FOR THE TRANSITION PERIOD FROM________TO________

   Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

   Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act.) Yes o No x

TABLE OF CONTENTS
PART I

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Annual Report on Form 10-K, and other oral and written statements made by the Company from time to time, are "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"), as amended, including those that discuss strategies, goals, outlook or other nonhistorical matters, or projected or anticipated revenues, income, returns or other financial measures. These forward-looking statements are subject to numerous risks and uncertainties that may cause actual results to differ materially from those contained in such statements. These risks and uncertainties include the ability of the Company to continue to identify suitable retail acquisition candidates, to consummate additional retail acquisitions on acceptable terms and to successfully integrate the operations of such acquired entities.

Other factors and assumptions that could generally cause the Company's actual results to differ materially from those included in the forward-looking statements made herein include the effects of general economic conditions in the United States or abroad, changes in competitive market conditions, changes in the Company's business strategy or an inability of the Company to implement its growth strategy due to unanticipated changes in general economic conditions, the Company's ability to negotiate collective bargaining agreements, demand for the Company's products and the sufficiency of the Company's production capacity to meet future demand for its products. Other factors and assumptions not identified above were also involved in the derivation of the forward-looking statements contained in this Annual Report on Form 10-K, and such other factors and the failure of such other assumptions to be realized, may also cause actual results to differ materially from those projected. See "Risk Factors That May Affect Future Results" under Item 7 below. The Company assumes no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements.

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PART I

ITEM 1.  BUSINESS

GENERAL

Rock of Ages Corporation ("Rock of Ages" or the "Company") was founded in 1885 and is an integrated granite quarrier, manufacturer and retailer whose principal product is granite memorials used primarily in cemeteries. The Company believes that it is the largest quarrier, manufacturer and retailer of finished granite memorials and granite blocks for memorial use in North America, based on revenues. The Company owns and operates 11 active quarry properties and 6 manufacturing and sawing facilities in North America, principally in Vermont and the Province of Quebec. The Company markets and distributes its memorials on a retail basis through approximately 99 Company-owned retail sales outlets (including sales outlets located at certain cemeteries owned by the Company located in the state of Kentucky) in the states indicated in Item 2 below. The Company also sells memorials wholesale to approximately 70 independent authorized Rock of Ages retailers in the United States as well as approximately 90 retailers in Canada. The Company markets its memorials at four quality and price points under four separate brand names: Signature, Sealmark, Golden Rule by Rock of Ages and Stone Eternal by Rock of Ages. The Company also sells non-branded memorials. The Company believes the Rock of Ages trademark is one of the oldest and best-known brand names in the granite memorialization industry. The Company actively promotes its brand names and places a seal bearing the brand name on each branded memorial. All Rock of Ages branded memorials are supported by a perpetual warranty with varying levels of coverage depending on the brand.

As part of the Company's growth strategy to focus its resources on building and expanding its branded memorial retail distribution system and profitable quarry operations, and to increase the profitability of the Company's manufacturing operations, the Company divested itself of 2 quarries and 2 non-core manufacturing facilities in 2001. In January 2002, the Company also sold its Lawson manufacturing facility in Barre, Vermont ("Lawson") for a total sales price of $2,550,000 of which $2,300,000 was paid at closing and $250,000 is payable pursuant to the terms of a promissory note delivered by the buyer at closing.

Also as part of its growth strategy, the Company has engaged in various strategic acquisitions. From 1998 to 2000, the Company acquired 26 retail monument companies, expanding its retail presence to 15 states. In January 2002, the Company acquired 16 cemetery properties and 1 memorial retailer located in the state of Kentucky. During the second quarter of 2002, the Company acquired a 1/3 equity interest in VIKA Ltd., a Ukrainian closed joint stock company that owns rights to quarry stone known as "Galactic Blue" on certain property located in Zhytomir, Ukraine, for a purchase price of $475,000. In connection with the share purchase, the Company acquired exclusive rights to sell the output of the Galactic Blue quarry.

The Company has operations in four business segments: Quarrying, Manufacturing, Retailing and Cemeteries. Included within the business segments are operations that are unincorporated divisions of Rock of Ages and others that are separately incorporated subsidiaries. Financial information by business segment and geographic area is incorporated herein by reference to note 15 to the Consolidated Financial Statements of the Company. 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 "Management's Discussion and Analysis of Financial Condition and Results of Operations-Risk Factors that May Affect Future Results" in Item 7. Additional information regarding each business segment and Rock of Ages in general is set forth below and on the Company's website at www.rockofages.com. The information provided on the Company's website is not incorporated by reference into this Annual Report on Form 10-K and should not be considered part of this report.

GROWTH STRATEGY

The Company seeks to expand the scope and profitability of its operations through a growth strategy that focuses on forward vertical integration into retailing, thereby enabling the Company to move closer to the ultimate customer. The principal elements of the growth strategy include the following:

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• Expansion of Company-Owned Retail Network. The Company anticipates that it will continue to expand its Company-owned retail network by selectively acquiring independent granite memorial retailers and by opening new retail stores in selected markets in North America. By expanding its Company-owned retail network, the Company believes that it will capture the higher gross margins (relative to quarrying and manufacturing gross margins) that have historically existed at the retail level. Where appropriate, the Company may also acquire cemetery properties that have the potential of expanding sales of its granite memorials.

• Increased Emphasis on Independent Authorized Dealers. The Company seeks to expand where appropriate its base of independent authorized Rock of Ages retailers that are current or potential customers of the Company in furtherance of its efforts to build an integrated retail network consisting of Company-owned and independent authorized Rock of Ages retail outlets that sell the Company's brands.

 

• Brand Enhancement. The Company believes that the Rock of Ages brand is one of the best-known brand names in the memorial industry. The Company will, as a part of building its integrated network of Company-owned and independent retailers, continue to promote the Rock of Ages brand and other proprietary brands sold at its Company-owned retail outlets and independent authorized Rock of Ages dealers.

 

• Strategic Alliances with Funeral Homes and Cemeteries. The Company has formed and anticipates that it will continue to pursue strategic alliances with funeral home and cemetery owners to sell granite memorials in cooperation with them, in order to increase both pre-need and at-need sales of granite memorials.

 

• Selected Acquisitions of Quarries. While the Company owns or controls many of the highest quality granite quarries in North America, the Company will continue to explore the possibility of acquiring selected granite quarriers in North America and internationally to assure that it will continue to have the colors and grades of granites sought by retail purchasers of granite memorials in North America, as well as granites for other uses.

 

• Other Product Line Enhancements. The Company intends to continue to expand and enhance its memorial product lines in color, design and style. The Company's objective is to provide a full range of memorials available at various price ranges.

PRODUCTS

The Company's principal products may be classified into three general product lines: granite quarry products, manufactured granite products and non-granite memorials and cemetery products. 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. Non-granite memorials and cemetery products include burial lots, community mausoleum niches, lawn crypts, vaults, bronze markers and related services. For each of the last three years, from 2002 to 2000, revenues derived from the sale of granite quarry products have accounted for 32%, 27% and 25%, respectively, of consolidated revenues while revenues derived from the sale of manufactured granite products have accounted for 63%, 69% and 75%, respectively, of consolidated revenues. In each of the last three years, revenues attributable to the sale of non-granite memorials and cemetery products accounted for less than 6% of consolidated revenues.

Granite Quarry Products. The principal quarry product sold by the Company is granite blocks, the raw material of the dimension granite industry. These blocks are extracted from quarries in various sizes through a drilling, blasting and wire sawing process in the quarry. The range of block sizes is large, but most manufacturers of granite memorials and other products generally require minimum dimensions of height, width and length to maximize the efficiency of their block sawing equipment in meeting the required dimensions of the finished product. Granite blocks are normally sold in heights from 2'6" to 5', widths of 3' to 5', and lengths from 7' to 10'. These blocks typically weigh between 20 and 30 tons.

Granite differs from deposit to deposit by color, grade and/or quality. Rock of Ages quarries and sells blocks of (i) Barre Gray granite from its Barre, Vermont quarry and gray granite from its Stanstead, Quebec quarry, (ii) black granite from its American Black quarry in Pennsylvania, (iii) pink granites from its Laurentian Pink quarry in Quebec and its Salisbury Pink quarry in North Carolina, (iv) white granites from its Bethel White quarry in Vermont and its Gardenia White quarry in North Carolina, (v) brownish red granite from its Autumn Rose quarry in Oklahoma and (vi) grayish pink  granites from its Kershaw and Coral Gray quarries in South Carolina.

The Company sells granite blocks for memorial, building and other uses. While each of the quarries owned by the Company sells granite for memorial use and for building use, the output of the Bethel White quarry, the Gardenia White quarry, and the Salisbury Pink quarry are primarily sold and used for building granite use outside North America and the output of the other quarries is primarily used for memorial use in North America.

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Granite blocks sold by the Company both in and outside North America are sold by a quarry sales force. The Company's quarry sales force markets and advertises its granite blocks in various trade publications and by attending various trade shows worldwide. Outside of North America, the Company's quarry sales force generally sells directly  to the customer or to independent distributors who buy blocks from the Company and resell them. This includes Rock of Ages Asia, a 50% Company-owned corporation.

Other quarry products include waste pieces not of a shape or size suitable for manufacturing which are sold for riprap for embankments, bridges or piers, and for other uses. In various quarries, the Company has arrangements with crusher operators who operate on or near the Company's quarries and sell crushed stone. The revenues and profits of these operations are not material. The Company has no marketing and advertising programs for these other quarry products.

Manufactured Products. The principal manufactured product of Rock of Ages is granite memorials, which are sold to retailers of granite memorials, including Company-owned outlets, and substantially all of which are placed in cemeteries in remembrance of the life of a person or persons. The memorials sold by the Company encompass a wide range of granites, including granite blocks purchased from others, as well as a wide array of sizes, styles and shapes ranging from small, inexpensive markers set flush to the ground, to very elaborate and expensive personal mausoleums of larger sizes available at various price ranges. The broad classifications of granite memorials used by the industry are generally markers, hickeys, slants, standard uprights, estate uprights, pre-assembled mausoleums and conventional mausoleums. From time to time memorial retailers or others order granite products such as benches, steps and other products that may or may not be for cemetery use. These are classified by the Company as memorial sales. The Company also sells public and civic memorials both at wholesale and direct to the customer.

The Company is widely recognized for the personalized granite memorials it produces and the very large memorials it can produce. It has made memorials as large as thirty-five feet in length from one block of granite, including a full size granite replica of a Mercedes Benz automobile.

The Company's granite memorials are sold to retailers by the Company's memorial sales force that regularly speaks with customers by phone and makes personal visits to customers. The Company provides various point of sale materials to its owned and independent authorized Rock of Ages dealers, and also advertises in various trade publications.

The Company also manufactures certain precision granite products, which are made along with memorials at the Company's 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. Precision products are sold by a precision products sales force that phones or visits customers. The Company also advertises its precision products in various trade publications and provides printed sales materials to prospective customers.

Retail Products. The Company's retail division markets and sells granite, bronze and marble memorials primarily to consumers. The Company currently owns and operates approximately 99 retail outlets in 15 states. The granite memorials sold at retail include a wide variety of sizes, styles and shapes. The Company sources memorials from its own plants and a number of additional manufacturers in North America and elsewhere in the world. The Company's retail operations utilize a retail sales force that markets and sells memorials through phone calls and direct meetings with customers in their homes and at retail sales offices. The Company advertises and promotes retail sales through direct mail material, yellow page listings and newspaper advertising. The Company's retail sales outlets are positioned to sell branded and unbranded memorials at all price points and qualities.

Cemetery Products. The Company's cemetery division markets and sells cemetery lots and funeral services such as grave openings and closings. The cemetery division also markets and sells cemetery merchandise such as vaults, bronze markers and niches in community mausoleums at some of its cemeteries. The cemetery division has opened sections in some of its cemeteries that allow the placement of upright granite memorials. Sales of upright granite memorials are handled either by cemetery sales personnel who have been trained to sell such memorials, or by sales personnel from a nearby Company-owned retail store. Revenue from sales of upright granite memorials is recognized in the retail products segment.

MANUFACTURING AND RAW MATERIALS

The Company quarries and manufactures granite in the United States and Canada at the locations detailed in Item 2 "Properties." The Company also out-sources the manufacturing of certain memorial products pursuant to supply agreements with other manufacturers.  There were no plants acquired or material additions to plants in 2002. Management believes that the Company's manufacturing and quarrying capacity, together with its manufacturing outsourcing arrangements, is generally sufficient to meet anticipated production requirements for the foreseeable future.

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The most significant raw material used by the Company in its manufacturing operations is granite blocks primarily from the Company's quarries. The Company has an adequate supply from its quarries to supply its manufacturing operations. The Company also purchases certain colors of granite, primarily red and black, from other quarriers. The Company believes there is an adequate supply of memorial granite available from its quarries and quarries owned by others for the foreseeable future.

Significant supplies used by the Company in its 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.

The Company had manufacturing backlogs of $10.6 million as of December 31, 2002 and $11.5 million as of December 31, 2001. These backlogs occurred in the normal course of business. The Company does not have a material backlog in its quarrying operations. The Company had retail backlogs of $11.1 million as of December 31, 2002 and $10.5 million as of December 31, 2001. The Company expects that substantially all of the backlog orders will be filled during the 2003 fiscal year.

The Company does not normally maintain a significant inventory of finished manufactured products in anticipation of future orders in its manufacturing operations. The Company does maintain a significant inventory of memorials for display and delivery purposes at its retail operations. Approximately 75% of the Company's manufactured product orders and retail orders are delivered within two to twelve weeks, as is customary in the granite memorial industry. The delivery time depends on the size and complexity of the memorial. The Company does accumulate inventory of granite blocks from September through December in preparation for the winter months when its northern quarries are inactive.

Because the Company's Barre quarries are closed from mid-December through mid-March, in December each year the Company provides special 90-day payment terms at these quarries for all blocks purchased in the month of December. Customers' manufacturing plants generally remain open during most of this period, and most customers prefer to assure they own blocks of a size and quality selected by them prior to the quarry closure. All blocks purchased from the Company's Barre quarries in December on deferred payment terms are invoiced on or about December 31 and removed from the Company's inventory with title passing 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. This program provides essentially the normal 30-day payment terms during the months when the Barre quarries are closed, notwithstanding the customer's purchase of a 3-month supply in December. Customers need not use these terms and may buy from inventory during the closure period on a first come first served basis with normal 30-day terms.

RESEARCH AND DEVELOPMENT

The Company does not have a research and development department for any of its products. The Company regularly conducts 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 the Company had no expenditures classified for financial reporting purposes as research in 2000, 2001 or 2002.

COMPETITION

The dimension stone industry is highly competitive. The Company competes with other dimension stone quarriers, including quarriers of granite, marble, limestone, travertine and other natural stones.  The Company also competes with manufacturers of so-called "engineered stone" as well as manufacturers of other building materials like concrete, aluminum, glass, wood and other materials. The Company competes 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. The Company competes 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,  availability of supply and delivery options. All of the Company's 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 140 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.

The Company's quarrying and manufacturing competitors include both domestic and international companies, some of which may have greater financial, technical, manufacturing, marketing and other resources than the Company. Foreign competitors of the Company may have access to lower cost labor and better commercial deposits of memorial grade granite, and may be subject to less restrictive regulatory requirements than the Company. For example, companies in South Africa, India, China and Portugal manufacture and export finished granite memorials into North America which compete with the Company's products.

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The competition for retail sales of granite memorials faced by the Company's retail outlets is also intense and is based on price, quality, service, design availability and breadth of product line. Competitors include funeral home and cemetery owners, including consolidators, which have greater financial resources than the Company, as well as approximately 3,000 independent retailers of granite memorials located outside of cemeteries and funeral homes.

The sale of cemetery lots and related products is highly competitive. The competition is based upon price, geographic locations, and the overall aesthetics, maintenance and upkeep of the cemetery. Competitors include churches and municipalities that own and operate cemeteries, and other cemetery owners, including consolidators, which may have greater financial resources than the Company.

PATENTS, TRADEMARKS AND LICENSES

The Company holds a number of domestic and foreign patents, trademarks and copyrights, including the original registered trademark "Rock of Ages" which the Company first registered in 1913. The Company believes the loss of a single patent, trademark or copyright, other than the "Rock of Ages" trademark, would not have a material adverse effect on the Company's business, financial condition or results of operations. See "Risk Factors."

EMPLOYEES

As of December 31, 2002, the Company had approximately 860 employees.

The Company's collective bargaining agreements with the Granite Cutters Association and the United Steelworkers of America, respectively, which together represent approximately 178 of the Company's employees, expire on April 25, 2003.  The Company is in the process of renegotiating the collective bargaining agreements.

The Company believes that its relations with its employees are generally good.

SEASONALITY

Historically, the Company's operations have experienced certain seasonal patterns. Generally, the Company's 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 on Seasonality."

REGULATION AND ENVIRONMENTAL COMPLIANCE

The Company's quarry and manufacturing operations are subject to substantial regulation by federal and state governmental statutes and agencies, including OSHA, the Mine Safety and Health Administration and similar state and Canadian authorities. The Company's operations are also subject to extensive laws, and regulations administered by the EPA and similar state and Canadian authorities for the protection of the environment, including those relating to air and water quality, and solid and hazardous waste handling and disposal. These laws and regulations may require the Company 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 the Company to modify its operations. The Company cannot predict the effect of such laws, regulations or regulatory interpretations on its business, financial condition or results of operations. The Company expects to be able to continue to comply, in all material respects, with existing laws and regulations.

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ITEM 2. PROPERTIES

The Company owns the following quarry and manufacturing properties:

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In addition, the Company owns or operates 99 retail sales outlets and 4 associated sand blasting facilities in the states of Georgia, Iowa, Illinois, Minnesota, Connecticut, Massachusetts, Rhode Island, Nebraska, New Jersey, Pennsylvania, Ohio, South Dakota, Kentucky, West Virginia and Wisconsin. In certain cases, the Company leases, under customary lease arrangements, the land or other real estate associated with these outlets and facilities. The Company also owns 13 cemeteries in Kentucky. The Company believes that these facilities are suitable and adequate for its present and anticipated near-term needs.

The following table sets forth certain information relating to the Company's quarry properties. Each of the quarries listed below: (i) is an open-pit quarry; (ii) contains granite that is suitable for extraction as dimension granite for memorial or other use; (iii) is serviced by electricity provided by local utility companies (other than the Bethel quarry which is serviced by internal generators); and (iv) has adequate and modern extraction and other equipment. The Company presently has no exploration plans. Each of the quarries listed below is owned by the Company (other than the Kershaw quarry, which is leased with 37 years remaining on the lease). As described in Item 1, the Company owns a 1/3 interest in VIKA, Ltd., which owns the Galactic Blue quarry in Zhytomir, Ukraine. However, the Company does not directly or indirectly operate the quarry. The Galactic Blue quarry does not currently produce granite in commercial quantities and the Company does not expect the quarry to achieve commercial production quantities in 2003. Accordingly, the Company does not consider this property to be currently significant or material to its business.

The estimates of saleable reserves of the Company 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 the Company's quarries are located are large and extend well beyond existing working quarry perimeters. The Company has historically expanded quarry perimeters or opened other quarries in the deposit as necessary to utilize reserves and the Company believes it has adequate acreage for expansions as and when necessary. The Company has no reason to believe that it will deplete its granite reserves more quickly than is shown in the table.

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Dimension granite is not considered a valuable mineral or commodity such as gold, nor is it traded on any commodities exchange. The prices charged by the Company to third parties for granite blocks depend on the characteristics such as color of and costs to quarry each granite block. The price per cubic foot currently charged by the Company for its granite blocks is generally comparable to other granite suppliers and typically does not exceed $30.

ITEM 3.  LEGAL PROCEEDINGS

The Company is a party to legal proceedings that arise from time to time in the ordinary course of its business. While the outcome of these proceedings cannot be predicted with certainty, management does not expect these matters to have a material adverse effect on the Company. In addition, the Company is involved in the arbitration proceeding described below.

The Company carries insurance with coverages that it believes to be customary in its industry. Although there can be no assurance that such insurance will be sufficient to protect the Company against all contingencies, management believes that its insurance protection is reasonable in view of the nature and scope of the Company's operations.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of the Company's security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the fiscal year covered by this Annual Report on Form 10-K.

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PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Class A Common Stock is traded on the Nasdaq National 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 anytime into shares of Class A Common Stock. The Class A Common Stock commenced public trading on October 21, 1997. The table below sets forth the quarterly high and low sales prices for the Class A Common Stock for each full quarterly period during fiscal years 2001 and 2002, compiled from information supplied by Nasdaq. All prices represent inter dealer quotations without retail mark ups, mark downs or commissions, and may not necessarily represent actual transactions.

 As of March 21, 2003, based upon information provided by the Company's transfer agent, there were 260 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. The Company did not declare dividends during 2001 or 2002.

RECENT SALES OF UNREGISTERED SECURITIES

The Company made no sales of unregistered securities during fiscal 2002.

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ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated historical financial data presented below under the captions "Statement of Operations Data" and "Balance Sheet Data" for and as of the end of each of the years in the five-year period ended December 31, 2002 are derived from the consolidated financial statements of the Company, which financial statements have been audited by KPMG LLP, independent certified public accountants ("KPMG"). The following selected consolidated financial data should be read in conjunction with Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the Consolidated Financial Statements of the Company, including the notes thereto, referred to in Item 8.

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ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                  OPERATIONS

GENERAL

Rock of Ages is an integrated quarrier, manufacturer, distributor and retailer of granite and products manufactured from granite. The Company also owns and operates cemeteries. The quarry division sells granite blocks both to the manufacturing division and to outside manufacturers, as well as to customers in Europe and Japan. The manufacturing division's principal product is granite memorials used primarily in cemeteries, although it also manufactures some specialized granite products for industrial applications. The retail division primarily sells granite memorials directly to consumers. The cemetery division sells cemetery property and funeral and cemetery products and services both at the time of need and on a preneed basis.

During the year ended December 31, 1998, the Company acquired 13 retail monument companies, thereby expanding its retail presence to locations in Georgia, Iowa, Illinois, Minnesota, Nebraska, New Jersey, Pennsylvania, Ohio and South Dakota. During the year ended December 31, 1999, the Company acquired an additional 13 retail monument companies and in so doing strengthened its existing retail presence in certain states while expanding its retail presence in Connecticut, Rhode Island, Massachusetts and Wisconsin. In 2000, the Company acquired 2 memorial retailers in 2 separate and independent transactions, thereby acquiring 3 retail sales outlets in the states of Connecticut and Iowa.  The Company also acquired 16 cemetery properties and 1 memorial retailer located in the state of Kentucky as of January 2, 2001. The Company paid a total aggregate purchase price in the 2000 Acquisitions of approximately $655,000, all of which was paid in cash; and approximately $7.5 million for the Kentucky cemeteries and retailer acquired in January 2001, $6.8 million of which was paid in cash with the remainder payable in installments through 2004.

During the second quarter of 2001 the Company sold an idled Saw Plant in Barre, Vermont in which cash of $300,505 was received in exchange for assets with the carrying value of $515,433.

During the third quarter of 2001 the Company completed the sale of SMI and Childs & Childs manufacturing plants and the Royalty and Millstone quarries in Elberton, Georgia in which total cash of $3,250,000 net of closing costs of $287,467 was received and notes receivable were recorded for a total of $1,640,000 in exchange for assets with the carrying value of $6,121,693.

During the first quarter of 2002, the Company completed the sale of the Lawson manufacturing plant in Barre, Vermont for $2,550,000 of which $2,300,000 in cash and $250,000 in a note receivable was received in exchange for $3,346,219 of assets. This sale is consistent with the Company's desire to dispose of certain unprofitable operations and to reallocate resources from the manufacture of commodity memorials and focus on its retail strategy.

The loss on sale of assets reported for the year ending December 31, 2001, includes a non-tax deductible disposal of intangible assets of approximately $3.7 million. Taxable income resulted from the sale of the inventory and property and equipment, the impact of which was recorded in the three month ended September 30, 2001. The sale of these assets is not expected to have any material effect on income taxes in future periods.

Critical Accounting Policies

Our critical accounting policies are as follows: Revenue recognition, impairment of long-lived assets, valuation of deferred income taxes and accounting for pensions.

Revenue Recognition

The manufacturing division recognizes revenue upon shipment of finished orders from the manufacturing plant. The retailing division recognizes revenue upon the setting of the memorial in the cemetery. In certain instances, the Company may enter into an agreement with a customer, which provides for extended payment terms, generally up to two years from either the date of setting of the memorial or, in certain instances, upon the settlement of an estate.

The quarry division recognizes revenue from sales of granite blocks when the granite is shipped or when the customer selects and identifies the blocks at the quarry site and the customer requests the Company to store the block. At that time, the block is removed from the Company's inventory, the customer's name is printed on the block, and title and risk of ownership passes to the buyer. In many cases, granite blocks owned by customers remain on the Company's property for varying periods of time after title passes to the buyer. Payment terms are less 5% 30 days, net 30 days, except the December terms described below. Sales of the Company's blocks are FOB quarry and the Company retains the obligation to load customer's blocks on trucks. At its Barre, Vermont location, sales are FOB Barre, Vermont and the Company retains a delivery obligation using the Company's trucks for block customers in Barre. The customer may take delivery at any time determined by the customer, but all invoices must be paid in accordance with their terms when due whether or not the customer requests delivery.

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The Company considers the earnings process substantially complete despite the Company's obligations to load the blocks, and, in the case of its Barre customers, deliver the blocks, because the cost of delivery service is inconsequential (less than 3%) in relation to the selling price. Further, under industry terms of trade, title passes and the payment obligation is established when the block is identified to a particular customer and transaction.

In December each year, the Company provides special 90-day payment terms at its Barre quarries for all block purchased in the month of December. The reason for this is that the Barre quarries are generally closed from mid-December through mid-March because of weather. However, the quarry customers' manufacturing plants remain open during most of this period, and most prefer to assure they own blocks of a size and quality selected by them prior to the quarries' closure. All blocks purchased in December on deferred payment terms are invoiced on or about December 31 and removed from the Company's inventory with title passing 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 quarry is closed notwithstanding the customer's purchase of a three months supply in December. Customers need not use these terms and may buy from inventory during the closure period on a first-come, first-served basis with normal 30-day terms.

The cemetery division's revenue from preneed sales of funeral services, and cemetery services and merchandise is deferred until the period in which the services or merchandise is delivered. On the balance sheet the full contract amount is included in prearranged deferred revenue, a liability. The corresponding receivable due from the customer is reflected in prearranged receivables, an asset, and the corresponding cash received from the customer is reflected part in prearranged receivables (for the portion placed in trust) and part in cash (for the portion the Company is allowed to retain). Indirect costs of marketing are expensed in the period in which they are incurred. When the service or merchandise is delivered, the Company recognizes as revenue the full contract amount plus all trust earnings associated with that contract. The Company cannot predict when the existing contracts will mature but it is estimated that most contracts will have an average life of ten to fifteen years and in some cases greater than fifteen years. The amount of prearranged deferred revenue at December 31, 2002 was $21,845,430.

Impairment of long-lived assets

The Company's long-lived assets consist primarily of property and equipment and, prior to 2002, goodwill. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that 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 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 its depreciation period. Estimating these cash flows and terminal values requires management to make judgments about the growth in demand for our services, sustainability of gross margins, and our ability to integrate acquired companies and achieve economies of scale. If assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the long-lived asset exceeds its fair value.

Effective January 1, 2002, the Company assessed impairment of goodwill in accordance with the provisions of SFAS No. 142. The provisions of SFAS No. 142 require that a two-step test be performed. First, the fair value of each reporting unit will be compared to its carrying value. If the fair value exceeds the carrying value, goodwill is not impaired and no further testing is performed. If the carrying value exceeds the fair value, then the implied fair value of the reporting unit's goodwill must be determined and compared to the carrying value of the goodwill. If the carrying value of a reporting unit's goodwill exceeds its implied fair value, then an impairment loss equal to the difference will be recorded. The Company determined the fair value of each of the reporting units using a discounted cash flow analysis and compared such values to the respective reporting units carrying amounts. This evaluation indicated that goodwill recorded in the Retail and Cemetery segments was impaired as of January 1, 2002.  As a result, the Company completed the second step of the goodwill impairment test to measure the amount of the impairment loss.  Accordingly, the Company recognized a $34 million non-cash charge, recorded as of January 1, 2002, as the cumulative effect of a change in accounting principle for the write-down of goodwill to its fair value.  Approximately $19 million of the goodwill write-down is deductible for taxes, therefore a deferred tax asset of $5.3 million has been recorded.

Conditions that contributed to the goodwill impairment in Retail were an underestimation of the amount of time required to fully integrate the branding strategy through the retail network and the difficulty in increasing profitability in the timeframe expected and to the extent anticipated prior to the retail acquisitions.  Conditions that contributed to the goodwill impairment in Cemeteries were lower than expected revenues and greater selling and administrative costs, which the Company believes are, to some extent, temporary but are significant enough to affect the fair value determination.

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Valuation of deferred income taxes

As of December 31, 2002, the Company had net deferred tax assets of $7,109,000. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependant 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. Management has recorded a valuation allowance of $4,638,000 against the alternative minimum tax credit carry-forwards and other deferred tax assets. Based upon the projections for future taxable income over the periods for which the deferred tax assets are deductible, management believes that it is more likely than not that the company will realize the benefit of these unreserved net deferred tax assets. The amount of the deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income are reduced.

Accounting for pensions

The Company provides defined benefit pension and other postretirement benefit plans for certain of its employees. Accounting for these plans requires the use of actuarial assumptions including estimates on the expected long-term rate of return on assets and discount rates. In order to make informed assumptions management relies on outside actuarial experts as well as public market data and general economic information. If changes in any of these assumptions occur, they may materially affect certain amounts reported on the Company's balance sheet. In particular, a decrease in the expected long-term rate of return on plan assets could result in an increase in the Company's pension liability and a charge to equity.

The following table sets forth certain historical statement of operations data as a percentage of net revenues with the exception of quarrying, manufacturing and retailing gross profit, which are shown as a percentage of quarrying, manufacturing and retailing revenues, respectively.

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YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001.

Revenues for the fiscal year ended December 31, 2002 decreased 2.0% to $92.5 million from $94.3 million for the year ended December 31, 2001. Quarrying revenues were $29.7 million for the year ended December 31, 2002 compared to $25.8 million for the year ended December 31, 2001. The increase was largely due to strong customer demand for our Bethel White, Gardenia White and Salisbury Pink granites as well as increased revenues from the Pennsylvania Black quarry as a result of increased production and improved quarry yields.

Manufacturing revenues were $19.7 million for the year ended December 31, 2002 compared to $22.2 million for the year ended December 31, 2001. The decrease was a result of the sale of Childs in 2001, a decrease in the number of independent authorized retailers, and a decrease in sales in our Industrial Products Division as a result of decreased demand for those products due to the current general economic slowdown.  These decreases were partially offset by revenue recognized on a large memorial for World War II, increased shipments of mausoleums and other feature memorials. While the company expects a decrease in revenue as a result of the loss in customer base associated with the Sale of Lawson in January 2002, it expects that this decrease will be partially offset by an increase in revenues and percent of branded sales from its remaining customer base.

Retailing revenues were $38.4 million for the year ended December 31, 2002 compared to $43.2 million for the year ended December 31, 2001. Over the past 3 years, the Company's retail order receipts have averaged approximately $40 million per year. In 2001, the Company decreased its backlog of orders by approximately $3.0 million resulting in revenues in excess of the average annual order receipts. The decrease in revenue in 2002 is a result of insufficient order receipts from the Company's retail outlets that would have been required to maintain the prior year's level due in part to the closure of certain unprofitable stores in the latter part of 2001 and in 2002.

Cemetery revenues were $4.6 million for the year ended December 31, 2002 compared to $3.1 million for the year ended December 31, 2001. The increase results principally from of the recognition of approximately $800,000 in revenue in 2002 from the completion of a large project that was pre-sold as well as increased sales of lots and at-need markers, which we believe resulted from increased sales staff. The completion and subsequent recognition of revenue on projects that are pre-sold is common in the industry but not expected to be a consistent part of our revenues in future periods.

Gross profit dollars for the fiscal year ended December 31, 2002 decreased 3.0% to $41.8 million from $43.0 million for the fiscal year ended December 31, 2001. Gross profit percentage decreased to 45.2% in fiscal 2002 from 45.6% in fiscal 2001.

Quarrying gross profit was $13.0 million or 43.7% of quarrying revenue for the year ended December 31, 2002 compared to $11.3 million or 44.0% of quarrying revenue for the year ended December 31, 2001. During 2002, the Company elected to change the method of valuing inventory in the quarry division from a First-In, First-Out method to a Specific Annual Average Cost method. The effect of the change in 2002 was to decrease operating income by $789,447. The Company believes the Specific Annual Average Cost method more accurately matches costs with revenue, resulting in an enhanced measurement of operating results. (See note 3 of the financial statements.) The increase in gross profit dollars was attributable to an increase in revenue, an increase in yields at the Bethel White, Pennsylvania Black, and Gardenia White quarries as well as a decrease in the amount of profit transferred to the manufacturing division as a result of lower sales to that division. The slight decrease in gross margin percentage was a result of decreased quarry yields and higher repair and maintenance costs in the Barre Gray quarry, which was almost entirely offset by an increase in gross margin percentage at the Pennsylvania Black and Gardenia White quarries.

Manufacturing gross profit was $5.5 million or 28.0% of manufacturing revenue for the year ended December 31, 2002 compared to $5.4 million or 24.0% of manufacturing revenue for the year ended December 31, 2001. The increase in gross margin percentage is a result of improved operations in our Barre manufacturing facility as well as a more favorable product mix in this facility compared to the same period in 2001. The sale of Lawson, which was completed in January 2002, also had a positive effect on gross margins due to the elimination of traditionally low margin customers and a strong focus on the Company's core authorized dealer network resulting in increased branded sales, which have historically had higher gross margins than unbranded sales. In connection with the Lawson sale, the Company entered into a seven-year contract to purchase memorials from the new owner. Although there are many alternative suppliers of granite memorials, the Company is dependent on this arrangement to provide product to its customers and believes it will continue to be favorable for the Company.

Retailing gross profit was $21.3 million or 55.4% of retailing revenue for the year ended December 31, 2002 compared to $25.5 million or 59.0% of retailing revenue for the year ended December 31, 2001. The decrease in dollars and percentage was attributable to the lower revenues in 2002 and an associated decrease in operational efficiencies.

Cemetery gross profit was $2.0 million or 43.6% of cemetery revenue for the year ended December 31, 2002 compared to $818,000 or 26.0% of cemetery revenue for the year ended December 31, 2001. The increase in gross margin percentage is a result of improved operations as the Company continues to implement strategies to achieve a stronger sales force and cut or maintain costs in the groundskeeping and maintenance operations. In addition, the Company recognized approximately $400,000 in gross margin from the completion of a large project that was pre-sold as discussed above.

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Selling, general and administrative expenses for 2002 decreased 2.3% to $35.9 million from $36.7 million for the year ended December 31, 2001. As a percentage of net sales, these expenses for 2002 decreased slightly to 38.8% from 39.0%. The decrease is a result of lower commission expense in the retail segment as well as a decrease in SG&A in the Company's manufacturing group due principally to the sale of the Lawson plant . These decreases were offset by increased legal expenses in the quarry segment as a result of the Eurimex arbitration proceeding (see Item 3 "Legal Proceedings") and an increase in corporate administrative expenses related, in part, to a one-time severance payment to a former Company officer.

Interest expense for the fiscal year ended December 31, 2002 decreased to $738,000 from $1.8 million for the fiscal year ended December 31, 2001. This decrease was due to lower interest rates under the Company's credit facilities as well as a reduction in debt funded by cash from operations and from the proceeds of the sale of SMI, Childs, the Royalty Quarries ("Royalty") and Lawson.

Income taxes as a percentage of earnings before taxes decreased to 27.3% in 2002 from 78.9% in 2001. The high rate in 2001 was the result of the disposition of the quarrying and manufacturing assets for which the write down of goodwill was non-deductible for tax purposes. The 2002 tax rate is consistent with the company's historical rate.

The cumulative effect in prior years of changes in accounting principles for the year ended December 31, 2002 was a loss of $28.7 million compared to $0 for 2001. The loss consisted primarily of a write-down of $28.4 million in goodwill (net of tax benefit of $5.3 million) as a result of adopting SFAS 142 as well as a change in accounting method for quarry inventory, which resulted in a $280,000 write-down of inventory (net of tax benefit of $107,000). (See notes 2 and 3 of the financial statements for additional information.)

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000.

Revenues for the fiscal year ended December 31, 2001 increased 4.0% to $94.3 million from $90.7 million for the year ended December 31, 2000. Quarrying revenues were $25.8 million for the year ended December 31, 2001 compared to $22.9 million for the year ended December 31, 2000. The increase was largely due to strong customer demand for Bethel and Gardenia White granite and  increased revenues from the Salisbury quarry as a result of the Company implementing its "direct to the customer" sales model.

Manufacturing revenues were $22.2 million for the year ended December 31, 2001 compared to $27.2 million for the year ended December 31, 2000. The decrease was due to poor shipments in the first quarter of 2001 as a result of difficult weather conditions, a decrease in the number of independent authorized retailers, and a decrease in demand for the Company's industrial products that are sold to the high tech industry due to a general softening in that business sector. The Company's sale of Childs and SMI, which were completed in 2001, and the sale of Lawson, which was completed in January 2002, were consistent with the Company's desire to focus on the manufacture of branded memorials for its authorized retail network and its owned retail stores.

Retailing revenues were $43.2 million for the year ended December 31, 2001 compared to $40.6 million for the year ended December 31, 2000. The increase was a result of additional branded sales at the retail locations and favorable seasonal factors in 2001 which allowed for those retailers affected by weather to have greater cemetery settings in the fourth quarter of 2001 compared to the same period in 2000.

Cemetery revenues were $3.1 million for the year ended December 31, 2001. The Company acquired the cemeteries in January 2001 and had no comparable data for 2000.

Gross profit dollars for the fiscal year ended December 31, 2001 increased 10.2% to $43.0 million from $39.0 million for the fiscal year ended December 31, 2000. Consolidated gross profit percentage increased to 45.6% in fiscal 2001 from 43.1% in fiscal 2000.

Quarrying gross profit was $11.3 million or 44.0% of revenue for the year ended December 31, 2001 compared to $9.9 million or 43.1% of quarrying revenue for the year ended December 31, 2000. The increase was principally due to increased operational efficiencies at the Bethel quarry and an increase in reported revenue at the Salisbury quarry as a result of the company terminating the distribution agreement with Eurimex. See Item 3 "Legal Proceedings." These increases were partially offset by a decrease in gross profit at the Pennsylvania Black quarry due to short-term higher than anticipated quarry development costs.

Manufacturing gross profit was $5.4 million or 24.0% of manufacturing revenue for the year ended December 31, 2001 compared to $6.8 million or 25.0% of manufacturing revenue for the year ended December 31, 2000. The decline in gross profit dollars was primarily a result of the decreased revenues discussed above as well as a decrease in profitability in the industrial products business due to a general softening in the technology business sector.

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Retailing gross profit was $25.5 million or 59.0% of retailing revenue for the year ended December 31, 2001 compared to $22.4 million or 55.1% of retailing revenue for the year ended December 31, 2000. This increase was primarily attributable to an increase in branded sales as a result of the Company's strong emphasis on the branding strategy.

Selling, general and administrative expenses for 2001 increased 10.6% to $36.7 million from $33.2 million for the fiscal year ended December 31, 2001. As a percentage of net sales, these expenses for 2001 increased to 39.0% from 36.6%. This increase is a result of additional legal expenses in the quarry segment as a result of the Eurimex arbitration proceedings and the higher selling expenses associated with the cemetery segment that the company acquired in January 2001.

Interest expense for the fiscal year ended December 31, 2001 decreased to $1.8 million from $2.1 million for the fiscal year ended December 31, 2000. This decrease was due to lower interest rates under the Company's credit facilities as well as a reduction in debt funded by cash from operations and from the proceeds of the sale of SMI, Childs and Royalty.

Income taxes as a percentage of earnings before taxes increased to 78.9% in 2001 from 34.4% in 2000. This increase was a result of the disposition of the quarrying and manufacturing assets for which the write down of goodwill was non-deductible for tax purposes.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity. The Company considers its liquidity to be adequate to meet its long and short-term cash requirements to fund operations and pursue its growth strategy. Historically, the Company has met these requirements primarily from cash generated by operating activities and periodic borrowings under the commercial credit facilities described below. The Company anticipates that there may be future acquisitions, as it pursues its growth strategy that may require external financing from our existing credit facility.

In January 2003, the Company repurchased 500,500 shares of its common stock for a total of $2,602,600 as part of its share buy back program. Upon completion of this transaction, the Company has repurchased a total of 676,200 shares for $3,359,269 under the share buy back program.  There remains 323,800 shares authorized to be purchased under the current repurchase program. The Company will continue to repurchase shares on an opportunistic basis determined by, among other things, current debt levels, anticipated uses of capital, the price of the stock and the general market conditions.