ROAC Rock of Ages (VT) (MM)

ITEM 1.

BUSINESS

GENERAL

Rock of Ages is a Vermont 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 sell higher end memorials with prices in excess of $25,000 to cemeteries, funeral homes, other retailers or to the consumer. 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.

On December 8, 2009, the Company completed the change in its state of incorporation from Delaware to Vermont (the "Reincorporation"). Pursuant to an Agreement and Plan of Merger adopted by the Board of Directors and approved by the stockholders on October 19, 2009, Rock of Ages Corporation, a Delaware corporation, was merged with and into its wholly-owned subsidiary, Rock of Ages Corporation (Vermont), with Rock of Ages Corporation (Vermont) as the surviving corporation. The name of the surviving corporation was changed to "Rock of Ages Corporation." The Board of Directors determined to reincorporate the Company in Vermont primarily because of its desire to reduce corporate expenses. As a Delaware corporation the Company was required to pay approximately $160,000 in annual franchise fees to the State of Delaware. As a Vermont corporation the Company pays a flat filing fee of $35 annually. As a result of the reincorporation the Company is now governed by the Vermont Business Corporation Act, Title 11 of the Vermont Statutes Annotated (the "VBCA").

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 in connection with our initial public offering in 1997 and from 1997 to 2005 we acquired 28 retail monument companies with approximately 80 locations in 16 states. However, in 2007 our Board of Directors determined that it was in the best interests of the Company and its stockholders to exit the retail business, to simplify and reduce the cost of the existing management infrastructure, and to 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, 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. At the time of the sale in January of 2008, 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, with a payment in full for any inventory remaining due on the tenth anniversary of the transaction. The balance of consigned inventory with PKDM at December 31, 2009 was $1,900,000.

VIKA, Ltd. ("VIKA"), a quarry company located in the Ukraine, in which we had 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.  As a result, our investment in VIKA was fully written-off in 2007. On June 30, 2009, the Company agreed to sell its one-third ownership interest in VIKA to the remaining VIKA shareholder for $170,583 payable in four equal installments of $42,646 due from July to October 2009. These payments were received in 2009 as agreed. In conjunction with this sale the Company entered into an exclusive distribution agreement with VIKA pursuant to which the Company has the exclusive worldwide right to sell and distribute all quarried products of VIKA including slabs and other finished products through 2012.

On April 17, 2009, Rock of Ages Canada, ("ROA Canada"), a wholly owned subsidiary of the Company signed an Asset Purchase Agreement and completed the purchase of the real and personal property comprising the Polycor Stanstead Quarry, located in Stanstead, Quebec, Canada from Carrieres Polycor, Inc., ("Polycor").  The purchase price for the quarry, building and inventory was $1.3 million. In connection with the purchase, Polycor entered into an agreement that limits Polycor from owning or operating a quarry similar to the Stanstead Gray quarry within fifty kilometers of Stanstead, Quebec. This agreement also prohibits Polycor from soliciting ROA Canada's customers for sales of gray granite. In connection with the purchase, ROA Canada entered into a supply agreement with Polycor, for 30 years whereby ROA Canada must supply Polycor with standard sized blocks of up to 300 cubic meters (or 10,594 cubic feet) a month.  ROA Canada also assumed the remaining three years of supply agreements with two unrelated granite manufacturers. The Company was in compliance with its obligations under these agreements in 2009.

During 2009, 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 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 directly 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 the most efficient 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 to meet each customer's personal requirements. Our objective is to provide a full range of memorials available at various price points.
• Reducing unallocated corporate overhead and corporate infrastructure. 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, 2009 and 2008, revenues derived from the sale of granite quarry products have accounted for 47% and 51%, respectively, of consolidated revenues; and revenues derived from the sale of manufactured granite products at wholesale have accounted for 53% and 49%, respectively, of consolidated revenues.

Granite Quarry Products

Manufactured Products

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 speak with customers by phone and make personal visits. 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

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. In connection with the sale of the Lawson manufacturing plant in Barre, Vermont 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. The Supply Agreement with Adams was amended over the years reducing the minimum order obligation to $1,200,000 for the final year ending January 10, 2010. The Company exceeded its minimum order obligation for the final year ending January 10, 2010 and no longer has an obligation to purchase monuments from Adams. There were no plants acquired in 2009. 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 $7.4 million and $7.1 million as of December 31, 2009 and 2008, respectively. These backlogs occurred in the normal course of business. Of the manufacturing backlog orders as of December 31, 2009, we expect 100% to be filled during the 2010 fiscal year. We have not historically had a material backlog of quarry block or slab orders.

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, 2009 has an aggregate book value of approximately $1.9 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 at that time. 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 2009 or 2008.

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 and China 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."

EMPLOYEES

We had approximately 257 employees as of December 31, 2009. We had approximately 268 employees as of December 31, 2008.

The collective bargaining agreements with the Granite Cutters Association and the United Steelworkers of America which together represent approximately 100 employees in our Vermont manufacturing and quarrying operations were renewed in 2009. The contracts with the Granite Cutters Association and the United Steelworkers of America for our Vermont manufacturing plant employees will expire on April 29, 2011 and the contract with the United Steelworkers of America for our Vermont quarry employees will expire on April 27, 2012. We also renewed in 2009 the agreement with the United Steelworkers union representing substantially all the production workforce in our granite quarry and manufacturing plants located in Stanstead, Quebec.  The agreement will cover approximately fifty workers, and is for a term of approximately four years, commencing November 1, 2009 and expiring on October 31, 2013. We also have a collective bargaining agreement with one union representing approximately 5 employees in our Laurentian Quarry. This agreement expired on January 31, 2010.  Since this quarry does not operate in the winter due to weather conditions, we will be negotiating with this union late in the first quarter of 2010 when the quarry reopens. We expect no problems with these negotiations and should have a signed agreement by the second quarter of 2010. See Item 1A - Risk Factors That May Affect Future Results.

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 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. These risks and hazards are generally not predictable. 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. During 2009, we experienced production recovery problems in our Bethel White, Gardenia White and American Black quarries, which negatively affected results of operations in 2009. These production recovery issues may persist in 2010, and we cannot assure you that our substantial continuing efforts to improve production recovery will improve our quarry segment results for 2010.

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 was effective as of March 31, 2009. At December 31, 2009, this plan is underfunded by $4.8 million,  which means that promised pension benefits could potentially exceed the funds available. In August 2006, the Pension 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 Worker, Retiree and Employer Recovery Act of 2008 has provided modest relief from the market events in 2008 by decreasing short term contribution requirements. However, 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 40% of total revenues in fiscal 2009 from sales to customers outside the United States, including approximately 23% from sales in Canada by our Canadian subsidiary and 16% from sales in China. 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. While we continue to develop sales to customers in other countries, we cannot assure you that sales of granite blocks to our Chinese and other foreign customers will remain at historic levels.

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.

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 37% of the deaths in the United States in 2009, 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.

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. 

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. 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.

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. 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 6 years remaining on the lease. We also own the Laurentian Pink quarry in Guenette, Quebec, which produces dark pink memorial grade granite. We also have the worldwide distribution rights to the Galactic Blue quarry in Zhytomyr, Ukraine. The Galactic Blue quarry is under development and currently produces granite in small commercial quantities. We do not expect the quarry to achieve significant commercial production quantities in 2010. We do not consider the Laurentian Pink or Galactic Blue properties to be currently significant or material to our business.

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

Stanstead # 2

1967

Carrieres Polycor, Inc., (2009)

Dirt Road

    $1,000,000

7,110,000

100

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 and a certain amount of material 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. 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.

We carry insurance with coverage 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.

The U.S. Mine Safety and Health Administration (MSHA) issued citations in 2009 to one of our subsidiaries, Pennsylvania Granite, asserting various violations and assessed fines totaling approximately $280,000.  The Company disagrees with the validity of these violations and how they are characterized. We are appealing these citations.  Based on experience of our legal counsel in settling similar assessments and available historical MSHA settlement data we estimate our final exposure will be no greater than $125,000.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

A special meeting of the Stockholders of Rock of Ages Corporation (the "Special Meeting") was held on Thursday, October 15, 2009 at 10:30 a.m., local time, for the purpose of considering and voting upon the proposal to reincorporate the Company from the State of Delaware to the State of Vermont (the "Reincorporation Proposal"). The Reincorporation Proposal was approved by the stockholders at the Special Meeting, and the Reincorporation was effective as of December 8, 2009.

A full description of the Reincorporation Proposal is contained in our proxy statement for the Special Meeting dated September 17, 2009 and filed with the Commission on September 17, 2009.

Our Class A Common Stock is entitled to one vote per share and our Class B Common Stock is entitled to ten votes per share. At the Special Meeting an aggregate of 2,625,511 shares of Class A Common Stock and an aggregate of Class B Common Stock, totaling 26,012,631 votes, were represented at said meeting. With respect to the Special Meeting and the Reincorporation Proposal, the results were tabulated by the Judge of Elections as follows:

TOTAL:          26,012,631

FOR:               25,875,193

AGAINST:          114,079

ABSTAIN:            23,359

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.

2009

HIGH

LOW

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

$2.48

$1.49

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

 2.48

 1.68

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

 3.88

 1.85

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

 3.66

 2.65

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

As of February 24, 2010, based upon information provided by our transfer agent, there were 202 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 2009 or 2008. 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 2009.

ISSUER PURCHASES OF EQUITY SECURITIES

Neither we nor our affiliates made any purchases of the Company's equity securities during fiscal 2009.

Not required for smaller reporting companies.

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 documen t.

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. Accordingly, during 2009, 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 2009, revenue from our quarry division was $22 million, down 24% from $29 million in 2008, however divisional operating income increased to $2.8 million compared to $1.2 million in 2008.  The increase in divisional operating income is solely due to the effect of the $3.9 million inventory write-down taken in the fourth quarter of 2008 in our export quarries of Bethel, Salisbury and Gardenia. Excluding the effect of the inventory write-down, quarry divisional income in 2008 would have been $5.1 million, and 2009 would have had a 45% decrease in divisional income from the prior year.

During 2009, demand for our granites in export markets continued to be strong but domestic demand for our Barre Gray granite continued to decline slowly. Unfortunately, we experienced production problems related to the quality of the granite deposits we are currently working in our Bethel and Gardenia quarries, which had a negative impact on the Quarry Division's 2009 results on both net revenue and gross profit. The shortage of saleable blocks in these quarries also negatively impacted sales of our Salisbury Pink granite. We are continuing to work through the granite deposits and are engaged in additional quarry development work in each of those quarries to increase the amount of saleable blocks from each quarry. The following is a brief analysis of each of the individual quarries.

• The Barre Gray quarry saw a decline in sales of 14% or $1.3 million. This granite is mainly used for memorials and this percentage decrease is commensurate with the decrease in manufacturing sales. We believe much of the decrease in sales is due to the poor economy. However we also believe that imported granites, which generally are less expensive, are likely being substituted in the lower end of the memorials market and the color choices among granites in the memorial markets has reduced the share of gray granite as a percentage of the market.
• The Bethel quarry had a very difficult year. We experienced production problems in the third quarter of the year, which persisted through the end of the 4 ^th quarter of 2009. Due to the lack of enough saleable blocks, sales suffered greatly. Net sales in this quarry decreased 46% from 2008 levels. However, due to many cost-cutting measures, the gross profit margin was comparable with 2008 levels (excluding the 2008 inventory write-down). We continue to work at developing new areas of the quarry to ensure that future production will satisfy customer demand. Bethel White is very popular for building purposes and demand for this granite is still strong with our international customers.
• The Salisbury Pink quarry in North Carolina experienced an 18% decline in net sales but maintained the same gross profit margin percentage (excluding the 2008 inventory write-down). We believe the demand for this stone is linked closely to the availability not only of this stone but all of our export blocks, especially Bethel and Gardenia White since our customer's inspectors generally visit all of our quarries in one visit. Accordingly, we believe the lack of available stone in those quarries contributed to the decrease in sales in Salisbury. This granite is also mainly used for building purposes and demand remains strong with our international customers.
• Our Gardenia and Rockwell White quarries had a difficult year. During the normal production process in 2009 we spent a considerable amount of time and money to convert this quarry from a deep-hole quarry to a drive-in quarry. In the long term this step will lead to increased quantities of saleable granite blocks produced annually and reduced costs of extraction, but in the short-term it resulted in reduced production and higher costs. We didn't have enough saleable stone to meet demand in 2009 and sales were down 25%, but we believe the quarry is in good position to increase production in 2010 and the demand for this stone remains very strong.
• The American Black quarry net revenue was down 26% from 2008 because of poor recovery rates. This is a difficult quarry to operate as it has the lowest recovery rate of all our quarries. However, we can sell all the saleable blocks we produce since the stone is very popular with our customers. This is a full drive-in quarry and we continue to work on the production and recovery issues.
• Net sales from our Canadian quarries increased by 5% over 2008 as a result of the purchase of the Polycor Quarry in April 2009. 

• On June 30, 2009, the Company agreed to sell its one-third ownership interest in VIKA to the remaining VIKA shareholder for $170,583 payable in four equal installments of $42,646 due from July to October 2009. All payments were collected by the end of the year.  In conjunction with this sale, the Company entered into an exclusive distribution agreement with VIKA pursuant to which the Company has the exclusive worldwide right to sell and distribute all quarried products of VIKA including slabs and other finished products for a period of five years. Production is still poor as VIKA continues to develop the quarry.

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.  

The manufacturing division's 2009 net revenue decreased 12% to $23.9 million compared to $27.2 million in 2008 as a result of sales decreases in memorials, mausoleums and precision products. Gross margin decreased by 1% and SG&A decreased $450,000. The entire division was significantly affected by the continued downturn in the economy. However, our backlog at December 31, 2009 is up $300,000 from year-end 2008. 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. 

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 valuation of inventory.

Revenue Recognition

Quarry Division

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 persuasive evidence of an arrangement exists, delivery has occurred or the services have been provided and accepted by the customer, fees are determinable and collectibility is reasonably assured.  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 current accounting literature regarding revenue recognition. 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 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.

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. 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 un-depreciated 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, we adjusted our valuation allowance against the deferred tax assets 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 sufficient 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 rates of increase in compensation and 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 long-term rate of earnings expected on the funds invested or to be invested to provide for the benefits included in the projected benefit obligation. In 2009, we changed the discount rate used to determine our liability in the pension plans to 5.9% from 6.3%, the rate used at December 31, 2008. In both years this rate was determined 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. 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 was 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 a forecast of product demand. Inventories that are in excess of expected future demand are written down to their estimated value based upon projected demand. Demand for our products can be forecasted based on historical experience, current orders, age of the inventory and discussions with customers. Although management makes every effort to ensure the reasonableness 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 cost of goods sold, gross profit and selling, general and administrative expenses, which are shown as a percentage of their respective divisions' net revenues.

Year Ended December 31, 2009 Compared To Year Ended December 31, 2008

On a consolidated basis for all segments for the year ended December 31, 2009 compared to the year ended December 31, 2008, revenue decreased 19%, gross profit decreased 24% (excluding the 2008 inventory write-down of $3.9 million) 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, 2009 decreased 24% to $21.7 million, compared to $28.7 million in 2008. 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 32% or $2.3 million (excluding the 2008 inventory write-down of $3.9 million). The decreased sales also drove our gross margin down 2.5 percentage points to 23.1%.

SG&A expenses in our quarry segment for 2009 of $2.2 million were down slightly, by $24,000, from 2008. 

Foreign exchange losses in 2009 were $131,000 compared to a gain in 2008 of $27,000 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 $1.2 million in 2009 as compared to $1.4 million in 2008. Total interest expense decreased only $200,000 even though we've decreased debt $7.5 million during the year as a result of the increase in our borrowing rates instituted by our lenders as of March 31, 2009.

The income tax expense for 2009 was $280,000 compared with $395,000 for 2008. The tax expense in 2009 is made up of taxes at our Canadian subsidiary plus the accrual of the 5% Canadian withholding tax on a $4 million expected dividend plus the U.S. federal and state taxes on that dividend. Under the rules of the Housing Assistance Tax Act of 2008, the Company has elected to forgo bonus depreciation and claim accelerated AMT credit carryforward from tax years beginning before 2006. The Company elected for 2008 and 2009 to benefit from the monetization of AMT credits and included in the 2009 US provision is $302,000 of tax benefit. The tax expense in 2008 reflects taxes at our Canadian subsidiary.

We had a loss from the discontinued retail operations of $142,000 in 2008. The 2008 loss is made up of $119,000 of operating losses and $23,000 of allocated interest.

Liquidity and Capital Resources

In light of the current economic situation, we evaluated our future liquidity needs, both from a short-term and long-term (i.e. more than one year) basis. We believe cash on hand plus cash generated from operations along with cash available under credit lines will be sufficient in 2010 to service debt, finance capital expenditures, fund operations and fund the pension plan. 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.

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. During 2009 we generated $10.5 million in cash from operations and applied $7.2 million to the revolving credit facility and $261,000 to long-term debt.

Due to the significant worldwide decline that began in 2008 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. While the asset values have recovered by approximately $3 million in 2009, the plan is still under-funded by $4.8 million as of December 31, 2009. We have historically contributed between $750,000 and $1.0 million per year to the plan. We contributed $1.0 million for 2009 and expect to contribute approximately the same amount in 2010. 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 8 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 million budgeted for capital expenditures in 2010.

Cash Flow 

At December 31, 2009, we had cash and cash equivalents of approximately $1.7 million and working capital of approximately $21 million, compared to approximately $888,000 million of cash and cash equivalents and working capital of approximately $21 million at December 31, 2008.

Cash from Operations. Net cash provided by operating activities was $10.5 million in 2009 compared to $2.3 million in 2008. The $10.5 million is made up mainly of net income of $802,000, depreciation of $2.5 million, a decrease in accounts receivable of $6.2 million and a decrease in inventory of $2.4 million offset by a decrease in payables and pension liabilities of $1.5 million. 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.

Cash from Investing Activities. Cash flows used in investing activities were $2.5 million in 2009 compared to cash flows provided by investing activities of $4.9 million in 2008. In 2009 our capital spending was $1.7 million for property, plant and equipment (PP&E) and $1.1 million for a quarry in Stanstead, Quebec compared to $3.1 million for PP&E in 2008. In 2009 proceeds from sales of PP&E totaled $462,000 compared to $473,000 in 2008. In 2008, proceeds from the sale of the retail division totaled $7.7 million.

Cash from Financing Activities . Financing activities used $7.5 million in 2009 compared to $8.0 million in 2008. In 2009 our line of credit was reduced by $7.2 million and $261,000 was paid on our long-term debt. In 2008 our line of credit was reduced by $3.1 million and $5.0 million was paid on our long-term debt. 

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 $214,446 and $13,885,960 as of December 31, 2009 and $7,428,085 and $14,106,939 as of December 31, 2008, on the revolving credit facility and the term loan line of credit, respectively.  Unused availability under the revolving credit facility was $10,745,414 as of December 31, 2009.  The term loan line of credit is available to pay for the acquisition of quarries or manufacturers and items incidental to the acquisitions subject to various restrictions.  The weighted average interest rate was 5.3% and 4.7% on the revolving credit facility in 2009 and 2008, 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 1.10 for any trailing twelve-month period at the end of a quarter. As of December 31, 2009 we were in compliance with the Minimum Fixed Charge Coverage Ratio. Due to the non-cash impairment charges on the write-down of inventory and the corporate building in 2008 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 effective March 31, 2009. 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:

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 accounting rules regarding unfunded retirement liabilities, up to $6.0 million. In relevant part, this rule required us to place on our books certain unrecognized and unfunded retirement liabilities as of December 31, 2006. As of December 31, 2009, we were in compliance with the Leverage Ratio covenant.

Interest Rates. 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 with a LIBOR floor of 2.0%.

Canadian Credit Facility

The Company's Canadian subsidiary has a line of credit agreement with the Royal Bank of Canada that is renewable annually in December. Under the terms of this agreement, a maximum of $2.5 million CDN may be advanced based on eligible accounts receivable, eligible inventory, and tangible fixed assets.  The line of credit bears interest at the Canadian prime rate plus 0.5%.

The Canadian subsidiary also has a non-revolving term loan which cannot exceed $4,000,000 CDN bearing interest at the Canadian prime rate plus 0.95%. Amortization of the loan is based on 72 months but the interest rate is negotiated yearly. There was nothing outstanding on either loan at December 31, 2009 or December 31, 2008. However, in the first quarter of 2010, Rock of Ages Canada borrowed $4 million on their term loan and paid a dividend of $4 million to Rock of Ages Corporation. The Company did this to take advantage of the historically high exchange rates, the difference in interest rates under its credit facilities with the Royal Bank of Canada and the CIT Group, and to take advantage of current income tax deductions in Canada.

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.

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 December 2008, the FASB issued an amendment to the Compensation topic regarding employer's disclosures about postretirement benefit plan assets. This guidance requires 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. It is effective for fiscal years ending after December 15, 2009, with earlier application permitted. The adoption of this amended guidance did not have a material effect on our financial position or results of operations but did result in expanded financial statement disclosures (see note 8).

In May 2009, the FASB issued the Subsequent Events topic which establishes standards under which an entity shall recognize and disclose events that occur after a balance sheet date, but before the related financial statements are issued or are available to be issued. The guidance is effective for fiscal years and interim periods ending after June 15, 2009. The Company has evaluated and disclosed subsequent events through the date of this filing. See note 18 for a discussion of subsequent events.

In January 2010, the FASB issued accounting guidance to enhance fair value measurement disclosures by requiring the reporting entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reason for the transfers. Furthermore, activity in Level 3 fair value measurements should separately provide information about purchases, sales, issues and settlements rather than providing that information as one net number. These new disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, with the exception of the enhanced Level 3 disclosures, which are effective for interim and annual reporting periods beginning after December 15, 2010. The Company does not expect that application of this guidance will have a material impact on our financial position or results of operations.

ITEM 7A.  

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required for smaller reporting companies.

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 43 through 72, 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, 2009. 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, 2009.  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, 2009, 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.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal controls over financial reporting that has occurred during our fiscal quarter ended December 31, 2009 that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting. 

ITEM 9B.

OTHER INFORMATION

As previously disclosed in its current report on Form 8-K filed with the Commission on February 22, 2010, at its regular meeting held on February 18, 2010, our Board of Directors set the date for the Company's Annual Meeting of Shareholders for Thursday, August 12, 2010 at 10:30 a.m., EDT. The meeting will be held at our Visitors Center located at 560 Graniteville Road, Graniteville, Vermont. The Board set the record date for the Annual Meeting of Stockholders for June 4, 2010. We decided to move the annual meeting about 60 days from the middle of June to August 12 so as to be able to publicly discuss our results through June 30, 2010 with our shareholders at the meeting.

Because the Annual Meeting will be delayed by more than 30 calendar days from the date of last year's Annual Meeting, the following revised dates apply to shareholder proposals:

Under the rules and regulations of the Securities and Exchange Commission, proposals of shareholders intended to be presented in the Company's proxy statement and forms of proxy for the Company's 2010 Annual Meeting of Shareholders must be received by the Company at its principal executive offices no later than March 1, 2010, and must otherwise satisfy the conditions established by the Securities and Exchange Commission to be considered for inclusion in the Company's proxy statement and proxy cards for that meeting.

Under our By-Laws, proposals of shareholders intended to be submitted for a formal vote (other than proposals to be included in the Company's proxy statement and forms of proxy) at the Company's 2010 Annual Meeting of Shareholders may be made only by a shareholder of record who has given notice of the proposal to the Secretary of the Company which is received at the Company's principal executive offices not later than May 14, 2010. The notice must contain certain information as specified in our By-Laws. Any such proposal received after May 14, 2010 will not be considered "timely" under the federal proxy rules for purposes of determining whether the proxies designated by the Company for such meeting may use discretionary authority to vote on such proposal.

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Certain information concerning our directors and executive officers is set forth below. Our executive officers serve for a term of one year (and until his or her successor is duly elected and qualified) at the discretion of the Board of Directors.

Our Articles of Incorporation provide that our Board of Directors shall be comprised of not less than three and not more than fifteen members. Our Board of Directors is currently comprised of seven directors.

Our Articles further provide that at the next annual shareholders' meeting, which has been set for August 12, 2010 (the "2010 Annual Meeting"), the initial Board of Directors will be divided into three classes (Classes I, II and III), each class consisting, as nearly as possible, of one-third of the total number of directors constituting the entire Board of Directors. At the 2010 Annual Meeting, the Class I directors will stand for election for a term that expires at the next annual shareholders meeting after such election; the Class II directors will stand for election for a term that expires at the second annual shareholders meeting after such election; and the Class III directors will stand for election for a term that expires at the third annual shareholders' meeting after such election. At each succeeding annual shareholders' meeting, successors to the class of directors whose term expires at that annual meeting will stand for election for three-year terms.

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

AGE

POSITIONS WITH THE COMPANY

James L. Fox

58

Director

Paul H. Hutchins

54

Vice President/Administration

Richard C. Kimball

69

Director and Vice Chairman

Donald M. Labonte

48

Director, President and Chief Executive Officer

Laura A. Plude

52

Vice President, Chief Financial Officer, Treasurer and Assistant Secretary

Pamela G. Sheiffer

63

Director

Kurt M. Swenson

65

Chairman of the Board of Directors

Charles M. Waite

77

Director

Frederick E. Webster Jr.

72

Director

Ms. Sheiffer has extensive executive management experience with companies engaged in the design and retail sales of products (included branded products) marketed primarily to women.  Since the large majority of granite memorials sold in North America are purchased by women, Ms. Sheiffer brings a unique and helpful perspective to the sales and marketing programs for our branded memorials.

Kurt M. Swenson has been Chairman of the Board of Directors of the Company since 1984. From 1984 to June 30, 2008 he was President and Chief Executive Officer 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 expires at the Company's 2010 Annual Meeting.

Mr. Swenson has over 36 years of experience in the granite industry.  He provides extensive industry knowledge and contacts, and as a former executive officer, also provides institutional continuity and Company knowledge to the Board. 

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 expires at the Company's 2010 Annual Meeting.

Mr. Waite brings a strong sense of executive management and leadership to the Board.  He is a graduate of the Harvard Business School, and has extensive experience, as an executive running business operations as well as a consultant to numerous companies with both domestic and overseas operations.

Frederick E. Webster Jr., Ph.D. has been a director of the Company since October 1997. He was 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 expires at the Company's 2010 Annual Meeting.

Mr. Webster is nationally recognized as an expert in marketing. In addition to his academic accomplishment, he has served as a consultant to a wide number of companies.  Mr. Webster brings to the Board expertise in marketing branded products, managing channel conflicts, marketing through exclusive territories, pricing policy and implementing customer-driven initiatives.

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 2009 such persons made all required filings, except that Mr. Hutchins and Mrs. Plude filed on a timely basis a Form 5 (Annual Statement of Changes In Beneficial Ownership) reporting the grant on February 19, 2009 of 5,000 and 10,000 options, respectively, to purchase shares of Class A Common Stock. The grants should have been reported on Form 4, but such reports were not timely filed due to 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), Richard C. Kimball and Frederick E. Webster Jr. 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.

BOARD LEADERSHIP STRUCTURE AND ROLE IN RISK OVERSIGHT

With the streamlining of our management structure after the sale of our retail division in 2007, and the retirement of Kurt M. Swenson, our former Chief Executive Officer ("CEO") in June 2008, our Board of Directors determined it would be in the best interests of the Company and its shareholders to separate the roles of Chairman and CEO. Accordingly, Mr. Swenson, who served as Chairman of the Board and CEO from 1984 until June 2008, now serves as the non-executive Chairman of the Board.

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)

Donald M. Labonte, President/CEO

2009

2008

$238,950 (2)

$253,800 (2)

-

$40,000 (3)

-

-

-

$7,947

$19,238

-

-

-

$31,575 (4)

$33,537 (5)

$289,763

$335,284

Paul H. Hutchins,

Vice President Administration

2009

2008

$125,004

$125,004

-

$10,000 (7)

-

-

$3,350

$467

$9,375

-

-

-

$5,608(6)

$1,385(6)

$143,337

$136,856

Laura A. Plude, CFO

Vice President Finance

2009

2008

$100,841

$100,008

-

$10,000 (7)

-

-

$6,700

$14,550

$7,563

-

-

-

$4,678(6)

$1,750 (6)

$119,782

$126,308

Incentive payments earned under the 2009 Annual Incentive Plan were accrued in 2009 but paid in 2010. 

(2)

For 2009 and 2008, Mr. Labonte was paid an annual base salary of $270,000 CDN.  For the purposes of this table, to calculate his 2009 and 2008 annual base salary in U.S. dollars, we used a currency conversion rate of $.885 and $.94 U.S. to $1.00 CDN, respectively which represents the average of the exchange rates as of each month during fiscal 2009 and 2008, as published in the Wall Street Journal.

(3)

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.

(4)

Includes $19,470 ($22,000 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 $788 ($890 CDN) paid for a life insurance policy on Mr. Labonte's life, payable to his heirs. Rock of Ages Canada paid $11,317 ($12,787 CDN) into the supplemental retirement plan for Mr. Labonte for 2009. For the purposes of this table, to calculate the amounts paid in 2009 for Mr. Labonte's retirement arrangements, we used a currency conversion rate of $.885 USD to $1.00 CDN, which represents the average of the exchange rates as of each month during fiscal 2009, 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.

(5)

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.

(6)

For 2009 and 2008, respectively, amount represents Company match on 401(k) deferrals. 

(7)

Discretionary bonus paid in 2009 for 2008 performance.

Target Award Values (% of Base Salary)

Threshold

Target

Maximum

Donald M. Labonte, President and CEO

10%

15%

25%

Paul H. Hutchins, Vice President of Administration

10%

15%

25%

Laura A. Plude, CFO and Vice President of Finance

10%

15%

25%

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 was significantly under-funded, and we decided to terminate participation in the DB Plan and the future accrual of benefits.  As an alternative to the DB Plan, we increased the Company match for our 401K plan to 4%.  We have entered into salary continuation agreements (the "SC Agreements") with certain individuals who are not Named Executive Officers.  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 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.  For further information on our retirement programs please see the information at page 30 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 and is described in greater detail at page 32 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, 2009.

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)

Donald M. Labonte

15,000

-

-

$5.98

2/8/2012

-

-

-

-

17,000

68,000

-

$2.63

8/7/2018

-

-

-

-

Paul H. Hutchins

15,000

-

-

$5.98

2/8/2012

-

-

-

-

1,000

4,000

-

$2.63

8/7/2018

-

-

-

-

5,000

-

$2.63

2/19/2019

-

-

-

-

Laura A. Plude

10,000

15,000

-

$5.93

8/14/2017

-

-

-

-

10,000

-

$2.63

2/19/2019

-

-

-

-

Each of the options shown above vest over five years in equal 20% increments, and expire ten years after the date of grant.

OPTION EXERCISES AND STOCK VESTED

During 2009 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. The DB Plan is noncontributory and provides benefits based upon a formula calculated by reference to length of service and final average earnings. 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. 

The Vice President of Administration and the CFO are the only named executive officers participating in the DB Plan. The VP of Administration has 27 years of service and the CFO has 9 years of service and their annual retirement benefits will be $66,500 and $14,600, respectively.  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 former officers of the Company.  No Named Executive Officers are covered by an SC Agreement.

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).  No executive officers 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 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 President and 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 2009, Canadian law allowed a maximum contribution per individual to the Basic Canadian Retirement Plan of $22,000 CDN. 

In 2009, we contributed $19,470 (the full $22,000 CDN allowable under Canadian law) and in 2008, we contributed $19,740 (the full $21,000 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. 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 $11,317 ($12,787 CDN) and $12,960 USD ($13,787 CDN) in 2009 and 2008, 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. 

NON-EMPLOYEE DIRECTOR Compensation

For the 2009 fiscal year, directors who are not also employees 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 2009 Non-Employee Director Compensation

The following table shows the compensation paid to our non-employee directors for the 2009 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

32,500

-

-

-

-

-

32,500

Richard C. Kimball

32,500

-

-

-

-

-

32,500

Pamela G. Sheiffer

32,000

-

-

-

-

-

32,000

Kurt M. Swenson

50,000

-

-

-

-

-

50,000

Charles M. Waite

32,500

-

-

-

-

-

32,500

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 20, 2010, 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

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 20, 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.

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

-

-

718,473

14.9%

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

-

-

312,531

6.5%

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%

72,126

1.5%

Charles M. Waite**

29,126

1.1%

45,000

*

James L. Fox**

-

-

5,000

*

Frederick E. Webster Jr.**

-

-

5,000

*

Donald Labonte (8)**

-

-

35,000

*

Pamela G. Sheiffer**

-

-

5,000

*

Paul H. Hutchins(9)**

-

-

29,200

*

Laura A. Plude (10) **

-

-

15,000

*

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

1,063,252

38.8%

1,346,326

22.9%

(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 22, 2010 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 17, 2010, 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.

(5)

 According to a Schedule 13G dated February 10, 2010, 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.

(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 32,000 shares of Class A Common Stock subject to currently exercisable stock options.

(9)

Includes 17,000 shares of Class A Common Stock subject to currently exercisable options.

(10)

Includes 12,000 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, 2009.

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

314,000

$4.08

330,833

Equity compensation plans not approved by security holders

None

None

None

Total

314,000

$4.08

330,833

(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 his brother Kevin C. Swenson, each own approximately 31% of Swenson Granite LLC. Certain other 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.

In connection with the sale of our retail division to PKDM Holdings, Inc. in 2008, a corporation owned by Richard M. Urbach, the former President and Chief Operating Officer of the retail division, and James Barnes, the financial manager of the retail division, 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.

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 and Mr. Labonte, 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 and Mr. Labonte currently serves as our CEO. Therefore, the Board of Directors determined that they are 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 directors 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 directors, 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 2009 and 2008. 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 2009.

2009

2008

Audit Fees (1)

$

291,643

$

410,950

Tax Fees (2)

78,260

81,830

All Other Fees

-

-

Total

$

369,903

$

492,780

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
NUMBER

DESCRIPTION

2.1

Agreement and Plan of Merger dated October 21, 2009 by and between Rock of Ages Corporation (a Delaware corporation) and Rock of Ages Corporation (Vermont) (incorporated herein by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on December 8, 2009).

3.1

Articles of Incorporation of the Company (incorporated herein by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on December 8, 2009).

3.2

By-laws of the Company (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 December 8, 2009).

3.3

Articles of Merger filed with the Vermont Secretary of State dated December 7, 2009 (incorporated herein by reference to Exhibit 3.3 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on December 8, 2009).

3.4

Certificate of Merger filed with the Delaware Secretary of State dated December 7, 2009 (incorporated herein by reference to Exhibit 3.4 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on December 8, 2009).

4.1

Specimen Certificate representing the Class A Common Stock (incorporated herein by reference to Exhibit 4.1 to the Company's Amendment No. 2 to Registration Statement on Form 8-A (Commission File No. 0-2964) filed with the Securities and Exchange Commission on December 15, 2009).

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).

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).

10.4*

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).

10.5*

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).

10.6

Form of Collective Bargaining Agreement between Rock of Ages Corporation - Quarry Division and the United Steelworkers of America, AFL_CIO_CLC on behalf of Amalgamated Local #4 (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended July 4, 2009 and filed with the Securities and Exchange Commission on August 14, 2009).

10.7

Form of Collective Bargaining Agreement between Rock of Ages Corporation - Manufacturing Division and the United Steelworkers of America, AFL_CIO_CLC on behalf of Amalgamated Local #4 (incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended July 4, 2009 and filed with the Securities and Exchange Commission on August 14, 2009).

10.8

Form of Collective Bargaining Agreement between Rock of Ages Corporation - Manufacturing Division and the Granite Cutter's Association  (incorporated by reference to Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended July 4, 2009 and filed with the Securities and Exchange Commission on August 14, 2009).

10.9

Credit Facility dated as of October 26, 2009 between Royal Bank of Canada and Rock of Ages Canada, Inc.

10.10

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).

10.11

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 Securities and Exchange Commission on April 2, 2007).

10.12

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 Securities and Exchange Commission on April 2, 2007)

10.13

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).

10.14

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 Securities and Exchange Commission on March 31, 2008).

10.15

Authorized Retailer Supply and License Agreement dated 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 Securities and Exchange Commission on March 31, 2008). ^†

10.16

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 Securities and Exchange Commission on March 11, 2009).

10.17

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).

10.22

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)

10.23

Asset Purchase Agreement dated April 17, 2009 by and between Rock of Ages Canada, Inc., a wholly-owned subsidiary of the Company, and Carrieres Polycor, Inc., for the purchase of real and personal property comprising the Polycor Stanstead Quarry, located in Stanstead, Quebec (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarterly period ending April 4, 2009 and filed with the Securities and Exchange Commission on May 19, 2009). This exhibit is the original contract written in French.

10.24

English translation of the Asset Purchase Agreement dated April 17, 2009 by and between Rock of Ages Canada, Inc., a wholly-owned subsidiary of the Company, and Carrieres Polycor, Inc., for the purchase of real and personal property comprising the Polycor Stanstead Quarry, located in Stanstead, Quebec (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarterly period ending April 4, 2009 and filed with the Securities and Exchange Commission on May 19, 2009).

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.

PAGE

Report of Independent Registered Public Accounting Firm

42

Consolidated Balance Sheets

43

Consolidated Statements of Operations

45

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

46

Consolidated Statements of Cash Flows

47

Notes to Consolidated Financial Statements

49

Supplementary Information:

          Schedule II-Valuation and Qualifying Accounts and Reserves

70

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 Vermont Corporation) and subsidiaries (collectively, the "Company") as of December 31, 2009 and 2008 and the related statements of operations, stockholders' equity and comprehensive income (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, 2009 and 2008 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.

2009

2008

ASSETS

Current assets:

   Cash and cash equivalents

$

1,712,760

$

888,099

   Trade receivables, less allowance for doubtful accounts of
     $324,446 in 2009 and $342,039 in 2008

7,241,144

13,314,324

   Inventories

15,076,775

16,839,448

   Income taxes receivable

429,281

135,682