  program consists of four key components:  base salary, annual bonus awards,  equity based incentives in the form of stock options, and retirement  benefits.  
*Base Salary*

The Compensation Committee  annually reviews the Chief Executive Officer's ("CEO") salary and  the CEO's recommendations with regard to the base salaries of our other  executive officers. The Compensation Committee did not increase the rate of  base salaries for executive officers in 2008 and again decided that it would  not increase base salaries for executive officers in 2009.  

*Non-Equity Incentive  Plans and Cash Bonuses*

Our executive officers,  including the Named Executive Officers, participated in the 2008 Annual  Incentive Plan, which was adopted by the Compensation Committee and set forth  corporate and divisional performance measures for each participating  employee, as well as target award values.  Performance under the Incentive  Plan is measured by the achievement of certain levels of earnings before  interest and taxes ("EBIT"), net of incentive payments.  The following  named executive officer's EBIT targets are set at the corporate level only.  The target award values for 2008 for the named executive officers under the  Incentive Plan as a percentage of base salary are set forth below:
          
** **

**Target Award Values (% of Base Salary)**

Threshold

Target

Maximum

Kurt M. Swenson, Chairman    (Former CEO)

10%

25%

50%

Donald M. Labonte,    President and CEO

10%

25%

50%

Paul H. Hutchins, Vice    President of Administration

10%

25%

50%

Laura A. Plude, CFO and    Vice President of Finance

10%

25%

50%

The Compensation Committee  may also pay discretionary bonuses to officers if, in the Compensation Committee's  sole discretion, a participant has achieved corporate, divisional or personal  goals worthy of reward.  The Compensation Committee awarded discretionary  bonuses for 2008 performance to Mr. Labonte, ($40,000) the Company's Chief Executive  Officer ("CEO"), Mr. Hutchins, ($10,000) the Company's Vice  President of Administration and Ms. Plude ($10,000) the Company's Chief  Financial Officer and Vice President of Finance.

*Stock Options*

Our 2005 Stock Plan was  established to provide certain employees with an opportunity to share, along  with our stockholders, in our long-term performance.  Historically, we have  granted stock options which vest based upon continued employment, typically  over a three to five year period. All options are granted with maximum terms  that expire ten years after the date of grant (or upon earlier termination of  the option holder's employment).  Typically, we have granted options to  executive officers when they are first appointed.  In 2008, the Compensation  Committee met and decided that various officers and other management  personnel should be granted options. On August 7, 2008, 185,000 options were  granted at a strike price of $2.63. The options vest over five years and  lapse in ten years. The specifics of option holdings among our Named  Executive Officers are shown at page 33 of this report under the caption  "OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END."

*Retirement Benefits*

We maintain a defined  benefit plan (the "DB Plan") for non-union employees who were  vested in the DB Plan on March 31, 2009.   Due to the recent significant  worldwide decline in equity prices and the value of other financial  investments, the fair value of the assets held by the DB Plan decreased by  $5.4 million in 2008.  As a result, the plan is significantly underfunded,  and we decided to terminate participation in the DB Plan and the future  accrual of benefits.  We are evaluating alternatives to the DB Plan,  including an enhanced match for our 401K plan.  We have entered into salary  continuation agreements (the "SC Agreements") with certain  officers, including the Former CEO.  We also have a deferred salary plan (the  "DS Plan") for certain management and highly compensated  employees.  At the present time, there are no current employees participating  in the DS Plan.  Our CEO, who is a Canadian citizen, is not eligible to

31

 
participate in these plans.  Accordingly, we provide  retirement benefits to our CEO and our Canadian employees through separate  retirement plans sponsored by Rock of Ages Canada, Inc, our Canadian  subsidiary.  The specifics of our retirement programs are shown at page  33 of this report under the caption "PENSION AND POST-RETIREMENT BENEFITS."   
*Employment Agreements*

The CEO is the only Named  Executive Officer that currently has an employment agreement with the  Company.  This agreement generally provides for the payment of base salary,  severance, and change in control payments. The Former CEO also had an  employment agreement with the Company, which was terminated in connection  with his retirement from the Company during 2008. The employment agreements with  the Named Executive Officers are described in greater detail at page 36 of  this report under the caption "EMPLOYMENT AGREEMENTS AND CHANGE IN  CONTROL ARRANGEMENTS."
   
**OUTSTANDING EQUITY AWARDS  AT FISCAL YEAR END**

** **

The  following table sets forth information concerning options to purchase Class A  Common Stock held by the Named Executive Officers at December 31, 2008.

Option Awards

Stock Awards

Name

Number

of

Securities Underlying Unexercised Options

Exercisable

Number of Securities Underlying Unexercised Options

Unexercisable

Equity Incentive Plan Awards: Number of Securities  Underlying Unexercised Unearned Options

Option Exercise Price

($)

Option Expiration Date

Number of Shares or Units of Stock That Have Not  Vested

Market Value of Shares or Units of Stock That Have  Not Vested

($)

Equity Incentive Plan Awards: Number of Unearned  Shares, Units or Other Rights That Have Not Vested

Equity Incentive Plan Awards: Market or Payout Value  of Unearned Shares, Units or Other Rights That Have Not Vested

($)

(a)

(b)

(c)

(d)

(e)

(f)

(g)

(h)

(i)

(j)

Kurt M. Swenson

-

-

-

-

-

-

-

-

-

Donald M. Labonte

15,000

-

-

$5.98

2/8/2012

-

-

-

-

-

85,000

-

$2.63

8/7/2018

-

-

-

-

Paul H. Hutchins

15,000

-

-

$5.98

2/8/2012

-

-

-

-

5,000

-

$2.63

8/7/2018

Laura A. Plude

5,000

20,000

-

$5.93

8/14/2017

 

**OPTION EXERCISES AND  STOCK VESTED**

During 2008 none of the  Named Executive Officers exercised any stock options or became vested in any  restricted stock.
   
**PENSION AND  POST-RETIREMENT BENEFITS**
   
**Defined Benefit Pension  Plan**

We maintain a qualified  defined benefit pension plan (the "DB Plan") for non-union  employees of Rock of Ages Corporation as of March 31, 2009.  The DB Plan is  noncontributory and provides benefits based upon a formula calculated by  reference to length of service and final average earnings.  As of December  31, 2008, the DB Plan provides an annual life annuity at age 65 equal to 1.8%  per year of a participant's highest consecutive five year average  compensation (excluding bonus) during the last ten years of employment"  ("Final Average Compensation"), plus 0.4% per year of a  participant's Final Average Compensation in excess of social security covered  compensation times the years of service, up to a maximum of 30 years.   Participants who have attained the age of 55 and who have at least 10 years  of service may elect to receive early retirement benefits under the DB Plan.   In the case of early retirement, the amount of the monthly pension benefit  will be equal to the monthly accrued pension benefit, determined as of the  early retirement date, reduced actuarially for each month that the early  retirement date precedes the normal retirement date.  On January 5, 2009, the  Company's Board of Directors approved actions to proceed with amendments to  its defined benefit pension plan by freezing membership and future benefits  in the plan. This action is effective as of March 31, 2009. 

 

32

 

The following table shows  the total estimated annual retirement benefits payable upon normal retirement  under the DB Plan for the Named Executive Officers at the specified executive  remuneration and years of continuous service.

Final  Average Compensation

15  Years

20  Years

25  Years

30  Years

35  Years

  $125,000

$37,852

$50,470

$63,087

$75,705

$75,705

  $150,000

$46,102

$61,470

$76,837

$92,205

$92,205

  $175,000

$54,352

$72,470

$90,587

  $108,705

  $108,705

  $200,000

$62,602

$83,470

  $104,337

  $125,205

  $125,205

  $225,000

$70,852

$94,470

  $118,087

  $141,705

  $141,705

  $250,000

$79,102

  $105,470

  $131,837

  $158,205

  $158,205

  $275,000

$87,352

  $116,470

  $145,587

  $174,705

  $174,705

  $300,000

$95,602

  $127,470

  $159,337

  $191,205

  $191,205

  $325,000

  $103,852

  $138,470

  $173,087

  $207,705

  $207,705

  $350,000

  $112,102

  $149,470

  $186,837

  $224,205

  $224,205

  $375,000

  $120,352

  $160,470

  $200,587

  $240,705

  $240,705

  $400,000

  $128,602

  $171,470

  $214,337

  $257,205

  $257,205

  $425,000

  $136,852

  $182,470

  $228,087

  $273,705

  $273,705

  $450,000

  $145,102

  $193,470

  $241,837

  $290,205

  $290,205

  $475,000

  $153,352

  $204,470

  $255,587

  $306,705

  $306,705

  $500,000

  $161,602

  $215,470

  $269,337

  $323,205

  $323,205
   
The Former CEO, the Vice  President of Administration and the CFO are the only named executive officers  participating in the DB Plan. At the time of his retirement in 2008, the  Former CEO had 34 years of service. The VP of Administration has 27 years of  service and the CFO has 9 years of service.  The current CEO, a Canadian  citizen, is not eligible to participate in the DB Plan. 
   
**Salary  Continuation Agreements**

In addition to the DB Plan,  we have salary continuation agreements ("SC Agreements") which  provide for supplemental pension benefits to certain current and former  officers of the Company.  The Former CEO is the only Named Executive Officer  who is covered by an SC Agreement. Benefits became payable under that  agreement upon the Former CEO's retirement in 2008. The Former CEO's SC  Agreement provides a 100% joint and survivor annuity at age 65 equal to 1.1%  of his highest annual base compensation times full years of service.   
   
The  following table sets forth the supplemental pension benefits for the Former  CEO under the SC Agreement.
   
Name

Highest Annual Base Compensation

Total Years of 

Service at Age 65

Annual Retirement 

Benefit at Age 65

K. Swenson

$481,000

26

131,172
   
**Deferred  Salary Plan**

We  established the Rock of Ages Key Employees Deferred Salary Plan (the "DS  Plan") for certain management and highly compensated employees.   Participation in the DS Plan is limited to those employees designated by the  Board of Directors in its sole discretion, and who satisfy the following  criteria:  (1) the employee has attained the age of 55; (2) the employee is  an executive officer; (3) the employee has completed a minimum of ten years  of continuous service with the Company; and (4) the employee's annual base  salary, fringe benefits and other non-cash compensation exceeds $200,000  (subject to adjustment each year to reflect the average percentage change in  the base salaries of all officers of the Company).  The former CEO was the  only executive officer that participated in the plan in 2008. Since his  retirement, there are no executive officers that currently participate in the  DS Plan.  
   
Participants  may make an irrevocable election to defer up to $100,000 annually under the  DS Plan. Any amounts deferred are reflected in deferred salary accounts  created by the Company.  Interest at the rate of 12% per annum is credited on  a monthly basis to each Participant's deferred salary account. The aggregate  account balances remain part of the general unrestricted assets of the  Company. Participants do not have any right or claim to any specific assets  of the Company, but only a claim against the Company as a general, unsecured  creditor to the extent of the undistributed portion of their deferred salary  account. Benefits under the DS Plan are paid upon the retirement, death or  disability of the participant or other termination of participation, subject  to certain procedures relating to distribution. Each year prior to making a  deferral, participants must elect the method of distribution that will apply  to that deferral upon retirement under the DS Plan.  Participants have three  distribution options:  (i) Interest only on the undistributed account  balance at 12% per

33

 
annum, payable monthly, quarterly or annually for the life of  the participant or his/her spouse, with distribution of the remaining account  balance payable upon the death of the participant or his/her spouse, whichever  is later; (ii) as provided in (i) above, but subject to a term  certain of not less than 10 nor more than 20 years with respect to the  payment of interest only; or (iii) level payment amortization of the  participant's account balance as of the commencement of payments, plus  interest on the undistributed account balance at 12% per annum, over any of  the time periods available under (i) or (ii) above.   
**Canadian  Retirement Plans**

Our  Canadian subsidiary, Rock of Ages Canada, Inc. ("ROA Canada"), has a  retirement plan for our Canadian employees, the Retirement Plan for Salaried  Employees of Rock of Ages Canada, Inc. (the "Basic Canadian Retirement  Plan") which is registered with the Province of Quebec and the  Government of Canada. All salaried, non-union employees of ROA Canada are  participants in the Basic Canadian Retirement Plan, including our CEO, Mr.  Labonte. Pursuant to the Basic Canadian Retirement Plan, ROA Canada  contributes 8% of a participant's monthly compensation each month to each  participant's account. The investments in the account are self-directed by  each participant with a range of investment options. ROA Canada may, in its  discretion, make an additional contribution to a participant's account, up to  a maximum aggregate amount of 13% of a participant's salary per year  (including amounts previously contributed during the year). For 2008,  Canadian law allowed a maximum contribution per individual to the Basic  Canadian Retirement Plan of $21,000 CDN.  
   
In  2008, we contributed $19,740 (the full $21,000 CDN allowable under Canadian  law) and in 2007, we contributed $18,800 (the full $20,000 CDN allowable  under Canadian law) to Mr. Labonte's self-directed retirement account under  the Basic Canadian Retirement Account.  Effective in 2007 ROA Canada  established a supplemental retirement plan for Mr. Labonte ("Canadian  Supplemental Plan"). The Canadian Supplemental Plan is funded as a  retirement compensation arrangement as defined in Article 248 of the Canadian  Income Tax Act. In 2007 we made an initial contribution to the Canadian  Supplemental Plan equal to $106,693 USD ($113,503 CDN), which was the amount  accrued from prior years under the unfunded supplemental deferral account  referred to above.  The only participant in the Canadian Supplemental  Retirement Plan is Mr. Labonte. Each year, ROA Canada may make a contribution  to the Canadian Supplemental Plan equal to 13% of Mr. Labonte's base salary,  less any amounts paid to the Basic Canadian Retirement Plan for Mr. Labonte.   We made contributions to the Canadian Supplemental Plan equal to $12,960  ($13,787 CDN) and $13,900 USD ($14,787 CDN) in 2008 and 2007, respectively.  We may make additional contributions to the Canadian Supplemental Retirement  Plan at our discretion. Normal retirement age under the Canadian Supplemental  Plan is 65 years however the participant may elect early retirement at age  55, or may elect to postpone normal retirement to not later than age 71. Upon  early, normal or postponed retirement, Mr. Labonte is entitled to a lump sum  equal to the value of the contributions made to the Canadian Supplemental  Plan, plus accrued earnings of the Plan, or he may elect to be paid in  installments over 5 years from the retirement date.
   
**Post  Employment Health Care Policy**

It  is our policy to provide post-employment health care coverage to our  executive officers and their spouses who retire at age 55 or older. The form  and type of benefits to be provided is the coverage that is in effect for  active employees from time to time, and the retiree pays his or her portion  of the premium for such coverage, as the same may be set from time to time.  We reserve the right, in our sole discretion, to change or amend such  coverage, the retiree's share of the premium and/or such other terms of the  coverage as we deem necessary or advisable, or to cease providing such  coverage altogether.  Coverage is provided to  executive officers who retire  at age 55 or older and to their spouses until they reach age 65, provided,  however, that health care coverage for a spouse terminates when the executive  officer reaches (or would have reached) age 68, regardless of whether the  spouse has reached age 65.  
   
**EMPLOYMENT AGREEMENTS AND  CHANGE IN CONTROL ARRANGEMENTS**

***Labonte  Employment Agreement***

The  Company has an employment agreement with the CEO, Mr. Labonte (the  "Labonte Employment Agreement"), for retention of his services as  President and Chief Executive Officer of the Company. The term of the Labonte  Employment Agreement commenced on July 1, 2008, the date he began his duties  as Chief Executive Officer, and continues until the fifth anniversary thereof  unless extended or terminated. The Labonte Employment Agreement provides for  continued payment of salary and benefits for an additional twelve months if  Mr. Labonte's employment is terminated by the Company without Cause (as  defined in the Labonte Employment Agreement). If Mr. Labonte's employment is  terminated by the Company within twelve months after a Change in Control (as  defined in the Labonte Employment Agreement) then the Company will pay Mr.  Labonte a lump sum in cash within 15 days after the date of termination equal  to one times the then current Annual Base Salary.  

34
   
***Swenson Employment Agreement***
   
The  Company had an employment agreement with the Former CEO, Mr. Swenson (the  "Swenson Employment

Agreement"), for  retention of his services as President and Chief Executive Officer of the  Company. The term of the Swenson Employment Agreement commenced on October 24,  1997, the date of consummation of the Company's initial public offering and  was terminated on April 24, 2008 in connection with Mr. Swenson's retirement  agreement.  No severance or change in control arrangements were triggered  by the termination of the Swenson Employment Agreement, and no such payments  were made to Mr. Swenson in connection with the termination of the Swenson  Employment Agreement.  Mr. Swenson resigned as CEO on June 30, 2008,  retired from employment with the Company on September 30, 2008 and continues  to serve as the Company's Chairman.   
**NON-EMPLOYEE  DIRECTOR Compensation**

For  the 2008 fiscal year, directors who are not also officers of the Company were  paid annual directors' retainers of $30,000.  Audit Committee members were  paid an additional annual retainer fee of $2,000 and members of other  committees are paid additional annual retainers of $1,000 for each  committee.  The non-executive Chairman receives an annual retainer that is at  least $20,000 higher than the highest paid non-employee director, or such  other fee as determined by the Compensation Committee or the full board  (excluding the Chairman) in its sole discretion. Directors are also eligible  for grants under the 2005 Stock Plan.  We reimburse our non-employee  directors for travel and lodging expenses that they incur in connection with  their attendance of directors' meetings and meetings of shareholders of the  Company.  
   
**Actual Fiscal 2008 Non-Employee Director Compensation**

The following table shows the compensation paid to our  non-employee directors for the 2008 fiscal year:

**Name**

**Fees Earned or Paid in Cash ($)**

**Stock Awards ($)**

**Option Awards ($)**

**Non-Equity Incentive Plan  Compensation ($)**

**Non-**

**qualified Deferred Compensation  Earnings**

**All Other Compensation ($)**

**Total ($)**

James  L. Fox

33,000

-

-

-

-

-

33,000

Richard  C. Kimball

33,000

-

-

-

-

-

33,000

Pamela  G. Sheiffer

32,000

-

-

-

-

-

32,000

Charles  M. Waite

33,000

-

-

-

-

-

33,000

Frederick  E. Webster, Jr.

32,000

-

-

-

-

-

32,000
   
**ITEM 12.**

**SECURITY OWNERSHIP OF  CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS**

The following table sets  forth, as of March 16, 2009, certain information with respect to the  beneficial ownership of our Common Stock by each (i) director, (ii) Named  Executive Officer (iii) beneficial owner of more than 5% of either class of  the outstanding Common Stock known to us, based on Securities and Exchange  Commission filings and other available information and (iv) by all directors  and executive officers of the Company as a group. This information is based  upon information received from or on behalf of the individuals or entities  named below, except as otherwise noted. The Class B Common Stock is  convertible on a share-for-share basis into Class A Common Stock. The Class B  Common Stock is entitled to ten votes per share and the Class A Common Stock  is entitled to one vote per share. Beneficial ownership has been determined  in accordance with the rules of the Securities and Exchange Commission.  Except as indicated in the footnotes below, we believe, based on the  information furnished or otherwise available to us, the persons and entities  named in the table below have sole voting and investment power with respect  to all shares of Common Stock shown as beneficially owned by them, subject to  applicable community property laws. Ownership percentages are based upon 4,812,342  shares of Class A Common Stock and 2,603,721 shares of Class B Common Stock  outstanding as of March 20, 2009.
   
In computing the number of  shares of Common Stock beneficially owned by a person and the percentage  ownership of such person, shares of Class A Common Stock subject to options  held by that person that are currently exercisable or exercisable within 60  days of March 16, 2009 were deemed to be outstanding. Such shares were not  deemed to be outstanding, however, for the purpose of computing the  percentage ownership of any other person.

 

35
                         
** **

** **

** **

**SHARES OF CLASS B    COMMON STOCK    BENEFICIALLY OWNED**

** **

**SHARES OF CLASS A    COMMON STOCK    BENEFICIALLY OWNED**

**NAME AND ADDRESS OF    BENEFICIAL OWNER (1)**

 

**NUMBER**

** **

**PERCENT OF    CLASS**

 

**NUMBER (2)**

 

**PERCENT OF     CLASS (2)**

North Star Investment    Management Corp.(3)

20 North Wacker Drive,      Suite 1416

Chicago, IL 60606

-

-

655,183

13.6%

Kuby Gottlieb Special    Value Fund, LP(4)

20 North Wacker Drive, Suite1416

Chicago, IL 60606

-

-

423,986

8.8%

Dimensional Fund Advisors,    Inc (5)      1299 Ocean Avenue      Santa Monica, CA 90401 

-

-

318,728

6.6%

Kurt M. Swenson (6) **

1,005,000

38.6%

1,135,000

19.5%

Kevin C. Swenson (7)    Willougby Colby Rd.    Warner, NH 03278

1,023,489

39.3%

1,023,489

17.5%

Robert Pope

46 Grand View Farm Road

Barre, VT 05641-8335

144,875

5.3%

159,875

3.2%

Richard C. Kimball **

29,126

1.1%

102,126

2.1%

Charles M. Waite**

29,126

1.1%

45,000

*

James L. Fox**

  

-

-

5,000

*

Frederick E. Webster Jr.**    

-

-

5,000

*

Donald Labonte (8)**

-

-

18,000

*

Pamela G. Sheiffer**

-

-

5,000

*

Paul H. Hutchins(9)**

-

-

27,200

*

Laura A. Plude (10)

-

-

8,000

*

All directors and    executive officers as a group (9 persons)

1,063,252

38.8%

1,350,326

23.0%
   **  Named ExecutiveOfficer and/or Director*    Less than 1%      
(1)

The business address of  each director and executive officer of the Company is c/o Rock of Ages  Corporation, 560 Graniteville Road, Graniteville, Vermont 05654.
      
(2)

For each beneficial owner  (and directors and executive officers as a group), (i) the number of shares  of Class A Common Stock listed includes (or is comprised solely of) the  number of Class A shares owned outright or under outstanding vested options  and a number of shares equal to the number of shares of Class B Common Stock,  if any, listed as beneficially owned by such beneficial owner(s) and (ii) the  percentage of Class A Common Stock listed assumes the conversion on March 20,  2008 of all shares of Class B Common Stock, if any, listed as beneficially  owned by such beneficial owner(s) into Class A Common Stock and also that no  other shares of Class B Common Stock beneficially owned by others are so  converted.
      
(3)

According to a Form 4 dated  March 10, 2009, Northstar Investment Management Corp., in its capacity as an  investment advisor or manager, may be deemed to be the beneficial owner of  the listed shares.
      
(4)

According to a Schedule 13G  dated January 8, 2009, Kuby Gottleib Special Value Fund, LP in its capacity  as an investment advisor or manager, may be deemed to be the beneficial owner  of the listed shares that are held of record by certain investment companies,  trusts or other accounts it advises or manages.
      
(5)

 According to a  Schedule 13G dated February 9, 2009, Dimensional Fund Advisors, Inc., in its  capacity as an investment advisor or manager, may be deemed to be the  beneficial owner of the listed shares that are held of record by certain  investment companies, trusts or other accounts it advises or manages.

36

 

(6)

Kurt M. Swenson is the  brother of Kevin C. Swenson. Includes 1,005,000 shares of Class B Common  Stock and 130,000 shares of Class A Common Stock held by the Kurt M. Swenson  Revocable Trust of 2000. Kurt M. Swenson, as the sole trustee of the Kurt M.  Swenson Revocable Trust of 2000, beneficially owns such shares. 
      
(7)

Kevin C. Swenson is the  brother of Kurt M. Swenson. 
      
(8)

Includes 15,000 shares of  Class A Common Stock subject to currently exercisable stock options.
      
(9)

Includes 15,000 shares of  Class A Common Stock subject to currently exercisable options.

(10)

Includes 5,000 shares of  Class A Common Stock subject to currently exercisable options.

**Equity Compensation Plan Information**

The following table sets  forth information regarding the Company's equity compensation plan as of  December 31, 2008.

Plan Category

Number of securities  to be issued upon  exercise of  outstanding options,  warrants and rights

Weighted-average  exercise price of  outstanding options,  warrants and rights

Number of securities  remaining available for future  issuance under equity  compensation plans (excluding  securities reflected in column(a))

(a)

(b)

(c)

Equity compensation plans  approved by security holders

324,000

$4.06

323,333

Equity compensation plans  not approved by security holders

None

None

None

Total

324,000

$4.06

323,333

(1)

On June 22, 2005 at our Annual Meeting of Stockholders, the stockholders approved the Rock of Ages Corporation 2005 Stock  Plan (the "2005 Plan"). The 2005 Plan permits awards of stock  options (including both incentive stock options and nonqualified stock options)  and restricted stock. A maximum of 550,000 shares of Class A Common Stock may  be issued under the 2005 Plan. The 2005 Plan is administered by the  Compensation Committee, which has the authority to determine the recipients  of awards under the 2005 Plan and, subject to the 2005 Plan, the terms and  condition of such awards. The 2005 Plan replaces the Rock of Ages Corporation  1994 Stock Plan (the "1994 Plan") which expired in November 2004.  Although grants made under the 1994 Plan prior to its expiration remain  outstanding, no further grants may be made under the 1994 Plan.

**ITEM 13.**

**CERTAIN RELATIONSHIPS  AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE**

***Transactions with  Related Persons, Promoters and Certain Control Persons***

*Transactions With  Related Persons*

In connection with and  prior to its initial public offering in 1997, the Company effected a  reorganization whereby, among other things, the Company's then parent  corporation, Swenson Granite Company, Inc. ("Swenson Granite"), was  merged with and into the Company, with the Company as the surviving  corporation, and, immediately prior to such merger, Swenson Granite  distributed its curb and landscaping business to its stockholders through a  pro rata distribution of all of the member interests in a newly formed  limited liability company named Swenson Granite Company LLC ("Swenson  LLC"). Kurt M. Swenson, the Company's Chairman and Chief Executive  Officer, and his brother Kevin C. Swenson, each own approximately 31% of  Swenson Granite LLC. Certain other executive officers and directors of the  Company collectively own approximately 9% of Swenson LLC. Kurt M. Swenson  serves as a non-officer Chairman of the Board of Swenson LLC, but has no  involvement with its day-to-day operations. Robert Pope, a holder of more  than 5% of the Class B Common Stock, is Swenson LLC's President and Chief  Executive Officer, and including shares owned by his wife and children, owns approximately  12% of Swenson LLC. Neither Kurt M. Swenson nor any other officer or director  of the Company, receives salary, bonus, expenses or other compensation from  Swenson LLC, except for any pro rata share of earnings attributable to their  ownership interest in Swenson LLC.

 

37

 

Swenson LLC owns two  granite quarries: one in Concord, New Hampshire and another in Woodbury, Vermont. Both have been owned by Swenson LLC (or its predecessor Swenson Granite)  for more than 40 years. Because of the proximity of the Woodbury quarry to Barre, Vermont, the Company provides, and may continue to provide, certain maintenance  services and parts to the Woodbury quarry and is reimbursed for the cost of  such services. During 2008, the Company received approximately $12,000 for  such maintenance services and parts. Both the Company and Swenson LLC have  the right to terminate these services at any time. The Company also purchases  Concord blocks and other products from Swenson LLC at market prices. The  Company's purchases of granite provided by Swenson LLC in 2008 were  approximately $45,000. Swenson LLC also purchases granite blocks and slabs  from the Company. Such purchases amounted to approximately $19,000 in 2008.  The Company believes these arrangements with Swenson LLC are not material and  that they are on terms as favorable, or more favorable, to the Company than  would be available from an unrelated party for comparable granite products.  Both of Swenson LLC 's quarries produce gray granite primarily for curb and  landscape use. Although Rock of Ages' gray granite from its Barre and  Stanstead quarries is used primarily for memorial use, it may be in  competition with Swenson LLC in some markets, including the supply of its  gray granites for other than memorial use. Swenson LLC has supplied its  Woodbury granite to manufacturers of government grave markers made for the  Veterans' Administration for many years and Rock of Ages has not been in the  business of selling or manufacturing its gray granites for use in Veterans  markers. 
   
 On January 17, 2008, we entered into a definitive stock purchase agreement with PKDM Holdings,  Inc., a corporation owned by Richard M. Urbach, the President and Chief  Operating Officer of our retail operations, and James Barnes, the financial  manager of our retail operations.  Pursuant to the stock purchase agreement,  we sold all of our retail operations to PKDM for a purchase price of $8  million, paid in cash at the closing, which was completed on January 17, 2008.  We classified our retail operations as a discontinued operation as of December 31, 2007, and recorded a write down in the carrying value of the retail division  of approximately $5.9 million as of that date.

The determination to sell  the retail operations was reached after our Board engaged in a lengthy  process of fully exploring strategic alternatives with the assistance of  Covington Associates, LLC, a Boston-based investment banking firm selected by  a special committee of non-employee directors and retained by the Company in  2006.  The sale to PKDM was recommended to the Board by this special  committee following the solicitation of bids from interested parties, and  Covington Associates delivered a favorable opinion to the Board with respect  to the fairness to the Company, from a financial point of view, of the  consideration to be received by the Company in the transaction.
   
In connection with the  transaction, we entered into a five year supply agreement with PKDM and its  operating subsidiary, North American Heritage Services, Inc. ("NAHS"),  naming it as an authorized Rock of Ages retailer in the existing retail  territories formerly serviced by its owned retail stores, and PKDM agreed to  minimum annual memorial purchases from the Company of $3.5 million during  each year of the five year term, excluding private mausoleums. PKDM's minimum purchase obligation under the Supply  Agreement is subject to reduction if PKDM permanently closes or sells stores  that were operated by them on the date of the original Supply Agreement.  Pursuant to the Supply Agreement, the amount of such reduction is equal to  the three year average annual purchases of closed or sold stores. Due to the  closure or sale of a number of locations by PKDM during 2008, effective  January 16, 2009 the parties agreed to revise the minimum purchase  requirements to $1,780,000 for the year of the agreement ending on January  17, 2009 and to $1,210,000 for each of the remaining years of the initial  term and any renewal term.

Mr. Urbach and Mr. Barnes  resigned from employment with the Company at the closing.  Mr. Urbach entered  into a resignation agreement with the Company at the closing, pursuant to  which Mr. Urbach agreed to waive any severance or change in control payment  that may have been due him pursuant to his employment agreement.  The Company  agreed to pay Mr. Urbach a performance bonus of $25,000 for 2007 performance.

On April 24, 2008, we  entered into a retirement agreement with Kurt M. Swenson (the "Swenson  Retirement Agreement"), who was then our Chairman and CEO.  Pursuant to  the Swenson Retirement Agreement, Mr. Swenson agreed to retire as CEO on June  30, 2008.  The Swenson Retirement Agreement provided that he would remain an  employee of the Company until September 30, 2008, and during that time would  assist in transition of a new CEO of the Company.  We agreed to pay Mr.  Swenson at his current salary until September 30, 2008.  Upon his retirement,  Mr. Swenson agreed to continue to serve as Chairman of the Board of  Directors, and in light of his additional duties as Chairman, we agreed to  pay Mr. Swenson an annual non-executive Chairman's fee that is at least $20,000  higher than the next highest paid member of the Board of Directors.
      

38
   
***Review, Approval or  Ratification of Transactions with Related Persons***

Upon the recommendation of  the Audit Committee, in March 2007 the Company's Board of Directors adopted a  written policy under which related person transactions must be pre-approved  by the Audit Committee.  Under the policy, generally a related person  transaction is any transaction, arrangement or relationship involving an  amount exceeding $75,000 between the Company and any executive officer,  director or 5% stockholder (and their family members), or any entity in which  any such person is an executive officer, director, general partner, managing  member or person in a similar position, has a 5% or greater ownership interest,  or of which such person is an employee who will receive a direct economic  benefit from the transaction.  Prior to the Company entering into a related  person transaction, the Company's management must submit the proposed  transaction to the Audit Committee for consideration at a meeting.  The Audit  Committee considers all of the relevant facts and circumstances available to  it, including (if applicable) but not limited to:  the benefits to the  Company; the impact on a director's independence in the event the person in  question is a director, an immediate family member of a director, or an  entity in which a director is an equity holder or of which a director is an  executive officer, general partner, managing partner or a person in a similar  position; the availability of other sources for comparable products or  services; the terms of the proposed transaction; and the terms available to  unrelated third parties or to employees generally.  No member of the Audit  Committee may participate in any review, consideration or approval of any  related person transaction with respect to which such member of any of his or  her immediate family members is the related person.  The Audit Committee will  approve only those related person transactions that are in, or not inconsistent  with, the best interests of the Company and its stockholders. Approval by a  majority of the members of the Audit Committee (or by the Chairman of the  Audit Committee in the circumstances described below) will be sufficient to  approve a related person transaction.

*** ***

As described above, the  written policy provides that proposed related person transactions would  normally be considered by the Audit Committee at a meeting.  However, the  policy includes procedures to address situations when approvals need to be  sought between scheduled Audit Committee meetings.  The policy provides that  in those instances in which the Company's general counsel, in consultation  with the Company's Chief Executive Officer and the Chairman of the Audit  Committee, determines that it is not practical or desirable for the Company  to delay seeking approval of a related person transaction until the next  scheduled Audit Committee, or until a special meeting of the Audit Committee  can be convened, the management shall submit the proposed related person  transaction to the Chairman of the Audit Committee, who will have delegated  authority to consider and act on behalf of the Committee with respect to the  proposed related person transaction.  In that event, the Chairman of the  Audit Committee will consider all of the relevant facts and circumstances  available to the Chairman, including (if applicable) but not limited to those  described above which would be considered by the Audit Committee at a meeting  at which the proposed related person transaction was being considered.  If a  related person transaction is approved in this manner by the Chairman of the  Audit Committee, such approval will be reported to the Audit Committee at its  next meeting.

*** ***

***Director Independence***

The  Board of Directors has determined that each of our directors, other than Mr.  Swenson, is independent under the listing standards of The Nasdaq Stock  Market, Inc.  Mr. Swenson serves as our Chairman, and until June 30, 2008,  served as our CEO.  Therefore, the Board of Directors determined that he is  not independent under the listing standards of the Nasdaq Stock Market, Inc.  In making its independence determinations, the Board of Directors reviewed  transactions and relationships, if any, between the director or any member of  his or her immediate family and us or one or more of our subsidiaries or  affiliates based on information provided by the director, Company records and  publicly available information.
   
**ITEM 14.**

**PRINCIPAL ACCOUNTANT  FEES AND SERVICES**

The  following table shows the fees paid by Rock of Ages for the audit and other  services provided by Grant Thornton LLP and its affiliates for fiscal 2008  and 2007. The Audit Committee considered all of these services rendered by  Grant Thornton LLP and its affiliates to be compatible with the maintenance  of Grant Thornton LLP's and its affiliates' independence.  

The Audit Committee did not  utilize the de minimis exception to the pre-approval requirements to approve  any services provided by Grant Thornton LLP and its affiliates during fiscal  2008.

2008

2007

Audit Fees (1)

$

361,500

$

539,352

Tax Fees (2)

81,830

71,353

All Other Fees 

-

-

Total

$

443,330

$

610,705
               
39

 

The Audit Committee has  delegated to the Chair of the Audit Committee the authority to pre-approve  audit-related and non-audit services not prohibited by law to be performed by  Rock of Ages' independent auditors, provided the Chair shall report any  decisions to pre-approve such audit-related or non-audit services and fees to  the full Audit Committee at its next regular meeting and the Audit Committee  ratifies the approval of such non-audit services by the Chair.
   (1)Audit fees represent fees  for professional services provided in connection with the audit of our  financial statements and review of our quarterly financial statements and  audit services provided in connection with other statutory or regulatory  filings, including out of pocket expenses.   (2)For 2008, tax fees included  $9,000 for tax consultations related to the filing of the IRS Form 338(h)(10)  election which was an election to treat the stock sale of the retail division  as an asset sale for tax purposes. For 2007 tax fees included solely tax  compliance fees.
**PARTIV**

 
**ITEM 15.**

**EXHIBITS AND FINANCIAL  STATEMENT SCHEDULES**

 
 
(a)

The following documents are  filed as part of or are included in this Annual Report on Form 10-K and are  incorporated herein by reference: 

  

1.

The financial statements  listed in the Index to Consolidated Financial Statements and Financial  Statement Schedule, filed as part of this Annual Report on Form 10-K. 

  

2.

All schedules for which  provision is made in the applicable accounting regulations of the Securities  and Exchange Commission are not required under the related instructions or  are inapplicable and therefore have been omitted. 

  

3.

The exhibits listed in the  Exhibit Index filed as part of this Annual Report on Form 10- K. 

  

**EXHIBIT INDEX**

**EXHIBIT  NUMBER**

**DESCRIPTION**
      
3.1

Form of Amended and  Restated Certificate of Incorporation of the Company (incorporated herein by  reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1  (Registration 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) (incorporated herein by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K  and filed with the Securities and Exchange Commission on November 16, 2007)
      
4.

Specimen Certificate  representing the Class A Common Stock (incorporated herein by reference to  Exhibit 4 to the Company's Registration Statement on Form S-1 (Registration  No. 333-33685) filed with the Securities and Exchange Commission on August  15, 1997 and declared effective on October 20, 1997)
      
10.1*

First Amendment and  Restatement of Rock of Ages Corporation Key Employees Deferred Salary Plan  dated April 6, 2006 (incorporated herein by reference to Exhibit 10.1 to the  Company's Annual Report on Form 10-K for the year ended December 31, 2006 and  filed with the Securities and Exchange Commission on April 2, 2007)
      
10.2*

Rock of Ages 2005 Stock  Plan (incorporated herein by reference to Exhibit 10.1 to the Company's  Current Report on Form 8-K and filed with the Securities and Exchange  Commission on June 23, 2005)

40

 
      
10.3*

Employment Agreement of  Kurt M. Swenson (incorporated herein by reference to Exhibit 10.2 to the  Company's Registration Statement on Form S-1 (Registration No. 333-33685)  filed with the Securities and Exchange Commission on August 15, 1997 and  declared effective on October 20, 1997)  
      
10.4*

Employment Agreement of  Douglas S. Goldsmith dated May 25, 2006 (incorporated herein by reference to  Exhibit 10.1 to the Company's Current Report on Form 8-K and filed with the  Securities and Exchange Commission on June 16, 2006)
      
10.5*

Employment Agreement of  Michael B. Tule dated May 25, 2006 (incorporated herein by reference to  Exhibit 10.2 to the Company's Current Report on Form 8-K and filed with the  Securities and Exchange Commission on June 16, 2006) 
      
10.6*

Amendment No. 1 to  Employment Agreement of Kurt M. Swenson dated April 20, 2006 (incorporated  herein by reference to Exhibit 10.6 to the Company's Quarterly Report on Form  10-Q for the quarterly period ended July 1, 2006 and filed with the  Securities and Exchange Commission on August 14, 2006)
      
10.7*

Amendment to Salary  Continuation Agreement of Kurt M. Swenson dated April 20, 2006 (incorporated  herein by reference to Exhibit 10.7 to the Company's Quarterly Report on Form  10-Q for the quarterly period ended July 1, 2006 and filed with the  Securities and Exchange Commission on August 14, 2006)

10.8*

Retirement Agreement of  Kurt M. Swenson dated April 28, 2008 (incorporated herein by reference to  Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the  Securities and Exchange Commission on April 29, 2008)

 
Severance Agreement and  General Release dated May 22, 2006 between Rudolph R. Wrabel and the Company  (incorporated herein by reference to Exhibit 10.1 to the Company's Current  Report on Form 8-K and filed with the Securities and Exchange Commission on  May 26, 2006)

10.10*

Severance Agreement and  General Release dated May 22, 2006 between Caryn A. Crump and the Company  (incorporated herein by reference to Exhibit 10.2 to the Company's Current  Report on Form 8-K and filed with the Securities and Exchange Commission on  May 26, 2006)

10.11*

Form of Salary Continuation  Agreement (incorporated herein by reference to Exhibit 10.15 to the Company's  Registration Statement on Form S-1 (Registration No. 333-33685) filed with  the Securities and Exchange Commission on August 15, 1997 and declared  effective on October 20, 1997)

10.12

Form of Collective  Bargaining Agreement dated as of April 29, 2006 by and between Rock of Ages  Corporation and the Granite Cutter's Association (incorporated herein by  reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for  the quarterly period ended July 1, 2006 and filed with the Securities and  Exchange Commission on August 14, 2006)

10.13

Form of Side Letter  Agreement dated April 29, 2006 by and between the Granite Cutter's  Association and Rock of Ages Corporation  (incorporated herein by reference  to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the  quarterly period ended July 1, 2006 and filed with the Securities and  Exchange Commission on August 14, 2006)

10.14

Form of Collective  Bargaining Agreement dated as of April 29, 2006 by and between Rock of Ages  Corporation and the Granite Cutter's Association  (incorporated herein by  reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K for  the year ended December 31, 2006 and filed with the Securities and Exchange  Commission on April 2, 2007)

10.15

Form of Side Letter  Agreement dated April 29, 2006 by and between the Granite Cutter's  Association and Rock of Ages Corporation  (incorporated herein by reference  to Exhibit 10.124to the Company's Annual Report on Form 10-K for the year  ended December 31, 2006 and filed with the Securities and Exchange Commission  on April 2, 2007)

41

 

10.16

Credit Facility dated as of  June 25, 1997 between Royal Bank of Canada and Rock of Ages Canada, Inc.,  Rock of Ages Quarries Inc. and Rock of Ages Canada Inc. (incorporated herein  by reference to Exhibit 10.20 to the Company's Registration Statement on Form  S-1 (Registration No. 333-33685) filed with the Securities and Exchange  Commission on August 15, 1997 and declared effective on October 20, 1997)

10.17

Twelfth Amendment and  Consent to Financing Agreement dated as of October 30, 2006, by and between  The CIT Group/Business Credit and Rock of Ages Corporation, Rock of Ages  Kentucky Cemeteries, LLC, Carolina Quarries, Inc., Pennsylvania Granite  Corporation, Rock of Ages Memorials, Inc. and Sioux Falls Monument Company  (incorporated herein by reference to Exhibit 10.01 to the Company's Current Report  on Form 8-K and filed with the Securities and Exchange Commission on November  1, 2006)

10.18

Thirteenth Amendment and  Consent to Financing Agreement dated as of March 29, 2007, by and between The  CIT Group/Business Credit and Rock of Ages Corporation, Rock of Ages Kentucky  Cemeteries, LLC, Carolina Quarries, Inc., Pennsylvania Granite Corporation,  Rock of Ages Memorials, Inc. and Sioux Falls Monument Company  (incorporated  herein by reference to Exhibit 10.33 to the Company's Annual Report on Form  10-K for the year ended December 31, 2006 and filed with the Securities and  Exchange Commission on April 2, 2007)
      
10.19

Supply Agreement dated as  of January 11, 2002 by and between Rock of Ages Corporation and Adams Granite  Co., Inc. (incorporated herein by reference to exhibit 10.15 to the Company's  Annual Report on Form 10-K for the fiscal year ended December 31, 2001 and  filed with the Securities and Exchange Commission on April 1, 2002)
      
10.20

Amendment to Supply  Agreement dated as of January 1, 2004 by and between Rock of Ages Corporation  and Adams Granite Co., Inc. (Incorporated by reference to Exhibit 10.2 to the  Company's annual Report on Form 10-K for the fiscal year ended December 31,  2006 and filed with the Commission on April 2, 2007)
      
10.21

Amendment No. 2 to Supply  Agreement dated as of January 16, 2007 by and between Rock of Ages  Corporation and Adams Granite Co., Inc. (incorporated by reference to Exhibit  10.21 to the Company's Annual Report on Form 10-K for the fiscal year ended  December 31, 2006 and filed with the Commission on April 2, 2007)
      
10.22

Purchase and Sale Agreement  and related exhibits dated July 28, 2006 by and between Rock of Ages  Corporation, Carolina Quarries, Inc. and New England Stone Industries, Inc.  (incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly  Report on Form 10-Q For the quarterly period ended September 30, 2006 and  filed with the Securities and Exchange Commission on November 13, 2006) 
      
10.23

Amendment No. 1 to Purchase  and Sale Agreement and related exhibits dated October 19, 2006 by and between  Rock of Ages Corporation, Carolina Quarries, Inc. and New England Stone  Industries, Inc. (incorporated herein by reference to Exhibit 10.2 to the  Company's Quarterly Report on Form 10-Q For the quarterly period ended  September 30, 2006 and filed with the Securities and Exchange Commission on  November 13, 2006) 
      
10.24

Stock Purchase Agreement  dated as of January 17, 2008 by and between PKDM Holdings, Inc. and Rock of  Ages Corporation. (incorporated herein by reference to Exhibit 2.1 to the  Company's Current Report on Form 8-K and filed with the Securities and  Exchange Commission on January 23, 2008)
      
10.25

Termination Agreement and  General Release dated January 17, 2008 by and between Richard M. Urbach and  the Company (incorporated by  reference to Exhibit 10.25 to the  Company's Annual Report on Form 10-K for the fiscal year ended December 31,  2007 and filed with the Commission on March 31, 2008)
      
10.26

Authorized Retailer Supply  and License Agreement dated as of January 17, 2008 by and between the Company, PKDM Holdings, Inc., North American Heritage Services, Inc., Keith Monument  Company, LLC, and Sioux Falls Monument Co., LLC (incorporated by reference to Exhibit 10.26 to the Company's Annual Report on Form 10-K for the  fiscal year ended December 31, 2007 and filed with the Commission on March  31, 2008) †
      10.27
Amendment No. 1 to Supply  Agreement dated as of January 16, 2009 (executed and delivered March 10,  2009) by and between Rock of Ages Corporation and PKDM Holdings, Inc.  (incorporated by reference to Exhibit 10.1 to the Company's Current Report on  Form 8-K filed with the Commission on March 11, 2009)
      
42

 

10.28

Amended and Restated  Financing Agreement  dated October 24, 2007 by and between The CIT  Group/Business Credit, Inc. and Carolina Quarries, Inc., Pennsylvania Granite  Corp., Keith Monument Company, LLC, Rock of Ages Memorials, Inc., Sioux Falls  Monument Co., and the Company. (incorporated herein by reference to Exhibit  10.1 to the Company's Current Report on Form 8-K and filed with the  Securities and Exchange Commission on October 25, 2007)
      
10.29

First  Amendment to Amended and Restated Financing Agreement dated March 30, 2009  by and between The CIT Group/Business Credit, Inc. and Carolina Quarries,  Inc., Pennsylvania Granite Corp., Keith Monument Company, LLC, Rock of Ages  Memorials, Inc., Sioux Falls Monument Co., and the Company. (incorporated  herein by reference to Exhibit 10.1 to the Company's Current Report on Form  8-K and filed with the Securities and Exchange Commission on March 31, 2009)
      
10.30

Letter from The CIT  Group/Business Credit, Inc. to Carolina Quarries, Inc., Pennsylvania Granite  Corp., Keith Monument Company, LLC, Rock of Ages Memorials, Inc., Sioux Falls  Monument Co., and the Company consenting to sale of the Company's retail  division (incorporated by  reference to Exhibit 10.28 to the  Company's Annual Report on Form 10-K for the fiscal year ended December 31,  2007 and filed with the Commission on March 31, 2008)
      
10.31

Supplemental Retirement  Plan for Donald Labonté  dated as of January 1, 2007 (incorporated by reference to Exhibit 10.29 to the Company's Annual Report on Form 10-K for the  fiscal year ended December 31, 2007 and filed with the Commission on March  31, 2008) 
      
10.32

Employment Agreement of Donald  M. Labonte dated as of July 1, 2008 (executed and delivered on August 26,  2008) (incorporated herein by reference to Exhibit 10.1 to the Company's  Current Report on Form 8-K and filed with the Securities and Exchange  Commission on August 28, 2008)
      
11.

Statement re: computation  of per share earnings (incorporated herein by reference to Note (1)(n) of the  Company's consolidated financial statements (filed herewith))
      
21.

Subsidiaries of the Company 
      
23.1

Consent of Grant Thornton  LLP
      
31.1

Certification of CEO  pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act  of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
      
31.2

Certification of CFO  pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act  of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of  2002.
      
32.1

Certification of CEO  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes Oxley Act of 2002.
      
32.2

Certification of CFO  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes Oxley Act of 2002.

*      This exhibit is amanagement contract or compensatory plan or arrangement.

†      Portions of this exhibit have been omitted andfiled separately with the Securities and Exchange Commission pursuant to arequest for confidential treatment.

 

 

43

 

** **

 

 

 

 

 

 

 

**ROCK OF AGES CORPORATION AND SUBSIDIARIES**

** **

Consolidated Financial Statements

 

December 31, 2008 and 2007

(With Report of Independent Registered PublicAccounting Firm Thereon)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

44

 

 

**ROCK OF AGES CORPORATION AND SUBSIDIARIES**Table of Contents

 

**PAGE**

Report of Independent  Registered Public Accounting Firm

46
      
Consolidated Balance Sheets

47
      
Consolidated Statements of  Operations

48
      
Consolidated Statements of  Stockholders' Equity and Comprehensive Income (Loss)

50

Consolidated Statements of  Cash Flows 

51

Notes to Consolidated Financial  Statements

53
      
Supplementary Information:

          Schedule  II-Valuation and Qualifying Accounts and Reserves

78
 
 

 

 

 

 

 

 

 

 

 

 

 

 

45

**REPORT OF INDEPENDENT  REGISTERED PUBLIC ACCOUNTING FIRM**
   
The Board of Directors and Stockholders

Rock of Ages Corporation:
   
We have audited the  accompanying consolidated balance sheets of Rock of Ages Corporation (a  Delaware Corporation) and subsidiaries (collectively, the  "Company") as of December 31, 2008 and 2007 and the related  statements of operations, stockholders' equity and comprehensive loss, and  cash flows for the years then ended. Our audits of the basic financial  statements included the financial statement schedule listed in the index  appearing under Item 15 (a)(2). These financial statements and financial  statement schedule are the responsibility of the Company's management. Our  responsibility is to express an opinion on these financial statements and  financial statement schedule based on our audits.
   
We conducted our audits in  accordance with the standards of the Public Company Accounting Oversight  Board (United States). Those standards require that we plan and perform the  audit to obtain reasonable assurance about whether the financial statements  are free of material misstatement. The Company is not required to have, nor  were we engaged to perform, an audit of its internal control over financial  reporting. Our audit included consideration of internal control over  financial reporting as a basis for designing audit procedures that are  appropriate in the circumstances, but not for the purpose of expressing an  opinion on the effectiveness of the Company's internal control over financial  reporting.  Accordingly, we express no such opinion.  An audit also  includes examining, on a test basis, evidence supporting the amounts and the  disclosures in the financial statements, assessing the accounting principles  used and significant estimates made by management, as well as evaluating the  overall financial statement presentation.  We believe that our audits  provide a reasonable basis for our opinion.
   
In our opinion, the  consolidated financial statements referred to above present fairly, in all  material respects, the financial position of Rock of Ages Corporation and  subsidiaries as of December 31, 2008 and 2007 and the results of their  operations and their cash flows for the years then ended in conformity with  accounting principles generally accepted in the United States of America.  Also in our opinion, the related financial statement schedule, when  considered in relation to the basic financial statements taken as a whole,  presents fairly, in all material respects, the information set forth therein.
   /s/ Grant Thornton LLP   Boston, MassachusettsMarch 31, 2009
 

 

 

 

 

 

 

 

46

**ROCK OF AGES CORPORATION AND SUBSIDIARIES**Consolidated Balance SheetsDecember 31, 2008 and 2007

 

**2008**

**2007**

**ASSETS**

Current assets:

   Cash and  cash equivalents

$

888,099

$

1,960,512

   Trade  receivables, less allowance for doubtful accounts of       $227,920 in 2008 and $131,825 in 2007

13,314,324

11,712,693

   Inventories 

16,839,448

21,679,833

   Income  taxes receivable

135,682

98,336

   Other  current assets

1,425,065

1,768,736

   Assets held for sale

477,274

-

   Current  assets of discontinued operation

-

14,266,459

          Total  current assets

33,079,892

51,486,569

Property, plant and  equipment:

   Granite  reserves and development costs

16,300,376

16,098,666

   Land

3,963,610

4,283,516

   Buildings  and improvements

10,950,292

13,155,111

   Machinery  and equipment

27,304,228

26,818,110

   Furniture  and fixtures

965,006

1,128,021

   Construction-in-process

292,029

441,988

59,775,541

61,925,412

   Less  accumulated depreciation, depletion and amortization

29,777,079

30,139,159

          Net  property, plant and equipment

29,998,462

31,786,253

Other assets:

   Cash  surrender value of life insurance policies

132,184

186,454

   Identified  intangible assets, net 

570,954

382,933

   Goodwill 

387,156

387,156

   Debt  issuance costs, net

143,381

155,823

   Other  long-term assets

130,833

259,512

          Total  other assets

1,364,508

1,371,878

          Total  assets 

$

64,442,862

$

84,644,700

 

 

 

 

 

47

**ROCKOF AGES CORPORATION AND SUBSIDIARIES**Consolidated Balance SheetsDecember 31, 2008 and 2007

 

**2008**

**2007**

**LIABILITIES AND  STOCKHOLDERS' EQUITY**

Current liabilities:

   Borrowings  under line of credit 

$

7,428,085

$

10,498,386

   Current  maturities of long-term debt 

39,839

5,191,044

   Trade  payables

1,334,125

1,793,503

   Accrued  expenses

2,225,986

2,303,048

   Salary  continuation and other post-employment liabilities 

567,274

583,801

   Customer  deposits

453,595

746,608

   Liabilities  of discontinued operation

-

6,748,236

          Total  current liabilities

12,048,904

27,864,626

Long-term debt, net of  current maturities 

14,381,488

14,158,177

Salary continuation  liabilities, net of current portion 

5,381,913

5,530,678

Accrued pension cost 

9,025,673

3,668,281

Accrued post-employment  benefit cost 

1,622,671

1,574,791

Other liabilities

1,523,338

1,322,474

Deferred tax liabilities 

27,421

54,937

          Total  liabilities

44,011,408

54,173,964

Commitments and  contingencies 

Stockholders' equity:

   Preferred  stock - $0.01 par value;  2,500,000 shares authorized; 

     none issued

-

-

   Common  stock - Class A, $0.01 par value; 30,000,000 shares authorized; 

    4,812,342  and 4,677,467 shares issued and outstanding as of 

     December 31, 2008 and 2007, respectively

48,124

46,775

   Common Stock -  Class B, $0.01 par value; 15,000,000 shares authorized; 

    2,603,721  and 2,738,596 shares issued and outstanding as of 

     December 31, 2008 and 2007

26,037

27,386

     Additional paid-in capital

65,688,524

65,656,658

     Accumulated deficit

(35,547,869

)

(33,352,380)

     Accumulated other comprehensive loss

(9,783,362

)

(1,907,703)

          Total  stockholders' equity

20,431,454

30,470,736

          Total  liabilities and stockholders' equity

$

64,442,862

$

84,644,700

Seeaccompanying notes to consolidated financial statements

 

 

48

**ROCK OF AGES CORPORATION AND SUBSIDIARIES**Consolidated Statements of OperationsYears ended December 31, 2008 and 2007

 

  

**2008**

**2007**

Net revenues:

   Quarry

$

28,685,500

$

29,292,419

   Manufacturing

27,183,365

26,253,337

      Total  net revenues

55,868,865

55,545,756

Cost of goods sold:

   Quarry

21,332,267

22,889,256

   Quarry  inventory write-down

3,929,686

-

   Manufacturing

19,715,534

18,036,488

      Total  cost of goods sold

44,977,487

40,925,744

Gross profit:

   Quarry

3,423,547

6,403,163

   Manufacturing

7,467,831

8,216,849

      Total  gross profit

10,891,378

14,620,012

Selling, general and  administrative expenses:

   Quarry

2,266,873

3,061,465

   Manufacturing

4,382,813

4,214,275

   Corporate  overhead

3,635,699

5,187,083

   Impairment of long-lived  assets

1,348,253

-

   Impairment of investment  in and advances to affiliate

-

1,361,329

   Insurance recovery -  quarry asset

-

(211,811)

   Foreign exchange (loss)  income

(27,071)

119,712

   Other income, net

(424,555)

(159,017)

      Total  selling, general and administrative expenses

11,182,012

13,573,036

   Income (loss) from  operations

(290,634)

1,046,976

Interest expense, net

1,367,564

1,843,667

   Loss from  continuing operations before income taxes

(1,658,198)

(796,691)

Provision for income taxes 

394,980

535,867

   Loss from  continuing operations 

(2,053,178)

(1,332,558)

Discontinued operations,  including impairment charge of $5,908,509 in 2007 

             (142,311)

             (5,223,924)

   Net loss

$

(2,195,489)

$

(6,556,482)

Net loss per share - basic  and diluted:

  Loss from  continuing operations 

$

(0.28)

$

(0.18)

  Discontinued  operations

(0.02)

(0.70)

        Net  loss per share

$

(0.30)

$

(0.88)

Weighted average number of  common shares outstanding - basic and diluted 

7,416,063

7,416,063

Seeaccompanying notes to consolidated financial statements.

49

** **

**ROCK OF AGES CORPORATION AND SUBSIDIARIES**Consolidated Statements ofStockholders' Equity and Comprehensive LossYears ended December 31, 2008 and 2007

 

**CLASS A  COMMONSTOCK**

**CLASS B  COMMONSTOCK**

**ADDITIONAL  PAID-INCAPITAL**

**ACCUMULATED DEFICIT**

**ACCUMULATED  OTHER  COMPREHENSIVELOSS**

**TOTAL   STOCKHOLDERS'EQUITY**

Balance at December 31, 2006

 $

46,608

$

27,386

$

65,550,908

$

(26,795,898

)

$

(6,328,348

)

$

32,500,656

Comprehensive loss:

  Net loss 

-

-

-

(6,556,482

)

-

(6,556,482)

  Cumulative  translation adjustment

-

-

-

-

1,854,349

1,854,349

 Net unrealized loss on  securities       

  available for sale

-

-

-

-

(111,800

)

(111,800)

  Pension  liability adjustment, net

-

-

-

-

2,678,096

2,678,096

Total comprehensive loss

(2,135,837)

Stock compensation expense

-

-

5,581

-

-

5,581

Exercise of stock options

167

-

100,169

-

-

100,336

Balance at December 31, 2007

 $

46,775

 $

27,386

$

65,656,658

$

(33,352,380

)

$

(1,907,703

) 

$

30,470,736

Comprehensive loss:

  Net loss 

-

-

-

(2,195,489

)

-

(2,195,489)

  Cumulative  translation adjustment

-

-

-

-

(2,020,538

)

(2,020,538)

 Net unrealized loss on  securities    

  available for sale

-

-

-

-

(94,600

)

(94,600)

  Pension  liability adjustment, net

-

-

-

-

(5,760,521

)

(5,760,521)

Total comprehensive loss

(10,071,148)

Stock compensation expense

-

-

31,866

-

-

31,866

Conversion of Common Stock

1,349

(1,349

) 

-

-

-

-

Balance at December 31, 2008

 $

48,124

 $

26,037

$

65,688,524

$

(35,547,869

)

$

(9,783,362

) 

$

20,431,454

 

See accompanying notes to consolidated financialstatements.

 

 

 

 

 

 

 

50

**ROCK OF AGES CORPORATION AND SUBSIDIARIES**Consolidated Statements of Cash FlowsYears ended December 31, 2008 and 2007 

 

**2008**

** **

** **

**2007**

Cash flows from operating  activities:

  Net loss

$

(2,195,489

)

$

(6,556,482)

  Adjustments to  reconcile net loss to net cash provided by         operating activities:

     Impairment of  discontinued operations

-

5,908,509

     Impairment of  investment in and advances to affiliate

-

1,361,329

     Impairment of long-lived  asset

1,348,253

-

    Write-down of inventory

3,929,686

-

    Other than temporary  impairment on investment

93,640

-

    Loss  (gain) on sale of assets 

(197,061

)

269,055

     Depreciation, depletion and amortization

2,399,793

3,729,739

    Deferred  taxes

(21,327

)

(9,770)

    Stock compensation  expense

31,866

5,581

      Decrease (increase) in cash surrender value 

        of life insurance policies

54,271

(18,486)

    Changes  in operating assets and liabilities:

         Decrease  (increase) in trade receivables

(1,942,652

)

842,295

         Decrease  (increase) in inventories

11,623

(1,158,637)

         Decrease  (increase) in other current assets

106,555

(203,068)

         Decrease  (increase) in other assets

(88,203

)

223,700

         Increase  (decrease) in trade payables and accrued expenses

(657,309

)

(879,428)

         Increase  (decrease) in customer deposits

(293,014

)

(117,124)

           Increase (decrease) in salary continuation, pension and 

             post-employment liabilities

 (497,180

)

16,100

         Increase  (decrease) in other liabilities

200,865

170,062

               Net cash provided by operating activities

2,284,317

3,583,375

Cash flows from investing  activities:

    Purchases  of property, plant and equipment

(3,088,531

)

(1,279,061)

    Purchase  of intangible asset

(179,197

) 

-

    Proceeds  from sale of assets

473,032

114,385

    Proceeds  from sale of retail division

7,716,604

-

               Net cash provided by (used in) investing activities

4,921,908

(1,164,676)

Cash flows from financing  activities:

    Net  repayments under line of credit

(3,070,301

) 

(2,719,226)

    Principal  payments on long-term debt

(4,923,910

)

(1,628,252)

    Stock  options exercised

-

100,335

    Debt  issuance costs

(24,101

)

(161,195)

               Net cash used in financing activities

(8,018,312

) 

(4,408,338)

Effect of exchange rate  changes on cash and cash equivalents

(260,326

) 

605,056

               Net decrease in cash and cash equivalents

(1,072,413

)

(1,384,583)

Cash and cash equivalents,  beginning of year

1,960,512

3,345,095

Cash and cash equivalents,  end of year

$

888,099

$

1,960,512

See accompanying notes to consolidated financialstatements.

51

**ROCK OF AGES CORPORATION AND SUBSIDIARIES**Consolidated Statements of CashFlows, continued

Years ended December 31, 2008 and 2007

 

 

2008

2007

Supplemental cash flow  information:

     Cash paid during the  year for:

              Interest

$

1,405,359

$

2,664,493

              Income taxes 

550,772

540,756

Supplemental non-cash  investing and financing activities:
   
The Company recorded an  adjustment due to a decrease in the funded status of the pension plans of  $5,760,520 in 2008. In 2007, the Company recorded an adjustment due to an  increase in the funded status of the pension plans of $2,678,096.

   

See accompanying notes to consolidated financialstatements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

52

**ROCK OF AGES CORPORATION AND SUBSIDIARIES**Notes to Consolidated FinancialStatements

December 31, 2008 and 2007

 

**(1)**

**SUMMARY OF SIGNIFICANT  ACCOUNTING POLICIES**

In  this report, the terms "Company," "we," "us,"  or "our" mean Rock of Ages Corporation and all subsidiaries  included in our consolidated financial statements. Rock of Ages was founded  in 1885 and is an integrated granite quarrier and manufacturer whose  principal product is granite memorials used primarily in cemeteries. We own  and operate nine active quarry properties and five manufacturing and sawing  facilities in North America, principally in Vermont and the Province of Quebec. Until the retail division was sold on January 17, 2008, we marketed and distributed our memorials on a retail basis through approximately eighty  Company-owned retail sales outlets in sixteen states. We sell memorials  wholesale to approximately 115 independent authorized Rock of Ages retailers  in the United States as well as approximately 116 retailers in Canada. 
         
**(a)**

**PRINCIPLES OF  CONSOLIDATION**

** **

The  accompanying consolidated financial statements include the accounts of the  Company and its wholly owned subsidiaries. All significant inter-company  balances and transactions have been eliminated in consolidation.

** **

** **

**(b)**

**CASH AND CASH  EQUIVALENTS**

** **

We  consider financial instruments that are both readily convertible to cash and  so near their maturity that they present insignificant risk of changes in  value because of changes in interest rates to be cash equivalents. 

** **

** **

The  Company had approximately $873,000 and $1,945,000 of cash and cash  equivalents in foreign banks at December 31, 2008 and 2007, respectively.

** **

**(c)**

**INVENTORIES**

** **

Inventories  are stated at the lower of cost or market. Cost is determined using the  specific annual average cost method for the quarry segment and the specific  cost method for the manufacturing segment and former retail segment.

** **

**(d)**

**PROPERTY,  PLANT AND EQUIPMENT**

** **

The  Company capitalizes significant purchases of items having expected useful  lives in excess of one year. Property, plant and equipment are stated at  cost. Depreciation is calculated using the straight-line and declining  balance methods based upon the following estimated useful lives:

** **

** **

Buildings  and improvements

10  to 40 years

** **

Leasehold  improvements

Shorter  of the estimated useful life or lease term

** **

Machinery  and equipment

3  to 20 years

** **

Furniture  and fixtures

5  to 12 years

** **

** **

Depreciation  expense amounted to $2,117,274 and $3,412,743 in 2008 and 2007, respectively.

** **

** **

Cost  depletion and amortization of granite reserves and development costs are  charged to operations based on cubic feet produced in relation to estimated  reserves of the property. Cost depletion and amortization charged to  operations amounted to $126,124 and $148,756 in 2008 and 2007, respectively.
         **(e)**
**GOODWILL  AND IDENTIFIED INTANGIBLE ASSETS**

Identified  intangible assets (those intangible assets with definite estimated useful  lives) are recorded at fair value at the date of acquisition and are  amortized, using the straight-line method, over their estimated useful lives.  Such intangible assets are reviewed for impairment as set forth in note 1  (l).
               
Goodwill is  recorded when consideration paid for a business acquisition exceeds the fair  value of the net tangible and identifiable intangible assets acquired. The  Company accounts for goodwill and certain other identified intangible assets  in accordance with Statement of Accounting Standards ("SFAS") No.  

53

**ROCK OF AGES CORPORATION AND SUBSIDIARIES**Notes to Consolidated FinancialStatements

December 31, 2008 and 2007

 
142, "Goodwill and other Intangible Assets" ("SFAS No. 142"). In  accordance with SFAS No. 142 the Company tests goodwill for impairment  annually and when an event occurs or circumstances change that would more  likely than not reduce the fair value of a reporting unit below its carrying  value. Goodwill is tested for impairment using a two-step process. The first  step is to determine if there is an impairment based on the estimated fair  value of the reporting units compared to the carrying value and the second  step, if necessary, is to determine the amount of the impairment. 
** **

During the  fourth quarter of 2008, based on a combination of factors, including a  sustained decline in the Company's market capitalization, the Company  concluded that there were sufficient indicators to require the Company to  perform an interim goodwill impairment analysis as of December 31, 2008.  Accordingly, the Company performed a step 1 impairment assessment of its  goodwill by reporting unit and determined that the estimated fair value  exceeded its carrying value and therefore passing step 1. The estimated fair  value of the reporting unit was determined using a discounted cash flow as  the best evidence of fair value. There can be no assurance that goodwill will  not become impaired in future periods.  The Company performs its annual  impairment test in the first quarter.  All of the Company's goodwill is  assigned to the Quarry Segment.

** **

**(f)**

**DEBT  ISSUANCE COSTS**

** **

The  Company amortizes debt issuance costs using the straight-line method over the  term of the related borrowing. Amortization expense was $36,543 and $68,210  in 2008 and 2007, respectively, and is reported with interest expense in the  accompanying consolidated statements of operations.

** **

**(g)**

**FOREIGN  CURRENCY TRANSLATION**

** **

The  functional currency of the Company's Canadian subsidiary is the Canadian  dollar. The Company translates the accounts of its foreign subsidiary in  accordance with SFAS No. 52*,* "Foreign Currency Translation,"  under which all assets and liabilities are translated at the rate of exchange  in effect at year-end. Revenue and expense accounts are translated using  weighted average exchange rates in effect during the year. Gains or losses  from foreign currency translation are included in accumulated other  comprehensive loss, which is included in stockholders' equity in the  accompanying consolidated financial statements. All realized and unrealized  transaction gains and losses are separately reported in the statements of  operations.

** **

** **

**(h)**

**INCOME  TAXES**

** **

The  Company files its U.S. Federal income tax return on a consolidated basis.  Rock of Ages Canada, Inc., a wholly owned subsidiary, is responsible for  income taxes in Canada. Max Mining, a wholly owned subsidiary, is responsible  for income taxes in Luxembourg.

** **

** **

** **

We  recognize deferred tax assets and liabilities for the future tax consequences  attributable to the difference between the financial statement carrying  amounts of existing assets and liabilities and their respective tax basis.  Deferred tax assets and liabilities are measured using enacted tax rates  expected to apply to taxable income in the years in which those temporary  differences are expected to be recovered or settled.

** **

** **

The  ultimate realization of deferred tax assets depends upon the generation of  future taxable income during the periods in which those temporary differences  become deductible. In assessing the realizability of deferred tax assets,  management considers whether it is more likely than not that some portion or  all of the deferred tax assets will be realized. Management considers the  scheduled reversal of deferred tax liabilities, projected future taxable  income and tax planning strategies in making this assessment. This assessment  is made each reporting period.

The Company is allowed to  claim percentage depletion for tax purposes under IRS Code Section 613 based  upon income derived from quarrying operations.

54

**ROCK OF AGES CORPORATION AND SUBSIDIARIES**Notes to Consolidated FinancialStatements

December 31, 2008 and 2007

 

In July 2006, the FASB issued  FIN No. 48, "Accounting for Uncertainty in Income Taxes-an  Interpretation of FASB Statement No. 109, Accounting for Income Taxes",  ("FIN 48"). This Interpretation prescribes a recognition threshold  and measurement attribute for the financial statement recognition and  measurement of a tax position taken or expected to be taken in a tax return.  It also provides guidance on de-recognition, classification, interest and  penalties, accounting in interim periods, disclosure and transition. The  Company adopted FIN 48 effective January 1, 2007. The implementation of this  interpretation had no impact on our financial statements and we continue to  have no unrecognized tax benefits or liabilities as a result of adopting FIN  48.
         
**(i)**

**STOCK-BASED EMPLOYEE  COMPENSATION**

The Company adopted SFAS  No. 123R "Share Based Payments" ("SFAS No. 123R"), in 2006, which had no  impact on the financial statements as the vesting of all unvested options  were accelerated prior to adoption. SFAS No. 123R requires that all  share-based payments to employees, including grants of employee stock  options, be recognized in the financial statements based on their fair  values.  

** **

**(j)**

**PENSION AND OTHER  POST-EMPLOYMENT PLANS**

The Company maintains a  defined benefit pension plan covering substantially all of its Vermont based non-union employees. The benefits are based on years of service and the  employee's compensation. The Company's funding policy is to annually  contribute amounts sufficient to meet minimum funding requirements as set  forth in employee benefit and tax laws plus such additional amounts, if any,  as we may determine to be appropriate. 

We have salary continuation  plans that cover certain employees described in more detail in Note 9. We  measure the cost of our obligations based on actuarial estimates and  recognize net periodic costs as employees render the necessary services to  earn the benefits.

The Company also sponsors a  post-employment health care plan for certain early retirees and executive  officers and post-employment group life insurance plans for all Vermont-based  union and non-union employees. We measure the cost of our obligations based  on actuarial estimates and recognize net periodic costs as employees render  the services necessary to earn the post-employment benefits.
         
** **

**(k)**

**USE OF ESTIMATES**

The preparation of  financial statements in conformity with accounting principles generally  accepted in the United States of America requires management to use estimates  and assumptions that affect the reported amounts of assets and liabilities  and disclosure of contingent assets and liabilities at the date of the  financial statements, and the reported amounts of revenues and expenses  during the reporting period. Actual results could differ from these  estimates. Material estimates that are particularly susceptible to  significant change are the estimated useful lives of property, plant and  equipment, the deferred tax asset valuation allowance, actuarial assumptions  affecting pension and other post-employment plan accounting, inventory  valuation, the allowance for doubtful accounts receivable and long-lived  asset impairments.
            **(l)**
**IMPAIRMENT OF LONG-LIVED  ASSETS**
      The Company accounts for  long-lived assets in accordance with the provisions of SFAS No. 144,  "Accounting for the Impairment or Disposal of Long-Lived Assets"  ("SFAS No. 144"). This Statement requires that long-lived assets and certain  identifiable intangibles be reviewed for impairment whenever events or changes  in circumstances indicate the carrying amount of an asset may not be  recoverable. We measure recoverability of assets to be held and used by a  comparison of the carrying amount of an asset to estimated, undiscounted  future cash flows expected to be generated by the asset. If the carrying  amount of an asset exceeds its estimated future cash flows, an impairment  charge is recognized for the amount by which the carrying amount of the asset  exceeds its fair value.  
55

**ROCK OF AGES CORPORATION AND SUBSIDIARIES**Notes to Consolidated FinancialStatements

December 31, 2008 and 2007

 

** **

**(m)**

**REVENUE RECOGNITION**

** **

** **

*Quarry*

** **

** **

The granite we quarry is  sold to outside customers and used by our manufacturing group. Our quarry  division recognizes revenue from sales of granite blocks to outside customers  when the granite is shipped and invoiced from the quarry except for cases  noted below. We generally provide a 5% discount for domestic customers if  payment is made within 30 days of purchase, except in the case of December  terms described below. Sales to foreign customers are typically secured by a  letter of credit.

** **

** **

** **

** **

At our Barre, Vermont quarries, we allow customers to purchase granite blocks and at their request we  store the blocks for them. Many of our customers do not have adequate storage  space at their facilities and want to ensure an adequate supply of blocks,  especially when the Barre quarries are closed from mid-December through  mid-March because of weather. Our quarry division recognizes revenue in  accordance with Staff Accounting Bulletin No. 104, "Revenue Recognition"  ("SAB 104").  Blocks are sold when the customer selects and  identifies the block at the quarry site, requests the block be stored and  they have significant business reasons to do so. At that time, the block is  removed from inventory, the customer's name is printed on the block, and  title and risk of ownership passes to the buyer. The customer is invoiced and  normal payment terms apply, except in the case of December terms described  below. Granite blocks owned by customers remain on our property for varying  periods of time after title passes. We retain a delivery obligation using our  trucks. However, we consider the earnings process substantially complete  because the cost of delivery service is inconsequential (less than 3%) in  relation to the selling price. Further, under industry terms of trade, title  passes and the payment obligation is established when the block is identified  at the quarry.

** **

** **

** **

** **

Each December, we offer  special payment terms to customers of our Barre quarries. As noted above,  from approximately mid-December to approximately mid-March, our Barre  quarries are closed due to weather. During this time, manufacturing plants  remain open and many customers prefer to ensure they own blocks of a size and  quality selected by them prior to the quarries' closure. All blocks purchased  in December are invoiced on or about December 31 and, at that time, the  blocks are removed from inventory, the customer's name is printed on the  blocks, and title and risk of ownership passes to the buyer. Payment terms  are one-third of the invoice amount on January 15, one-third on February 15,  and one-third on March 15. The program provides essentially the normal 30-day  payment terms during the months when the Barre quarries are closed  notwithstanding the customer purchases a three-month supply in December and  makes payments over 90 days. Customers need not use these special December  terms and may buy from inventory during the closure period on a first-come,  first-served basis with the normal 30-day payment terms.

** **

** **

** **

** **

*Manufacturing*

** **

** **

We record revenue 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 our facilities or set in a cemetery, if we are responsible for  the setting, which is when risk of ownership transfers to the customer,  persuasive evidence of an arrangement exists and collectibility is reasonably  assured. Prior to the sale of the retail division in January 2008, manufacturing  revenues related to internally transferred finished products to our former  retail stores were recorded when ultimately sold to an outside customer.
               *Retail*      Until we sold the retail  division on January 17, 2008, retail revenues were recorded when the finished  monument was placed in a cemetery, which is when risk of ownership transfers  to the customer, persuasive evidence of an arrangement exists and  collectibility is reasonably assured.               *Freight*      The Company accounts for  freight in accordance with Emerging Issues Task Force Consensus No. 00-10,  "Accounting for Shipping and Handling Fees and Costs". Amounts  charged to customers for shipping product are included in revenues and the  related costs are classified in cost of sales.
56

**ROCK OF AGES CORPORATION AND SUBSIDIARIES**Notes to Consolidated FinancialStatements

December 31, 2008 and 2007

 

** **

**(n)**

**NET INCOME (LOSS) PER  SHARE**

** **

** **

Net income (loss) per  share, or basic earnings (loss) per share, is computed by dividing earnings  available for common shares by the weighted average number of common shares  outstanding during each year. Net income (loss) per share - diluted, or  diluted earnings (loss) per share, is computed by dividing earnings 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  under stock based compensation programs had been issued. Potential common  shares are not included in the diluted income (loss) per share calculations  when the effect of their inclusion would be antidilutive, such as when the  Company incurs a net loss.

** **

** **

** **

**(o)**

**ACCUMULATED OTHER  COMPREHENSIVE LOSS**

** **

** **

Other comprehensive loss consists of the  following components, which are presented in the consolidated statements of  stockholders' equity and comprehensive loss.  
                                    
**Foreign Currency**

**Translation**

**UnfundedPensionLiability**

**Investment Available  **

**ForSale**

**Accumulated Other**

**ComprehensiveLoss**

Balance at December 31,  2006

$

1,671,396

$

(8,145,944

)

$

146,200

$

(6,328,348)

Other comprehensive income  for the year

1,854,349

2,678,096

(111,800

)

4,420,645

Balance at December 31,  2007

$

3,525,745

$

(5,467,848

)

$

34,400

$

(1,907,703)

Other comprehensive loss for the year

(2,020,538

) 

(5,760,521

)

(94,600

)

(7,875,659)

Balance at December 31,  2008

$

1,505,207

$

(11,228,369

)

$

(60,200

)

$

(9,783,362)
               Included in other comprehensive income/loss was a  reclassification adjustment of $86,000 in 2008 and $0 in 2007 for the  investment available for sale.  Included in other comprehensive  income/loss was a reclassification adjustment of $172,000 and $232,000 in 2008  and 2007, respectively for the unfunded pension liability.         
** **

**(p)**

**INVESTMENTS**

Through its wholly owned  subsidiary, Max Mining, the Company has a 1/3-equity interest in VIKA, Ltd.,  a Ukrainian closed stock company that owns the rights to quarry stone known  as "Galactic Blue" on certain property located in the Ukraine. As of December 31, 2007, the Company wrote-off its investment in VIKA.  See note  11 for additional discussion of this decision.

The Company owns common  stock of a public company, representing an equity interest of less than 20%,  where we do not exercise significant influence over the operating and  financial policies of the investee. This investment is accounted for as  available for sale in accordance with SFAS No. 115, "*Accounting for Certain Investments in Debt and  Equity Securities**"*, and is carried at fair market  value with unrecognized gain or loss recorded in accumulated other  comprehensive loss. As of December 31, 2008 the Company determined that the  stock had experienced an impairment in value that was other than temporary  and as a result the Company recorded a loss of $94,000.

** **

**(q)**

** ADVERTISING  EXPENSES**

Advertising costs are  expensed as incurred, and amounted to $173,000 and $272,000 in 2008 and 2007,  respectively.

** **

**(r)**

**WARRANTY**

Our memorials are covered  by a full perpetual or a limited perpetual warranty depending on the  particular granite. The Company estimates probable warranty costs at the time  revenue is recognized. The Company exercises judgment in determining its  accrued warranty liability and considers factors that may affect warranty  liability, including historical and anticipated rates of warranty claims. To  date, warranty obligations have not been significant. 

57

**ROCK OF AGES CORPORATION AND SUBSIDIARIES**Notes to Consolidated FinancialStatements

December 31, 2008 and 2007
         
**(s)**

**ASSET RETIREMENT  OBLIGATIONS**

The Company accounts for its asset  retirement obligations in accordance with SFAS No. 143, "Accounting  for Asset Retirement Obligations"**("SFAS No. 143") and FASB Interpretation  (FIN) No. 47, " Accounting for  Conditional Asset Retirement Obligations," ("FIN No. 47") which  is an interpretation of SFAS No. 143. These pronouncements  relate to legal obligations associated with the retirement of tangible  long-lived assets that result from acquisition, construction, development or  normal operation of a long-lived asset. We performed an analysis of such  obligations and determined they were not significant.  Many of our permits to  quarry, especially in Vermont and Canada, pre-date the current remediation  regulations, therefore pre-date any retirement obligations related to these  quarries.
         
**(t)**

**ACCOUNTS RECEIVABLE AND  ALLOWANCE FOR DOUBTFUL ACCOUNTS**

Receivables  relate to amounts due from customers of each of our segments.  The Company  generally requires collateral in the form of a deposit, the amount of which  depends upon the length of the relationship with the customer, past payment  history of the customer and other factors.  In the case of most foreign  transactions, a letter of credit securing payment is required. To reduce  credit risk, credit assessments are performed prior to accepting an initial  order from most quarry and manufacturing customers. Trade accounts receivable  are recorded at the invoiced amount and do not bear interest.

The estimated  allowance for doubtful accounts receivable is based, in large part, upon  judgments and estimates of inherent losses. The Company determines the  allowance based on a specific evaluation of delinquent accounts and considers  a number of factors, including the length of time trade accounts receivable  are past due and previous loss experience. Accounts receivable determined to  be losses are written off against the allowance; any recoveries of  receivables previously written off are credited to the allowance when  received.

**(u)**

**FAIR VALUE MEASUREMENTS**

Effective January 1,  2008, the Company adopted SFAS No. 157, "Fair Value Measurements", for  its financial assets and liabilities. SFAS No. 157 establishes a new  framework for measuring fair value and expands disclosure requirements. SFAS  No. 157 defines fair value as the price that would be received to sell  an asset, or paid to transfer a liability, in an orderly transaction between  market participants.

SFAS No. 157's  valuation techniques are based on observable or unobservable inputs.  Observable inputs reflect market data obtained from independent sources,  while unobservable inputs reflect the Company's market assumptions. These two  types of inputs have created the following fair value hierarchy:

 
-  Level 1-  Quoted prices       for identical instruments in active markets.Level 2 - Quoted prices       for similar instruments in active markets; quoted prices for identical       or similar instruments in markets that are not active; and model-derived       valuations in which significant value drivers are observable.Level 3 - Valuations       derived from valuation techniques in which significant value drivers are       unobservable.
The carrying  value of cash and cash equivalents, accounts receivable and accounts payable approximates fair value because of the short-term nature of  these instruments. Investment securities are carried at fair value using  level one inputs. Our long-term and short-term debt instruments bear interest at variable  rates, which at December 31, 2008 we estimated to be below market. If this debt was at  market rates we estimate the carrying value would be approximately $1.8  million more. 
**(v)**
**RECENT ACCOUNTING  PRONOUNCEMENTS**

58

**ROCK OF AGES CORPORATION AND SUBSIDIARIES**Notes to Consolidated FinancialStatements

December 31, 2008 and 2007

 

** **

** **

In February 2008, the FASB  issued FASB Staff Position No. 157-2, "Effective Date of FASB Statement No.  157", ("FSP 157-2") that amended SFAS No. 157 to delay the effective date for  all non-financial assets and non-financial liabilities, except those that are  recognized or disclosed at fair value in the financial statements on a  recurring basis (that is, at least annually). FSP 157-2 defers the effective  date of SFAS No. 157 to fiscal years beginning after November 15, 2008, and  interim periods within those fiscal years for items within the scope. We are  currently evaluating the effect, if any that the adoption of items deferred  under FSP 157-2 may have on our financial statements. Items not deferred  under FSP 157-2 did not have a material impact upon adoption. 

** **

** **

** **

** **

** **

In February 2007, the FASB  issued SFAS No. 159, "The Fair Value Option for Financial Assets and  Financial Liabilities-Including an amendment of FASB Statement No. 115",  ("SFAS No. 159"). This statement permits entities to choose to measure many  financial instruments and certain other items at fair value. The objective is  to improve financial reporting by providing entities with the opportunity to  mitigate volatility in reported earnings caused by measuring related assets  and liabilities differently without having to apply complex hedge accounting  provisions. This statement is effective for fiscal years beginning after  November 15, 2007. The Company has not elected to account for any of its  assets or liabilities using the fair value option under SFAS No. 159 and,  accordingly, this statement had no effect on our financial statements.

** **

** **

** **

** **

** **

In December 2007, the FASB  issued SFAS No. 141 (Revised 2007), "Business Combinations" ("SFAS No.  141(R)"). This statement improves the relevance, representational  faithfulness, and comparability of the information that a reporting entity  provides in its financial reports about a business combination and its  effects. It establishes principles and requirements for how the acquirer  recognizes and measures in its financial statements the identifiable assets  acquired, the liabilities assumed, and any non-controlling interest in the  acquiree; recognizes and measures the goodwill acquired in the business  combination or a gain from a bargain purchase and determines what information  to disclose to enable users of the financial statements to evaluate the  nature and financial effects of the business combination. This statement is  effective for fiscal years beginning after December 15, 2008. SFAS No. 141(R)  will have an impact on accounting for business combinations once adopted, but  the effect is dependent on acquisitions subsequent to that time.

** **

** **

** **

** **

** **

In December 2007 the FASB  issued SFAS No. 160, "Non-controlling Interests in Consolidated Financial  Statements - an amendment of ARB No. 51". ("SFAS No. 160"). This statement  improves the relevance, comparability, and transparency of the financial  information that a reporting entity provides in its consolidated financial  statements by establishing accounting and reporting standards that require  the ownership interests in subsidiaries held by parties other than the parent  be clearly identified, labeled, and presented in the consolidated statement  of financial position within equity; the amount of consolidated net income  attributable to the parent and to the non-controlling interest be clearly  identified and presented on the face of the consolidated statement of income;  changes in a parent's ownership interest while the parent retains its  controlling financial interest in its subsidiary be accounted for  consistently as equity transactions and establishes a single method of  accounting for changes in a parent's ownership interest in a subsidiary that  do not result in deconsolidation. This statement is effective for fiscal  years beginning after December 15, 2008. We are currently evaluating the  effect, if any, that the adoption of SFAS No. 160 may have on our financial  statements.

** **

** **

** **

** **

** **

In March 2008, the FASB  issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging  Activities - an amendment of FASB No. 133". ("SFAS No. 161"). This statement  amends SFAS No. 133 by requiring enhanced disclosures about an  entity's derivative instruments and hedging activities, but does not change  SFAS No. 133's scope or accounting. SFAS No. 161 requires  increased qualitative, quantitative and credit-risk disclosures about the  entity's derivative instruments and hedging activities. SFAS 161 is  effective for fiscal years, and interim periods within those fiscal years,  beginning after November 15, 2008, with earlier adoption permitted. We  do not expect the adoption of this standard to have an effect on our  financial position or results of operations.

** **

** **

** **

** **

** **

In April 2008, the FASB  issued FASB Staff Position 142-3,*Determination of the Useful Life of  Intangible Assets* ("FSP FAS 142-3"), which amends the factors to be  considered in renewal or extension assumptions 

59
       used to determine the useful life of a recognized intangible  asset.  FSP FAS 142-3 is effective  for interim periods and fiscal years beginning after December 15, 2008.  The  Company will adopt FSP FAS 142-3 effective January 1, 2009.  The Company is  currently assessing the impact of FSP FAS  142-3 on its financial statements.
** **

** **

** **

** **

** **

In December 2008, the  FASB issued FASB Staff Position ("FSP") FAS No. 132(R)-1, "*Employer's  Disclosures about Postretirement Benefit Plan Assets*." This FSP amends  SFAS No. 132(R), "*Employers' Disclosures about Pensions and Other  Postretirement Benefits - An Amendment of FASB Statements No. 87, 88,  and 106*" to require more detailed disclosures about plan assets of a  defined benefit pension or other postretirement plan, including investment  strategies; major categories of plan assets; concentrations of risk within  plan assets; inputs and valuation techniques used to measure the fair value  of plan assets; and the effect of fair-value measurements using significant unobservable  inputs on changes in plan assets for the period. FSP 132(R)-1 is effective  for fiscal years ending after December 15, 2009, with earlier  application permitted. We do not expect the adoption of this standard to have  an effect on our financial position or results of operations.

** **

** **

** **

**(2)**

**OPERATING MATTERS AND  LIQUIDITY**

In recent years the Company  has experienced significant net losses principally due to expansion and  subsequent sale of its former retail operations, the valuation allowance  established against deferred tax assets, an inventory write-down and  impairment charges for a certain investment and long-lived asset.  During the  past four years, such losses totaled approximately $30 million contributing  to an accumulated deficit at December 31, 2008 of $35.5 million. During this  period, the Company had increased its borrowings over the first three years  by $6.2 million but decreased borrowings by $8 million during 2008.
         
Beginning in the second  half of 2005 through 2008, management has taken numerous actions to reduce  expenses. Most significantly, the Company consummated the sale of its retail  division in January 2008 at which time it received cash of approximately $7.7  million which was partially used to reduce debt.  See note 15 for additional  discussion of this transaction.
         
With the disposition of its  retail division and other cost cutting actions taken in its other operating  segments, the Company achieved improved results in 2008. While its overall  results improved in 2008, they were adversely affected by a non-cash  impairment charge of the former main office building and an inventory write-down  which totaled $5.3 million. In the past two years we have had positive cash  flow from operations and have been able to reduce debt by $12.3 million while  still investing $4.4 million in purchases of property, plant and equipment.  
         
As a result of the actions  taken in prior years, management believes that the Company will operate at a  profit in 2009, will generate positive cash flows and will remain in  compliance with all financial covenants of its debt agreement.
      
**(3)**

**GOODWILL AND IDENTIFIED  INTANGIBLE ASSETS**

Goodwill and identified  intangible assets consist of the following at December 31, 2008 and 2007:
                     
**ESTIMATEDUSEFUL LIFE**

**2008**

**2007**

         Goodwill

Indefinite

$

387,156

$

387,156

         Customer lists

5 -10 Years

$

617,875

$

310,000

        Less  accumulated amortization

(176,567

)

(89,125)

        Total customer lists

441,308

220,875

        Covenants  not to compete

5 Years

$

342,123

$

342,123

        Less  accumulated amortization

(212,477

)

(180,065)

          Total  covenants not to compete

129,646

162,058
      
           Total other identified intangible assets

$

570,954  

$

382,933

 

60

**ROCK OF AGES CORPORATION AND SUBSIDIARIES**Notes to Consolidated FinancialStatements

December 31, 2008 and 2007

 

Amortization expense was  $119,854 and $100,029 in 2008 and 2007, respectively.

Estimated future  amortization expense related to identified intangible assets is as follows:
         
Year Ending December 31

 

2009

 $

126,270

2010

126,270

2011

126,270

2012

126,270

2013

31,000

Thereafter

35,000

**(4)**
**INVENTORIES**Inventories consist of the  following at December 31, 2008 and 2007:  .
2008

2007

        Raw  materials

$

11,610,189

$

15,689,151

        Work-in-process

1,165,909

1,077,019

        Finished  goods and supplies

4,063,350

4,913,663

$

16,839,448

$

21,679,833
      
The finished goods and  supplies inventory includes $2,075,000 and $2,125,000 of retail display  inventory as of December 31, 2008 and December 31, 2007, respectively that is  located at various retail locations and is consigned to PKDM Holdings Inc.,  ("PKDM") the owners of the Company's former retail division. PKDM is  responsible for purchasing this inventory at the Company's book value as it  is sold plus any inventory remaining after the tenth anniversary of the  transaction.
      
During the fourth quarter  of 2008, the Company reevaluated the current quantities of second grade or  "B" block inventory at its export quarries, Bethel, Salisbury and Gardenia.   Due to escalating freight costs, which now can account for up to 50% of the selling  price of blocks, as well as the continued downturn in the global economy,  fewer customers are willing to purchase "B" blocks.   Based on these  circumstances the Company has estimated that approximately $3.9 million of  this inventory to be excessive as of December 31, 2008 and, accordingly,  recorded the write-down during the fourth quarter of 2008.  
      
**(5)**

**COMMITMENTS AND CONTINGENCIES**

*Leases*

The Company has several  non-cancelable operating leases for land, vehicles and office space. Rental  expense for all operating leases, including leases in 2007 for former retail  locations, was $204,142 and $1,117,739 in 2008 and 2007, respectively.
      
Future minimum lease  payments under non-cancelable operating leases (with initial or remaining  lease terms in excess of one year) are as follows:
         
Year Ending December 31,

** **

2009

$ 

200,003

2010

195,773

2011

185,307

2012

178,796

2013

165,545

Thereafter

130,477

$

1,055,901
         
61

**ROCK OF AGES CORPORATION AND SUBSIDIARIES**Notes to Consolidated FinancialStatements

December 31, 2008 and 2007
      
The Company also is the  lessor of certain parcels of land and buildings. The leases expire at various  times through 2028. Rental income was $148,228 and $173,137 in 2008 and 2007,  respectively. Future minimum rentals to be received under non-cancelable  leases are as follows:

Year Ending December 31

2009

$ 

118,591

2010

112,282

2011

77,983

2012

64,142

2013

75,680

Thereafter

560,279

$

1,008,957
      
*Purchase Commitment*

In connection with the sale  of the Lawson manufacturing plant in Barre, Vermont ("Lawson") in  2001, the Company entered into a Supply Agreement with Adams Granite Co.  ("Adams"). The Company agreed to purchase a minimum of $3,000,000  of monuments from Adams each year for a term of seven years with various  stipulations as to variations from the "minimum order" and pricing  agreements. If orders over a two-year period were less than the "minimum  order," then the Company would at its sole option, either place orders  for monuments in the amount of the deficiency or pay Adams the gross margin  that Adams would have realized had such orders been placed and filled. The  gross margin used in this calculation would be Adams' average gross margin on  sales of monuments to the Company over the prior two-year period.

The Supply Agreement with Adams was amended on January 1, 2004 reducing the minimum order obligation to $2,250,000  per year, plus or minus 10%. The minimum order for each year will be measured  separately and any variance in one year will not be added to or subtracted  from the minimum order obligation in any subsequent year. The remedy for  placing less than the minimum order remains the same. 

The Supply Agreement with Adams was further amended on January 16, 2007 waiving the Company's failure to meet the  minimum order required for 2006 and adding the $225,000 shortfall from 2006  to the minimum order obligation for 2007.  The minimum order obligation for  2008 remained the same as under the first amendment. 

The third amendment to the  Supply Agreement with Adams was entered into on June 11, 2008 waiving the  Company's failure to meet the minimum order required for 2007. Under the new  agreement each company agrees to extend the term of the supply agreement to  include the period from January 11, 2009 to January 10, 2010.  The minimum  order obligation under the extended term is $1,150,000 for 2008 and  $1,200,000 for the final year. The Company exceeded its minimum order  obligation for 2008.

*Litigation*

The Company is party to  legal proceedings that arise from time to time in the ordinary course of its  business. While the outcome of these proceedings cannot be predicted with  certainty, management based on its discussions with legal counsel, does not  expect these matters to have a material adverse effect on the Company's  financial condition, results of operations or cash flows. 

*Other commitments*

The  Company has an employment agreement with one of its executive officers that  includes a change in control provision.  It provides for the lump-sum payment  of an amount equal to one year's salary and certain other benefits in the  event of a change in control of the Company.

62

**ROCK OF AGES CORPORATION AND SUBSIDIARIES**Notes to Consolidated FinancialStatements

December 31, 2008 and 2007
**(6)**
**CREDIT** **FACILITY**

In October 2007, the Company  entered into a new credit facility (the "Facility") with its existing  lenders, the CIT Group/Business Credit and Chittenden Trust Company  ("Lenders") that is scheduled to expire in October 2012 and is  secured by substantially all assets of the Company located in the United States. The Facility consists of an acquisition term loan line of credit of up to  $30.0 million and a revolving credit facility of up to another $20.0 million  based on eligible accounts receivable, inventory and certain fixed assets  less standby letters of credit. Amounts outstanding were $7,428,085 and $14,106,939  as of December 31, 2008 and $10,478,260 and $19,021,439 as of December 31,  2007, on the revolving credit facility and the term loan line of credit,  respectively.  Availability under the revolving credit facility was  $10,501,457 as of December 31, 2008.  The weighted average interest rate was 4.72%  and 7.56% on the revolving credit facility in 2008 and 2007, respectively.  The Facility places restrictions on our ability to, among other things, sell  assets, participate in mergers, incur debt, pay dividends, make capital  expenditures, repurchase stock and make investments or guarantees, without  pre-approval by the Lenders.  

Prior to the completion of  the sale of the retail division in January 2008, the Company sought and  received all required approvals from the Lenders.  In connection with this  transaction, the Lenders required that the Company repay $4.5 million of its  term loan which was included with the current maturities of long-term debt in  the accompanying balance sheet at December 31, 2007. The remainder of the  proceeds were applied to the revolving credit facility.
      
*Minimum Fixed Charge  Coverage Ratio*. The Facility  requires the ratio of the sum of earnings before interest, taxes,  depreciation and amortization (EBITDA), to the sum of income taxes paid,  capital expenditures, interest and scheduled debt repayments be at least 1.00  for any trailing twelve-month period at the end of each quarter through  December 31, 2008 and 1.10 beginning with the first quarter of 2009.  Primarily as a result of operating losses in 2006 and first quarter 2007, we were  in violation of this covenant in the first quarter of 2007 and received a  waiver of this covenant from the Lenders. Due to the non-cash impairment  charges on the write-down of inventory and the corporate building we were in  violation of the covenant at December 31, 2008. We received a waiver of this  covenant from the Lenders and amended the agreement. As a result of the amendment  the unused line fee went from .25% to .50% and the existing interest rate  pricing grid was changed as follows:  

**Revolving Credit Facility**

**Term Loan**

Previous Rate Formula

Prime or Libor +2%  

Prime + .25% or Libor +2.25%

Amended Rate Formula

Prime + 3% or Libor + 4%

Prime + 3.5% or Libor + 4.5%
      
*Total Liabilities to Net  Worth Ratio.* Our Facility also  requires that the ratio of our total liabilities to net worth (the  "Leverage Ratio") not exceed 2.0. The Leverage Ratio excludes from  the calculation the change in tangible net worth directly resulting from the  Company's compliance with SFAS No. 158 of up to $6 million. In relevant part,  SFAS No. 158 required us to place on our books certain unrecognized and  unfunded retirement liabilities beginning December 31, 2006. As of December 31, 2008, we were in compliance with the Leverage Ratio covenant.
      
*Interest Rates.* We have a multi-tiered interest rate structure on  our outstanding debt with the Lenders. We can elect the interest rate structure  under the credit facility based on the prime rate or LIBOR for both the  revolving credit facility and the term loan. The incremental rate above or  below prime and above LIBOR is based on our Funded Debt to Net Worth Ratio. Based  on this ratio, our current rates are 25 basis points higher than the lowest  incremental rates currently available to us. 
      
The rates in effect as of  December 31, 2008 were as follows:

 

63

**ROCK OF AGES CORPORATION AND SUBSIDIARIES**Notes to Consolidated FinancialStatements

December 31, 2008 and 2007

 

**AmountOutstanding**

** **

**Formula**

** **

**Effective Rate**

Revolving Credit Facility

$

7.4 million

Prime  

3.25%

Term Loan 

14.1 million

Prime + 0.25 pts.

3.50%
      
The Company's Canadian  subsidiary has a line of credit agreement with the Royal Bank of Canada that is renewable annually. Under the terms of this agreement, a maximum of $4.0  million CDN may be advanced based on eligible accounts receivable, eligible  inventory, and tangible fixed assets.  The line of credit bears interest at  the U.S. prime rate. There was $0 CDN and $20,000 CDN outstanding as of  December 31, 2008 and 2007, respectively.
      
**(7)**

**LONG-TERM DEBT**

Long-term debt at December  31, 2008 and 2007 consists of the following:

 

  

**2008**

**2007**

Term loan - interest at  3.50% at December 31, 2008 (see note 6), due October 2012, secured by  substantially all assets of the Company

$

14,106,939

$

19,021,439

Note payable - Former  employee, interest at 8%, payable in monthly payments of $2,593, unsecured,  due January 2021

239,546

250,995

Note payable - Vehicles,  interest at 0.0%, monthly payments ranging from $330 to $800

74,842

76,787

14,421,327

19,349,221

        Less  current maturities 

39,839

5,191,044

        Long-term  debt, excluding current maturities

$

14,381,488

$

14,158,177

 

Scheduled maturities of  long-term debt as of December 31, 2008 are as follows: 

Year Ending December 31

 
 
2009

$

39,839

 
2010

40,868

 
2011

32,192

 
2012

14,125,004

 
Thereafter

183,424

 
$

14,421,327

 
       
**(8)**
**INCOME TAXES**
Income (loss) from  continuing operations before income taxes, classified by source,  for  the years ended December 31, 2008 and 2007 is as follows:
                  
**2008**

**2007**

U.S.

$

(3,026,508)

$

(1,147,255)

Foreign

1,368,310

350,564

Loss from continuing  operations before income taxes

$

(1,658,198)

$

(796,691)

 

64

 

**ROCK OF AGES CORPORATION AND SUBSIDIARIES**Notes to Consolidated FinancialStatements

December 31, 2008 and 2007
      
 
A  summary of the significant components of the provision (benefit) for income  taxes for the years ended December 31, 2008 and 2007 is as follows: 
**2008**

**2007**

Current:

    Federal

$

-

$

-

    State

-

-

    Foreign

416,307

545,637

416,307

545,637

Deferred:

    Federal

-

-

    State

-

-

    Foreign

(21,327)

(9,770)

(21,327)   

(9,770)

Total provision for income  taxes

$

394,980

$

535,867
         There  are no income taxes, current or deferred in discontinued operations or other  comprehensive loss.      
 
A  reconciliation of differences between the statutory U.S. federal income tax rate on the loss from continuing operations before income taxes,  discontinued operations and the Company's effective tax rate follows:            
**2008**

**2007**

U.S. statutory rate

(34.0%)

(34.0%)

Change in valuation  allowance

588.8%

90.8%

Loss on sale of retail division

(560.1%)
-

Canadian repatriation

-

36.0

Impairment of foreign  assets

-

56.3

Other, primarily tax  depletion

29.1%

(81.8%)

Effective tax rate

23.8%

67.3%
      
The tax effects of  temporary differences that give rise to significant portions of the deferred  tax assets and deferred tax liabilities at December 31, 2008 and 2007 are  presented below:
                  
**2008**

**2007**

Deferred tax assets:

    Accrued  pension, accrued postretirement benefit cost 

    and deferred compensation

$

5,008,000

$

3,488,000

    Allowance  for doubtful accounts

63,000

152,000

    Accrued  expenses

93,000

59,000

    Inventories

1,236,000

345,000

    Deferred  revenue

8,000

3,000

    Names  and reputations

280,000

2,478,000

    Alternative  minimum tax credits

2,932,000

2,932,000

    Foreign  tax credits

2,097,000

1,996,000

     Charitable contribution limitation

67,000

87,000

    State  net operating loss carryforward

3,528,000

1,571,000

    Federal  net operating loss carryforward

12,784,000

3,835,000

65

**ROCK OF AGES CORPORATION AND SUBSIDIARIES**Notes to Consolidated FinancialStatements

December 31, 2008 and 2007

 

    Fixed  assets

-

110,000

    Impairment charges

375,000

1,583,000

    Accrued warranty

19,000

23,000

    Cash surrender value

25,000

40,000

    Total  gross deferred tax assets

28,515,000

18,702,000

    Less  valuation allowance

(28,155,000)

(18,391,000)

    Total  net deferred tax asset

360,000

311,000

Deferred tax liabilities:

    Quarry  development

(268,000)

(280,000)

    Other  liabilities

(8,000)

(31,000)

    Property  and equipment

(111,421)

(54,937)

    Total  gross deferred tax liabilities

(387,421)

(365,937)

    Net  deferred tax liability

$

(27,421)

$

(54,937)

 

Deferred  tax assets include significant alternative minimum tax credit carry-forwards,  which have been fully reserved and may be carried forward indefinitely.  Utilization of these alternative minimum tax credits is limited to future  federal income tax in excess of the alternative minimum tax. Deferred tax  assets also include federal and state net operating loss carry-forwards,  which have been fully reserved due to uncertainties regarding sufficient  future state taxable income to utilize carryovers.

 
 

During 2005, based on taxable income and projections  for future taxable income, the Company believed it was not more likely than  not that it would generate the required taxable income to fully realize the  benefit of the net U.S. deferred tax assets.  As such, we adjusted our  valuation allowance against the deferred tax assets to fully reserve for the  entire net U.S. deferred tax asset which resulted in a charge to tax expense  of $9,194,000 in 2005. Since 2005, we have continued to fully reserve for the  entire net U.S. deferred tax asset. We continue to assess the valuation  allowance on a regular basis and may reduce the valuation allowance if and/or  when the Company has taxable income from its U.S. operations. U.S. gross deferred tax assets increased $9,813,000 during 2008. The valuation allowance  increased $9,764,000 in order to maintain our fully reserved position. The  net deferred tax liability of $27,421 is related to temporary differences on  the depreciation of property and equipment utilized by Rock of Ages Canada.

As  of December 31, 2008, the Company has U.S. federal net operating loss  carry-forwards of approximately $64 million which will be available to offset  future taxable income. If not used, these carry-forwards will expire in 2024  through 2028. The use of our federal net operating loss carry-forwards may be  restricted if there is a change in control of the Company as defined by IRS  Code Section 382.
 
 

Deferred  taxes have, historically, not been provided on certain undistributed earnings  of the Company's wholly owned Canadian subsidiary since the Company can  control the distribution of such earnings and has determined such earnings  will be reinvested indefinitely. Additional taxes could be due if these  earnings were distributed. During 2007, the Company received a $3,000,000  cash distribution from the Canadian subsidiary. No incremental U.S. taxes were due on this distribution.  

 
 

The  Company adopted FASB Interpretation No. 48, "Accounting for Uncertainty in  Income Taxes", ("FIN 48") effective January 1, 2007. FIN 48 creates a single  model to address accounting for uncertainty in income tax positions and  requires application of a "more likely than not" threshold to the recognition  and derecognition of income tax positions. It also provides guidance on  classification, interest and penalties and interim period accounting. The  Company recorded no unrecognized tax benefits or liabilities as a result of  adopting FIN 48 and accordingly we recorded no accrued interest or penalties.  The Company has determined that no reserve for FIN 48 is necessary at December  31, 2008. We do not have any accrued interest or penalties at December 31,  2008 but if they are incurred in the future, interest would be recognized as  interest income or expense and penalties would be included in Selling, General  and Administrative expenses. 

66

**ROCK OF AGES CORPORATION AND SUBSIDIARIES**Notes to Consolidated FinancialStatements

December 31, 2008 and 2007
         We do not anticipate a material change in our tax positions  within the next twelve months. The Company files income tax returns in the  U.S. federal jurisdiction and various state and foreign jurisdictions. The  Company is no longer subject to U.S. federal income tax examinations by tax  authorities for years before 2003 or Canadian tax authorities for years before  2003.       
**(9)**

**PENSION AND OTHER BENEFIT PLANS**

The Company has a qualified  defined benefit pension plan for eligible Vermont based non-union employees.  The plan is noncontributory and provides benefits based upon a formula  calculated by reference to length of service and final average earnings. On  January 5, 2009, the Company's Board of Directors approved actions to proceed  with amendments to its defined benefit pension plan by freezing membership  and future benefits in the plan. This action is effective as of March 31,  2009.  Management is working on a replacement for the plan which will most  likely take the form of an increased contribution to the existing 401(k)  plan.

The  Company has entered into nonqualified salary continuation agreements with  certain officers and former executives. These agreements provide for  supplemental pension benefits to be paid beginning at age 55 and continuing  through the life of the retired employee and his surviving spouse.

The  Company provides other post-employment benefits. Post-employment health care  is provided to executive officers who retire at age 55 or older and their  spouses, and to a closed group of retirees selected by the Company. The form  and type of benefit is the same coverage that is in effect for active  employees, and the retiree pays his portion of the premium for such  coverage.  Generally benefits cease at age 65. The Company provides  post-employment life insurance for all Vermont-based employees; the coverage  is $8,000.

The  following tables set forth actuarial information, plan asset data, funded  status and amounts recognized in the balance sheet for the Company's defined  benefit pension plan, salary continuation plan and other post-employment  benefits. The Company uses a measurement date of December 31 for these plans.

**NON-UNION  PENSION BENEFITS**

**SALARY  CONTINUATION BENEFITS**

** **

**OTHER POST-EMPLOYMENT**

** BENEFITS**

**2008**

**2007**

**2008**

**2007**

**2008**

**2007**

**CHANGE IN  BENEFIT  OBLIGATION:**

Benefit obligation at  beginning of year

$

24,857,204

$

25,787,563

$

5,483,418

$

5,801,758

$

1,700,025

$

2,179,955

Service cost

315,204

514,984

-

-

6,111

22,050

Interest cost

1,508,876

1,444,978

322,457

314,223

108,103

121,538

Actuarial (gain)/ loss

(233,920)

(1,589,573)

60,740

(189,175)

86,200

(468,239)

Benefits paid

(1,344,240)

(1,300,748)

(453,455)

(443,388)

(152,534)

(155,279)

Benefit obligation at end of  year

$

25,103,124

$

24,857,204

$

5,413,160

$

5,483,418

$

1,747,905

$

1,700,025

**CHANGE IN PLAN ASSETS:**

Fair value of plan assets at  beginning of year

$

21,188,923

$

20,241,955

$

-

$

-

$

-

$

-

Actual return on plan assets

(4,491,644)

1,482,190

-

-

-

-

Employer contribution

754,000

800,922

453,455

443,388

142,017

183,929

Expenses

(29,588)

(35,396)

-

-

-

-

Benefits paid

(1,344,240)

(1,300,748)

(453,455)

(443,388)

(142,017)

(183,929)

Fair value of plan assets at  end of year

$

16,077,451

$

21,188,923

$

-

$

-

$

-

$

-

Funded status

$

(9,025,673

)

$

(3,668,281)

$

(5,413,160

)

$

(5,483,418)

$

(1,747,905)

$

(1,700,025)

**Amounts recognized in  accumulated other comprehensive loss consist of:**

Net actuarial loss

$

9,931,652

$

4,068,065

$

1,394,071

$

1,390,249

$

289,388

$

241,983

Prior service cost 

126,848

267,371

-

-

326,696

335,519

Unrecognized transition  obligation

-

-

-

-

24,737

29,685

Net amount recognized

$

10,058,500

$

4,335,436

$

1,394,071

$

1,390,249

$

640,821

$

607,187

67

 

**ROCK OF AGES CORPORATION AND SUBSIDIARIES**Notes to Consolidated FinancialStatements

December 31, 2008 and 2007

 

**WEIGHTED-AVERAGE  ASSUMPTIONS AS OF DECEMBER 31:**

Discount rate

6.30%

6.30%

6.30%

6.30%

6.30%

6.30%

Expected return on plan  assets

8.00%

8.00%

N/A

N/A

N/A

N/A

Rate of compensation  increase

3.00%

3.00%

3.00%

3.00%

N/A

N/A
   
In 2007 we increased the  discount rate used to determine our liability in the pension plans from 5.6%  to 6.3%. In 2008, we kept the discount rate at 6.3%, the same discount rate  used at December 31, 2007. In both years the rate was based on a bond  matching model which uses data on individual high-quality corporate bonds and  the timing and amount of the future benefit payments in our plan to develop a  weighted discount rate specific to our plan.
   
For measurement purposes,  the annual rate of increase in the per capita cost of covered health care  benefits was assumed to be 8.5% for 2009, 8% for 2010, 7.5% for 2011, 7% for  2012, 6% for 2013 and 5% for 2014 and thereafter. Assumed health care trends  do not have a significant effect on the amounts reported for the health care  plan. For example, a 1% increase in assumed trends would increase the benefit  obligation $19,461 and the service and interest costs $1,253. A 1% decrease  in assumed trends would decrease the benefit obligation $18,150 and the  service and interest costs $1,158.
   
The following table sets  forth the components of the net periodic benefit cost recognized in the  statements of operations for the Company's defined benefit pension plan,  salary continuation plan and other post-employment benefits for 2008 and 2007.
                           
**NON-UNION**

**SALARY**

**OTHER POST-EMPLOYMENT**

**PENSION BENEFITS**

**CONTINUATION BENEFITS**

**BENEFITS**

**2008**

**2007**

**2008**

**2007**

**2008**

**2007**

**COMPONENTS OF NET  PERIODIC BENEFIT COST:**

    Service  cost

$

315,204

$

514,984

$

-

$

-

$

6,111

$

22,050

    Interest  cost

1,508,876

1,444,978

322,457

314,223

108,103

121,538

    Expected  return on plan assets

(1,681,796)

(1,601,894

)

-

-

-

-

    Amortization  of prior      service cost

140,523

140,523

-

1,506

26,749

26,749

    Amortization  of   transition obligation

-

-

-

-

4,948

63,136

    Recognized  net actuarial loss

105,521

292,199

56,918

79,597

10,352

12,655

Net periodic benefit cost

$

388,328

$

790,790

$

379,375

$

395,326

$

156,263

$

246,128
                                          
**WEIGHTED-AVERAGE  ASSUMPTIONS USED TO DETERMINE NET PERIODIC BENEFIT COST FOR YEARS ENDED DECEMBER 31:**

Discount rate

6.30%

5.60%

6.30%

5.60%

6.30%

5.60%

Expected return on plan  assets

8.00%

8.00%

N/A

N/A

N/A

N/A

Rate of compensation  increase

3.00%

3.00%

3.00%

3.00%

3.00%

3.00%
                     
**Amounts expected to be  recognized in net periodic benefit costs in 2009**

** Non-Union Pension**

** **

**Salary Continuation**

** **

** Other Post-Employment**

Service cost

$

-

$

-

$

4,964

Interest cost

1,420,753

335,917

105,268

Expected return on plan  assets

 (1,260,459)

-

-

Net amortization

437,439

111,773

47,727

Total pension expense

$

597,733

$

447,690

$

157,959
   
*Plan Assets*

The fair value of plan  assets for the defined benefit pension plan as of December 31, 2008 and 2007  was $16.1 and $21.2 million, respectively. The following table sets forth the  actual asset allocation for the plan assets:
   
 

 

68

**ROCK OF AGES CORPORATION AND SUBSIDIARIES**Notes to Consolidated FinancialStatements

December 31, 2008 and 2007

 
                  
**2008**

** **

**2007**

** **

**Target   Range**

Equities

48%

48%

34% - 64%

Fixed income

51%

51%

25% - 45%

Cash equivalent

1%

1%

0 - 5%

The Company invests equity  holdings primarily in mutual funds which are diversified among the spectrum  of value and growth, large, medium and small cap, domestic and foreign  securities, as appropriate, to achieve the objective of a balanced portfolio,  which optimizes the expected returns and volatility in the various asset  classes. In general, the majority of the equity investments are large cap  domestic funds.
   
Fixed income holdings are  in the form of mutual funds that hold a combination of short-duration,  investment-grade fixed-income securities, inflation-indexed bonds of varying  maturities issued by the U.S. and non-U.S. governments, and a diversified  selection of investment-grade, fixed income securities, including corporate  securities, mortgage-backed securities, U.S. government securities and U.S.  dollar denomination bonds of foreign issuers.
   
Cash equivalents are held  in money market funds.

The Company prohibits  certain transactions in its plan including, but not limited to: short sales,  commodities, transactions on margin, letter stock, unregistered or restricted  stock, private placements, and derivative securities.
   
The Company determines its  investment strategies based on the composition of the beneficiaries in its  defined benefit plan and the relative time horizons that those beneficiaries  receive payouts from the plan. In addition, the Company receives advice from  our actuaries and plan administrator regarding market conditions, which,  taken together with the characteristics of the plan, result in the investment  strategy.
   
To develop the Company's  expected long-term rate of return assumption on plan assets, the Company uses  long-term historical return information for the targeted asset mix.  Adjustments are made to the expected long-term rate of return assumption when  deemed necessary based upon revised expectations of future investment  performance of the overall capital markets. 

   

*Contributions* 

The Company was not  required to make a contribution to the defined benefit pension plan in 2008.  However, we contributed $754,000 to this plan during 2008.  In August 2006,  the Pension Protection Act was signed into law. Among other things, the Act is aimed at strengthening pension plans by requiring  most pension plans to become fully funded over a seven-year period.  The  Company was required to fully fund our pension plan by December 31, 2014. The  Worker, Retiree, and Employer Recovery Act of 2008 (H.R. 7327) was signed  into law in late December 2008. The Company is studying the impact of the  legislation on the funding requirements of the Act.
   
*Future Benefit  Payments*

Estimated future benefit  payments are as follows:
                     
**Year  Ending December 31,**

**NON-UNION  PENSION BENEFITS**

**SALARY  CONTINUATION BENEFITS**

**OTHER POST-EMPLOYMENT BENEFITS**

2009

$ 

1,345,434

$

541,642

$ 

153,981

2010

1,485,643

540,692

154,576

2011

1,506,844

539,609

154,151

2012

1,528,184

538,373

159,908

2013

1,538,478

528,752

159,176

2014-2018

8,354,117

2,092,773

662,315

69

**ROCK OF AGES CORPORATION AND SUBSIDIARIES**Notes to Consolidated FinancialStatements

December 31, 2008 and 2007
   
**UNION PENSION BENEFITS**

The Company's Vermont based union employees are participants in the Steelworkers Pension Trust, a  multi-employer plan. The Company contributes amounts as required by the union  contract. The amounts recognized in the accompanying consolidated statements  of operations were $359,410 and $528,537 in 2008 and 2007, respectively.

   

**OTHER SALARY  CONTINUATION BENEFITS** 

In addition to the benefits  available under its salary continuation plan disclosed above, the Company has  an agreement with a certain employee, who is a former stockholder of an  acquired company.  The present value of the future payments under this  agreement was $307,293 and $373,080 as of December 31, 2008 and 2007,  respectively.  Total annual payments of $84,000 begin in February 2008 and will  continue through February 2012. 

The Company also has a non-qualified,  unfunded deferred compensation plan for the benefit of designated key  employees whereby the employee may defer up to $100,000 of their annual  compensation for future distribution. Interest at the rate of 12% per annum is  credited on a monthly basis to each participants account. Payments commence  upon retirement of the participant with various methods of distribution,  including interest only or interest and principal over ten to twenty years. At  December 31, 2008 there are three participants and the total liability is  $1,523,338.

The Company's Canadian  subsidiary has deferred compensation agreements with former employees. The  present value of the future payments under these agreements was $103,500 and  $132,747 as of December 31, 2008 and 2007. Total annual payments of $30,040  begin and end at various dates through 2022.

   

**401(k) BENEFITS** 

The Company maintains a  401(k) plan for all eligible, U.S. employees. Union employees are eligible to  join on the first day of the quarter following their first full year of  service. Non-union employees are eligible to join after six months of  service. The Company makes matching contributions equal to a percentage of  the employee's deferrals. The Company's contributions to the 401(k) plan,  including amounts in 2007 for employees of the former retail business, were  $82,005 and $267,498 in 2008 and 2007, respectively.

The Company's Canadian  subsidiary sponsors a retirement plan for all of its salaried, non-union  employees and contributes 13% of each participant's compensation to this  plan. The investments in the account are self-directed by each participant  with a range of investment options. Rock of Ages Canada may, at its  discretion, make an additional annual contribution to a participant's  account, up to a maximum aggregate amount of $21,000 and $20,000 CDN per year  in 2008 and 2007, respectively (including amounts previously contributed  during the year). The Company's contributions to this plan were $158,659 and  $162,185 CDN in 2008 and 2007, respectively.
   
**CANADIAN SUPPLEMENTAL  RETIREMENT PLAN**

Effective in 2007 Rock of  Ages Canada established a supplemental retirement plan for its President  ("Canadian Supplemental Plan"). The Canadian Supplemental Plan is  funded as a retirement compensation arrangement as defined in the Canadian  Income Tax Act. In 2007 we made an initial contribution to the Canadian  Supplemental Plan equal to $106,693, ($113,503 CDN) which was the amount  accrued from prior years under an unfunded supplemental deferral account. This  amount was accrued over a number of years from deferred bonuses and salary  increases. Each year, Rock of Ages Canada may make a contribution to the  Canadian Supplemental Plan equal to 13% of the President's base salary, less  any amounts paid to the Basic Canadian Retirement Plan on his behalf.  We  made contributions to the Canadian Supplemental Plan equal to $12,960  ($13,787 CDN) and $13,900 ($14,787 CDN) in 2008 and 2007, respectively.  We  may make additional contributions to the Canadian Supplemental Retirement  Plan at our discretion. 

 

**(10)**

**STOCK-BASED EMPLOYEE  COMPENSATION**

In June 2005, the stockholders approved the  Rock of Ages Corporation 2005 Stock Plan (the "2005 Plan"). The 2005 Plan  permits awards of stock options (including both incentive stock options and  nonqualified stock options) and restricted stock. A maximum of 550,000 shares  of Class A common stock may be issued under the 2005 Plan. The 2005 Plan is  administered by the Compensation Committee of the Board of Directors, which  has the authority to determine the recipients of awards under the 2005 Plan  and, subject to the 2005 Plan, the terms and conditions of such awards. 
 
70

**ROCK OF AGES CORPORATION AND SUBSIDIARIES**Notes to Consolidated FinancialStatements

December 31, 2008 and 2007
The 2005 Plan replaces the Rock of Ages Corporation 1994 Stock  Plan (the "1994 Plan") which expired in November 2004. Although grants made  under the 1994 Plan prior to its expiration remain outstanding, no further  grants may be made under the 1994 Plan.
Under the terms of the 1994  Plan, 1,500,000 options were reserved for issuance to key employees and  directors to purchase equivalent shares of common stock. The options granted  in 2002, 2007 and 2008 have a 10 year term and vest at 20% per year after the  first year.

The following tables set  forth stock option activity for the years ended December 31, 2008 and 2007  and information on outstanding and exercisable options at December 31, 2008:
               
**NUMBEROF OPTIONS**

**WEIGHTED  AVERAGEEXERCISE PRICE**

Outstanding, December 31,  2006

271,000

$

6.08

   Granted 

25,000

5.93

   Exercised 

(16,667

) 

6.02

   Surrendered 

(83,333

) 

6.18

Outstanding, December 31,  2007

196,000

$

6.11

   Granted 

185,000

2.63

   Exercised 

-

-

   Surrendered 

(57,000

) 

6.45

Outstanding, December 31,  2008

324,000

$

4.06

Exercisable, December 31,  2008

119,000

$

5.98

Weighted average remaining  contractual life

7.2 years
                                    
**EXERCISE PRICE**

**NUMBER OF  OPTIONS  OUTSTANDING**

**WEIGHTED AVERAGE EXERCISE PRICE**

**REMAINING**

**CONTRACTURAL**

**LIFE**

**NUMBER OF**

**OPTIONS EXERCISABLE**

**NUMBER**

** **

**WEIGHTED AVERAGE EXERCISE PRICE**

$

5.98

114,000

$

5.98

3.1 Years

114,000

$

5.98

$

5.93

 25,000

$

5.93

8.6 Years

    5,000

$

5.93

$

2.63

185,000

$

2.63

9.6 Years

         -

324,000

 119,000
      
The fair value of each  options grant is estimated on the date of the grant. The per share weighted  average fair value of stock options granted during 2008 was $1.22 on the date  of grant using the Black-Scholes option-pricing model with the following  weighted average assumptions: risk-free interest rate of 3.5%, dividend yield  of 0.00%; expected volatility of 40.60%; expected life of 6.5 years and  contractual term of ten (10) years. The per share weighted average fair value  of stock options granted during 2007 was $2.91 on the date of grant using the  Black-Scholes option-pricing model with the following weighted average  assumptions: risk-free interest rate of 4.6%, dividend yield of 0.00%;  expected volatility of 41.08%; expected life of 6.5 years and contractual term  of ten (10) years. The fair value of stock options awards granted subsequent  to January 1, 2006 are amortized on a straight line basis over the requisite  service periods of the award, which are generally the vesting period. Because  changes in the subjective input 

71

**ROCK OF AGES CORPORATION AND SUBSIDIARIES**Notes to Consolidated FinancialStatements

December 31, 2008 and 2007

 
   
assumptions can materially affect the fair value estimate, in the opinion ofmanagement, the existing models do not necessarily provide a reliable singlevalue of its options and may not be representative of the future stock price ofthe Company.  
      
The Company selected the  assumptions used in the Black-Scholes pricing model using the following  criteria:
- Risk-free interest rate -       The Company bases the risk-free interest rate on implied yield available       on a U.S. Treasury note with a maturity term equal to or approximating       the expected term of the underlying award.
- Dividend yield - the       Company does not intend to pay dividends on its common stock for the       foreseeable future and, accordingly, uses a dividend yield of zero.
- Volatility - the expected       volatility of the Company's shares was estimated based upon the       historical volatility of the Company's share price with consideration       given to the expected life of the award.
- Expected life - The       average expected term was determined by the "SEC shortcut approach", as       described in SAB 107, "Disclosures about Fair Value of Financial       Instruments", which is the mid-point between the vesting date and the       end of the contractual term.

As of December 31, 2008 the  total unrecognized compensation cost related to the stock options granted  during 2008 and 2007 was $208,000 and $53,000, respectively which is expected  to be amortized over the next 4.5 years and 3.5 years respectively. 

During 2008 and 2007 the  average market value was less than the current strike price of all vested  options, therefore for vested options during 2008 and 2007 there was no  intrinsic value. No options were exercised during 2008.  For options  exercised during 2007 the intrinsic value of those options was $4,200.
      
**(11)**

**RELATED PARTY TRANSACTIONS**

The Company is related  through common ownership with several companies. Kurt M. Swenson, the  Company's Chairman, and his brother Kevin C. Swenson, each own approximately  31% of Swenson Granite LLC ("Swenson LLC"). Certain other officers  and directors of the Company collectively own approximately 9% of Swenson  LLC. Kurt M. Swenson serves as a non-officer Chairman of the Board of Swenson  LLC, but has no involvement with its day-to-day operations. Robert Pope, a  holder of more than 5% of the Class B Common Stock of the Company, is the  President and Chief Executive Officer of Swenson LLC, and including shares  owned by his wife and children, owns 12% of Swenson LLC. Neither Kurt M.  Swenson nor any other officer or director of the Company, receives salary,  bonus, expenses or other compensation from Swenson LLC, except for any pro  rata share of earnings attributable to their ownership interest in Swenson  LLC. Swenson LLC owns two granite quarries, one in Concord, New Hampshire and  another in Woodbury, Vermont. Both have been owned by Swenson LLC (or its  predecessor Swenson Granite) for more than 40 years. Because of the proximity  of the Woodbury quarry to Barre, Vermont, the Company provides certain  maintenance services and parts to the Woodbury quarry and is reimbursed for  the cost of such services. The Company also purchases blocks from the  Swenson's Concord quarry and other products from Swenson LLC at market  prices. Swenson LLC also purchases granite blocks and slabs from the  Company.  
      
The transactions with  related parties, included in the consolidated statements of operations, are  as follows for the years ended December 31, 2008 and 2007:

**2008**
   
**2007**

Sales of inventory,  equipment and services to Swenson LLC

$

92,114
   
$

22,796
   
Purchases from Swenson LLC

$

44,525
   
$

4,415

Purchases from VIKA, Ltd.

406,527
   
251,475

   Total  purchases from related parties

$

451,052
   
$

255,890

 

72

**ROCK OF AGES CORPORATION AND SUBSIDIARIES**Notes to Consolidated FinancialStatements

December 31, 2008 and 2007

 

Amounts duefrom/(to) related parties as of December 31, 2008 and 2007 are as follows:
   
**2008**

**2007**

Due from Swenson LLC

$

13,182

$

6,558
      
**(12)**

** UNAUDITED QUARTERLY  SUMMARY INFORMATION**

The following is a summary  of unaudited quarterly summary information for the years ended December 31,  2008 and 2007 (in thousands, except per share data):

**NET  REVENUES**

**GROSS PROFIT**

** **

**NET INCOME  (LOSS)**

**NET INCOME  (LOSS)  PER SHARE -**

**BASIC AND DILUTED**
 
2008 Quarters:
 
   First (3)

$

8,390

$

(133

)

$

(3,305

)

$

(0.45

)
 
   Second

14,326

3,773

727

0.10
 
   Third

16,593

5,934

3,059

0.41
 
   Fourth (1)  (2)

16,560

1,317

(2,676

) 

(0.34

) 
 
      Total

$

55,869

$

10,891

$

(2,195

)

$

(0.28

)
  
2007 Quarters:
 
   First 

$

7,947

$

(378

)

$

(6,552

)

$

(0.89

)
 
   Second 

  

16,450

5,292

3,942

0.53
 
   Third

13,357

4,672

1,541

0.21
 
   Fourth  (3)(4)

17,792

5,034

(5,487

) 

(0.73

) 
 
      Total

$

55,546

$

14,620

$

(6,556

)

$

(0.88

)
  
NOTE: The Company has  historically experienced certain seasonal patterns, primarily due to weather  conditions affecting operations in Vermont and Canada and the setting of  memorials in cemeteries located in northern regions. 
      
(1)

The Company consolidated  its headquarters into the manufacturing plant's existing offices and  therefore had a change in the use of its corporate headquarters building.  Based on our analysis the Company determined that the carrying value of the  building exceeded the net present value which indicated the building was  impaired. We recognized an impairment charge on the asset of $1,348,000 to  reduce the asset to the fair market value during the fourth quarter of the  year ended December 31, 2008. See note 16.
      
(2)

The Company wrote down  second grade or "B" block inventory in our Bethel, Salisbury and Gardenia  quarries during the fourth quarter of 2008.  This impairment charge totaled  $3,930,000 and is discussed further in note 16.
      
(3)

The retail division was  classified as a discontinued operation in December 2007 and, accordingly, the  revenue and gross profits reported in the tables above for 2007 have been  adjusted to reflect such classification. Based on the terms of this  division's January 2008 sale, an impairment charge of $5,908,000 was  recognized in the fourth quarter of 2007. The loss from discontinued  operations during the first quarter of 2008 totaled $142,000. See note 15.
      
(4)

VIKA, a quarry company in  which we have a 1/3 equity interest since 2002, experienced continuing  operational difficulties in 2007 leading to reductions in both the production  and sale of Galactic Blue granite blocks. Based on our analysis the Company  determined that its investment in VIKA of $386,000 had experienced an  impairment in value that was other than temporary and concluded that its  advances to VIKA should be fully reserved as of December 31, 2007. Accordingly, a charge of $1,361,000 was recorded in the fourth quarter of the year ended December 31, 2007.
      
 

73

**ROCK OF AGES CORPORATION AND SUBSIDIARIES**Notes to Consolidated FinancialStatements

December 31, 2008 and 2007

**(13)**

**COMMON STOCK**

The Company has two classes  of common stock outstanding, Class A and Class B. The shares of Class A  common stock and Class B common stock differ with respect to voting rights  and certain conversion rights, as described below:
      
*Voting Rights* - Each share of Class A common stock entitles the  holder to one vote on each matter submitted to a vote of the Company's  stockholders and each share of Class B common stock entitles the holder to  ten votes on each such matter, in each case including the election of  directors. Neither the Class A common stock nor the Class B common stock has  cumulative voting rights. 
      
*Conversion* - Class A common stock has no conversion rights.  Class B common stock is convertible into Class A common stock, in whole or in  part, at any time and from time to time at the option of the holder on the  basis of one share of Class A common stock for each share of Class B common  stock converted. Each share of Class B common stock will also automatically  convert into one share of Class A common stock upon transfer to any person or  entity other than a Permitted Transferee, as defined in the Company's Amended  and Restated Certificate of Incorporation.

**(14)**

**SEGMENT INFORMATION**

The Company is organized  based on the products and services it offers. Until the time of the sale of  the retail division in January 2008, Rock of Ages had three business  segments:  quarry, manufacturing and retail. As of December 31, 2007 the  retail division was classified as a discontinued operation and, accordingly, the  Company currently operates in two segments: quarry and manufacturing. 

The quarry segment extracts  granite from the ground and sells it to the manufacturing segment and to  outside manufacturers, as well as to distributors in Europe and China.  There were two quarry customers that represented approximately 46.1% and 32.8% of  accounts receivable at December 31, 2008 and 2007, respectively.  These  receivables were backed by irrevocable letters of credit. These same two  customers were also our largest customers and represented approximately 13.4%  and 9.3% of total revenue in 2008 and 2007, respectively.
      
The manufacturing segment's  principal product is granite memorials and mausoleums used primarily in  cemeteries and, to a lesser extent, specialized granite products for  industrial applications.
      
The other segment includes  unallocated corporate overhead.
      
Inter-segment revenues are  accounted for as if the sales were to third parties.

The following tables  present segment data as of or for the years ended December 31, 2008 and 2007  (in thousands):

 

 
** **

**QUARRY**

** **

** **

**MANUFACTURING**

** **

** **

**OTHER**

** **

** **

**TOTAL**

** **

**2008**

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

Total net revenues

$

31,685

$

30,104

$

-

$

61,789

Inter-segment net revenues

(2,999

) 

(2,921

) 

-

(5,920

) 

Net revenues

28,686

27,183

-

55,869

Total gross profit

4,346

6,545

-

10,891

Inter-segment gross profit

(923

)

923

-

-

Gross profit

3,423

7,468

-

10,891

Selling, general and administrative expenses

2,267

4,383

3,636

10,286

Impairments 

-

-

1,348

1,348

Foreign exchange loss

-

-

(27

) 

(27

) 

Other income, net

-

-

(425

)

(425

)

Income (loss) from  operations

$

1,156

$

3,085

$

(4,532

 )

$

(291

) 

 

74
 
**ROCK OF AGES CORPORATION AND SUBSIDIARIES**Notes to Consolidated FinancialStatements

December 31, 2008 and 2007

 

 
** **

**QUARRY**

** **

** **

**MANUFACTURING**

** **

** **

**OTHER**

** **

** **

**TOTAL**

** **
                                       
**2007**

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

Total net revenues

$

31,784

$

33,717

$

-

$

65,501

Inter-segment net revenues

(2,491

) 

(7,464

) 

-

(9,955

) 

Net revenues

29,293

26,253

-

55,546

Total gross profit

7,056

7,673

-

14,729

Inter-segment gross profit

(653

) 

544

-

(109

) 

Gross profit

6,403

8,217

-

14,620

Selling, general and     administrative expenses

3,061

4,214

5,187

12,462

Insurance recovery

(211

)

-

-

(211

) 

Impairment of long-term  assets

1,361

-

-

1,361

Foreign exchange income

-

-

120

120

Other Income, net

-

-

(159

)

(159)

Income (loss) from  operations

$

2,192

$

4,003

$

(5,148

) 

$

1,047

 

**Total Assets by  Segment**
                                 
** **

** **

**QUARRY**

** **

**MANUFACTURING**

** **

**DISCONTINUED**

**OPERATIONS**

** **

**OTHER**

** **

**TOTAL**

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

2008

$

39,657

$

20,488

$

-

$

4,298

$

64,443

2007

$

43,496

$

19,399

$

14,266

$

7,484

$

84,645
   
**Capital Expenditures,  Amortization, Depletion and Depreciation by Segment **

**2008**

** **

**QUARRY**

** **

**MANUFACTURING**

** **

**DISCONTINUED**

**OPERATIONS**

** **

**OTHER**

** **

**TOTAL**

Capital expenditures

$

1,062

$

2,025

$

-

$

2

$

3,089

Depreciation, depletion and  amortization

1,261

918

-

221

2,400
                                 
**2007**

 
                           
Capital expenditures

$

919

$

220

$

115

$

25

$

1,279

Depreciation, depletion and  amortization 

1,416

978

1,025

311

3,730
      
Net revenues by geographic  area, attributed to countries based on where the product is shipped, for the  years ended December 31, 2008 and 2007 are as follows:

**2008**

**2007**

Net revenues:

   China 

$

10,160

$

10,748

   Italy 

1,137

974

   Other foreign countries  (excluding Canada)

323

183

       Total Foreign Revenue  (excluding Canada)

11,620

11,905

   United States and Canada

44,249

43,641

      Total  net revenues

$

55,869

$

55,546

 

 

75

**ROCK OF AGES CORPORATION AND SUBSIDIARIES**Notes to Consolidated FinancialStatements

December 31, 2008 and 2007

 

Property, plant and equipment by geographic  area as of December 31, 2008 and 2007 are as follows: 

**2008**

**2007**

Property, plant and equipment:

   United States

$

27,144

$

28,560

   Canada

2,854

3,226

          Total property, plant and  equipment

$

29,998

$

31,786
      
** (15)**

**DISCONTINUED OPERATIONS**

During 2006, the Company  began to consider strategic alternatives with respect to its retail division  and on December 7, 2007 the Board of Directors instructed management to enter  into negotiations with PKDM, a company owned by Richard M. Urbach, the  President and Chief Operating Officer of the retail division, and James  Barnes, the financial manager of the retail division, to sell this division.  Negotiations were completed and the sale of the retail division closed on January 17, 2008. The Company evaluated its plan to sell its retail division and in  accordance with SFAS No. 144, classified the division's assets and  liabilities as "held for sale" as of December 31, 2007.  

Under SFAS No. 144, the  results of operations for this division have been classified as discontinued  operations in all periods presented.  The income (loss) from operations for  the retail division was approximately ($142,000) and $684,000 for the years  ended December 31, 2008 and 2007, respectively, including allocated interest  expense of $23,000 and $674,000 in 2008 and 2007, respectively.
      
Operating results of retail  division for the years ended December 31, 2008 and 2007 were as follows (in  thousands):

 

**2008**

**2007**

Retail Division

Net sales

     $ 

-

$

29,635

Cost of goods sold

-

13,113

Gross profit

-

16,522

Selling, general and  administrative expenses

(119)

15,164

Income (loss) from  operations

(119)

1,358

Impairment charge

-

(5,908)

Interest allocated 

(23)

(674)

   Net loss

$

(142)

$

(5,224)
   
The assets and liabilities  of the retail division were as follows at December 31, 2007 (in thousands):
         
Assets:

Cash

$

1,007

Accounts receivable, net

1,570

Inventory

5,009

Other current assets

270

Property, plant and  equipment (net)

12,288

Other long-term assets

30

Asset impairment

(5,908)

          Total  assets

$

14,266

Liabilities:

Accounts payable

201

Accrued expenses

545

Customer deposits

6,002

          Total  liabilities

$

6,748

76

**ROCK OF AGES CORPORATION AND SUBSIDIARIES**Notes to Consolidated FinancialStatements

December 31, 2008 and 2007

 

**(16)**

**IMPAIRMENT CHARGES**

VIKA Ltd. ("VIKA"), a  quarry company in which we have held a 1/3 equity interest since 2002,  experienced continuing operational difficulties leading to reductions in both  the production and sale of Galactic Blue granite blocks. At the end of the  fourth quarter of 2007 the Company decided that it would no longer advance  any additional funds to VIKA. In connection with our assessment of our  investment in VIKA, the Company also analyzed VIKA's current financial  condition and prospects for the foreseeable future. In addition, senior  management made a site visit to the Ukraine in late February 2008. Based on  our analysis of financial data provided by VIKA, the decision to no longer  fund VIKA's cash needs, limited access to third party funding by VIKA and the  results of the recent site visit, including discussions with local  management, the Company determined that its investment in VIKA of $386,000  had experienced an impairment in value that was other than temporary. Based  on that assessment, the Company also concluded that its advances to VIKA  should be fully reserved as of December 31, 2007. Accordingly, a charge of $1,361,000 was recognized in the fourth quarter of 2007 and is separately  presented in the accompanying statement of operations for the year ended  December 31, 2007. During 2008, the Company recognized a partial recovery on  its advances to VIKA of $121,000 which is included in quarry income.
      
Due to the consolidation of  our corporate headquarters with the manufacturing plant's existing offices in  2008, the  Company had a change in the use of its corporate headquarters building  located at 772 Graniteville Road, which we concluded to be a triggering event  under SFAS No. 144.  We determined that the forecasted undiscounted cash  flows related to the building and land was less than its carrying value. As a  result, we recorded an impairment charge of  $1,348,000 to reduce the  carrying value of the building and land to its estimated fair value.  The  estimated fair value was determined using a discounted cash flow analysis and  included consultation with an outside  professional real estate appraiser.  No assurance can be given that the  underlying estimates and assumptions utilized in our determination of an  asset's new carrying value will materialize as anticipated.  At December 31,  2008 management had no specific intention to sell this building and continued  to classify it as part of property, plant and equipment.
      
**(17)**

**ASSETS HELD FOR SALE**

In December 2008, the  Company decided to sell various unproductive assets totaling $477,000.  Accordingly, these assets have been classified as current assets held for  sale. The estimated sales prices for the assets are expected to exceed the  carrying values therefore no impairments were recognized. 

 

 

 

 

 

 

 

 

 

77

**ROCK OF AGES CORPORATION AND SUBSIDIARIES**

Schedule II - Valuation and Qualifying Accounts andReserves

Years ended December 31, 2008 and 2007

 

**(In Thousands)**

**COLUMN A**

** **

**COLUMN B**

** **

**COLUMN C**

** **

**COLUMN D**

** **

**COLUMN E**

** **

** **

** **

** **

**ADDITIONS**

** **

** **

** **

** **

**DESCRIPTION**

** **

**BALANCE AT  BEGINNING  OF PERIOD**

** **

**DECREASE  DUE TO  DISPOSITIONS**

** **

**CHARGED TO  COSTS AND  EXPENSES**

** **

**DEDUCTIONS (1)**

** **

**BALANCE AT END  OF PERIOD**

Allowances for doubtful  accounts

2008

$

132

$

-

$

152

$

56

$

228

2007 

162

$

-

$

(13)

$

17

$

132

** **

(1)  Deductions  consist of accounts receivable written off as uncollectible.

 

 

 

 

 

 

 

 

 

 

 

 

 

78

**SIGNATURES**

** **

 

Pursuantto the requirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the Registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.

 

 

**ROCK OF AGES CORPORATION**

 

 

By: /s/ Donald M.  Labonte                                           Donald M. Labonte        Chief Executive Officer 

Date: March 31, 2009 

Pursuant to the requirementsof the Securities Exchange Act of 1934, this report has been signed below bythe following persons on behalf of the registrant and in the capacitiesindicated as of March 31, 2009.

SIGNATURE

TITLE

 /s/Donald M.  Labonte

Chief Executive Officer  (Principal Executive Officer)

Donald M. Labonte
         
/s/ Laura Plude

Chief Financial Officer and  Treasurer (Principal Financial and Accounting Officer)

Laura A. Plude
         
/s/Kurt M. Swenson

Chairman of the Board of  Directors

Kurt M. Swenson
         
/s/Richard C. Kimball

Director 

Richard C. Kimball
         
/s/James L. Fox

Director 

James L. Fox
         
/s/ Pamela G. Sheiffer

Director

Pamela G. Sheiffer
         
/s/Charles M. Waite

Director

Charles M. Waite
         
/s/Frederick E. Webster  Jr.

Director

Frederick E. Webster Jr.

 

 

 

79

**EXHIBIT INDEX**

**EXHIBIT  NUMBER**

**DESCRIPTION**

 

3.1

Form of Amended and  Restated Certificate of Incorporation of the Company (incorporated herein by  reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1  (Registration 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) (incorporated herein by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K  and filed with the Securities and Exchange Commission on November 16, 2007)

 
4.

Specimen Certificate  representing the Class A Common Stock (incorporated herein by reference to  Exhibit 4 to the Company's Registration Statement on Form S-1 (Registration  No. 333-33685) filed with the Securities and Exchange Commission on August  15, 1997 and declared effective on October 20, 1997)

10.1*

First Amendment and  Restatement of Rock of Ages Corporation Key Employees Deferred Salary Plan  dated April 6, 2006 (incorporated herein by reference to Exhibit 10.1 to the  Company's Annual Report on Form 10-K for the year ended December 31, 2006 and  filed with the Securities and Exchange Commission on April 2, 2007)

 
10.2*

Rock of Ages 2005 Stock  Plan (incorporated herein by reference to Exhibit 10.1 to the Company's  Current Report on Form 8-K and filed with the Securities and Exchange  Commission on June 23, 2005)

10.3*

Employment Agreement of  Kurt M. Swenson (incorporated herein by reference to Exhibit 10.2 to the  Company's Registration Statement on Form S-1 (Registration No. 333-33685)  filed with the Securities and Exchange Commission on August 15, 1997 and  declared effective on October 20, 1997)  

10.4*

Employment Agreement of  Douglas S. Goldsmith dated May 25, 2006 (incorporated herein by reference to  Exhibit 10.1 to the Company's Current Report on Form 8-K and filed with the  Securities and Exchange Commission on June 16, 2006)

10.5*

Employment Agreement of  Michael B. Tule dated May 25, 2006 (incorporated herein by reference to  Exhibit 10.2 to the Company's Current Report on Form 8-K and filed with the  Securities and Exchange Commission on June 16, 2006) 

10.6*

Amendment No. 1 to  Employment Agreement of Kurt M. Swenson dated April 20, 2006 (incorporated  herein by reference to Exhibit 10.6 to the Company's Quarterly Report on Form  10-Q for the quarterly period ended July 1, 2006 and filed with the  Securities and Exchange Commission on August 14, 2006)
         
 
10.7*
Amendment to Salary  Continuation Agreement of Kurt M. Swenson dated April 20, 2006 (incorporated  herein by reference to Exhibit 10.7 to the Company's Quarterly Report on Form  10-Q for the quarterly period ended July 1, 2006 and filed with the  Securities and Exchange Commission on August 14, 2006)
      
 
10.8*
Retirement Agreement of  Kurt M. Swenson dated April 28, 2008 (incorporated herein by reference to  Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the  Securities and Exchange Commission on April 29, 2008)
         10.9*
Severance Agreement and  General Release dated May 22, 2006 between Rudolph R. Wrabel and the Company  (incorporated herein by reference to Exhibit 10.1 to the Company's Current  Report on Form 8-K and filed with the Securities and Exchange Commission on  May 26, 2006)
         
 
10.10*
Severance Agreement and  General Release dated May 22, 2006 between Caryn A. Crump and the Company  (incorporated herein by reference to Exhibit 10.2 to the Company's Current  Report on Form 8-K and filed with the Securities and Exchange Commission on  May 26, 2006)

 

 

80
 10.11*
Form of Salary Continuation  Agreement (incorporated herein by reference to Exhibit 10.15 to the Company's  Registration Statement on Form S-1 (Registration No. 333-33685) filed with  the Securities and Exchange Commission on August 15, 1997 and declared  effective on October 20, 1997)
      
10.12

Form of Collective  Bargaining Agreement dated as of April 29, 2006 by and between Rock of Ages  Corporation and the Granite Cutter's Association (incorporated herein by  reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for  the quarterly period ended July 1, 2006 and filed with the Securities and  Exchange Commission on August 14, 2006)
      
10.13

Form of Side Letter  Agreement dated April 29, 2006 by and between the Granite Cutter's  Association and Rock of Ages Corporation  (incorporated herein by reference  to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the  quarterly period ended July 1, 2006 and filed with the Securities and  Exchange Commission on August 14, 2006)
      
10.14

Form of Collective  Bargaining Agreement dated as of April 29, 2006 by and between Rock of Ages  Corporation and the Granite Cutter's Association  (incorporated herein by  reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K for  the year ended December 31, 2006 and filed with the Securities and Exchange  Commission on April 2, 2007)
      
10.15

Form of Side Letter  Agreement dated April 29, 2006 by and between the Granite Cutter's  Association and Rock of Ages Corporation  (incorporated herein by reference  to Exhibit 10.124to the Company's Annual Report on Form 10-K for the year  ended December 31, 2006 and filed with the Securities and Exchange Commission  on April 2, 2007)
      
10.16

Credit Facility dated as of  June 25, 1997 between Royal Bank of Canada and Rock of Ages Canada, Inc.,  Rock of Ages Quarries Inc. and Rock of Ages Canada Inc. (incorporated herein  by reference to Exhibit 10.20 to the Company's Registration Statement on Form  S-1 (Registration No. 333-33685) filed with the Securities and Exchange  Commission on August 15, 1997 and declared effective on October 20, 1997)
      
10.17

Twelfth Amendment and Consent  to Financing Agreement dated as of October 30, 2006, by and between The CIT  Group/Business Credit and Rock of Ages Corporation, Rock of Ages Kentucky  Cemeteries, LLC, Carolina Quarries, Inc., Pennsylvania Granite Corporation,  Rock of Ages Memorials, Inc. and Sioux Falls Monument Company (incorporated  herein by reference to Exhibit 10.01 to the Company's Current Report on Form  8-K and filed with the Securities and Exchange Commission on November 1,  2006)
      
10.18

Thirteenth Amendment and  Consent to Financing Agreement dated as of March 29, 2007, by and between The  CIT Group/Business Credit and Rock of Ages Corporation, Rock of Ages Kentucky  Cemeteries, LLC, Carolina Quarries, Inc., Pennsylvania Granite Corporation,  Rock of Ages Memorials, Inc. and Sioux Falls Monument Company  (incorporated  herein by reference to Exhibit 10.33 to the Company's Annual Report on Form  10-K for the year ended December 31, 2006 and filed with the Securities and  Exchange Commission on April 2, 2007)

10.19

Supply Agreement dated as  of January 11, 2002 by and between Rock of Ages Corporation and Adams Granite  Co., Inc. (incorporated herein by reference to exhibit 10.15 to the Company's  Annual Report on Form 10-K for the fiscal year ended December 31, 2001 and  filed with the Securities and Exchange Commission on April 1, 2002)

10.20

Amendment to Supply  Agreement dated as of January 1, 2004 by and between Rock of Ages Corporation  and Adams Granite Co., Inc. (Incorporated by reference to Exhibit 10.2 to the  Company's annual Report on Form 10-K for the fiscal year ended December 31,  2006 and filed with the Commission on April 2, 2007)

10.21

Amendment No. 2 to Supply  Agreement dated as of January 16, 2007 by and between Rock of Ages  Corporation and Adams Granite Co., Inc. (incorporated by reference to Exhibit  10.21 to the Company's Annual Report on Form 10-K for the fiscal year ended  December 31, 2006 and filed with the Commission on April 2, 2007)

 

 

 

81
 
10.22

Purchase and Sale Agreement  and related exhibits dated July 28, 2006 by and between Rock of Ages  Corporation, Carolina Quarries, Inc. and New England Stone Industries, Inc.  (incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly  Report on Form 10-Q For the quarterly period ended September 30, 2006 and  filed with the Securities and Exchange Commission on November 13, 2006) 
      
10.23

Amendment No. 1 to Purchase  and Sale Agreement and related exhibits dated October 19, 2006 by and between  Rock of Ages Corporation, Carolina Quarries, Inc. and New England Stone  Industries, Inc. (incorporated herein by reference to Exhibit 10.2 to the  Company's Quarterly Report on Form 10-Q For the quarterly period ended  September 30, 2006 and filed with the Securities and Exchange Commission on  November 13, 2006) 

10.24

Stock Purchase Agreement  dated as of January 17, 2008 by and between PKDM Holdings, Inc. and Rock of  Ages Corporation. (incorporated herein by reference to Exhibit 2.1 to the  Company's Current Report on Form 8-K and filed with the Securities and Exchange  Commission on January 23, 2008)

10.25

Termination Agreement and  General Release dated January 17, 2008 by and between Richard M. Urbach and  the Company (incorporated by  reference to Exhibit 10.25 to the  Company's Annual Report on Form 10-K for the fiscal year ended December 31,  2007 and filed with the Commission on March 31, 2008)

10.26

Authorized Retailer Supply  and License Agreement dated as of January 17, 2008 by and between the Company, PKDM Holdings, Inc., North American Heritage Services, Inc., Keith Monument  Company, LLC, and Sioux Falls Monument Co., LLC (incorporated by reference to Exhibit 10.26 to the Company's Annual Report on Form 10-K for the  fiscal year ended December 31, 2007 and filed with the Commission on March  31, 2008) †

10.27

Amendment No. 1 to Supply  Agreement dated as of January 16, 2009 (executed and delivered March 10,  2009) by and between Rock of Ages Corporation and PKDM Holdings, Inc.  (incorporated by reference to Exhibit 10.1 to the Company's Current Report on  Form 8-K filed with the Commission on March 11, 2009)

10.28

Amended and Restated  Financing Agreement  dated October 24, 2007 by and between The CIT  Group/Business Credit, Inc. and Carolina Quarries, Inc., Pennsylvania Granite  Corp., Keith Monument Company, LLC, Rock of Ages Memorials, Inc., Sioux Falls  Monument Co., and the Company. (incorporated herein by reference to Exhibit  10.1 to the Company's Current Report on Form 8-K and filed with the  Securities and Exchange Commission on October 25, 2007)

10.29

First  Amendment to Amended and Restated Financing Agreement dated March 30, 2009  by and between The CIT Group/Business Credit, Inc. and Carolina Quarries,  Inc., Pennsylvania Granite Corp., Keith Monument Company, LLC, Rock of Ages  Memorials, Inc., Sioux Falls Monument Co., and the Company. (incorporated  herein by reference to Exhibit 10.1 to the Company's Current Report on Form  8-K and filed with the Securities and Exchange Commission on March 31, 2009)

10.30

Letter from The CIT  Group/Business Credit, Inc. to Carolina Quarries, Inc., Pennsylvania Granite  Corp., Keith Monument Company, LLC, Rock of Ages Memorials, Inc., Sioux Falls  Monument Co., and the Company consenting to sale of the Company's retail  division (incorporated by  reference to Exhibit 10.28 to the  Company's Annual Report on Form 10-K for the fiscal year ended December 31,  2007 and filed with the Commission on March 31, 2008)

10.31

Supplemental Retirement  Plan for Donald Labonté  dated as of January 1, 2007 (incorporated by reference to Exhibit 10.29 to the Company's Annual Report on Form 10-K for the  fiscal year ended December 31, 2007 and filed with the Commission on March  31, 2008) 

10.32

Employment Agreement of Donald  M. Labonte dated as of July 1, 2008 (executed and delivered on August 26,  2008) (incorporated herein by reference to Exhibit 10.1 to the Company's  Current Report on Form 8-K and filed with the Securities and Exchange  Commission on August 28, 2008)
 
82

 

 

11.

Statement re: computation of per share  earnings (incorporated herein by reference to Note (1)(n) of the Company's  consolidated financial statements (filed herewith))
      
21.

Subsidiaries of the Company 
      
23.1

Consent of Grant Thornton LLP
      
31.1

Certification of CEO pursuant to Rule  13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
      
31.2

Certification of CFO  pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act  of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of  2002.
      
32.1

Certification of CEO  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes Oxley Act of 2002.
      
32.2

Certification of CFO  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes Oxley Act of 2002.

 

 

*      This exhibit is amanagement contract or compensatory plan or arrangement.

†    Portions of this exhibit have been omittedand filed separately with the Securities and Exchange Commission pursuant to arequest for confidential treatment. 

 

 

 

 

 

 

 

 

 

 

 
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