ITEM 1. 

 BUSINESS

GENERAL

Rock of Ages was founded in 1885 and is an integrated granite quarrier, manufacturer and retailer whose principal product is granite memorials used primarily in cemeteries. We believe we are the largest quarrier, manufacturer and retailer of finished granite memorials and granite blocks for memorial use in North America, based on revenues. We own and operate 10 active quarry properties and 6 manufacturing and sawing facilities in North America, principally in Vermont and the Province of Quebec. We market and distribute our memorials on a retail basis through approximately 82 Company-owned retail sales outlets in the states indicated in Item 2 below. We also sell memorials wholesale to approximately 70 independent authorized Rock of Ages retailers in the United States as well as approximately 90 retailers in Canada. We market our 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. We also sell non-branded memorials. 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 names and place 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.

Rock of Ages, Signature, Sealmark, Golden Rule by Rock of Ages, Stone Eternal by Rock of Ages, 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 U.S. and in other countries to protect our trademark rights.

As part of our growth strategy to build and expand our branded memorial retail distribution system and profitable quarry operations, and to increase the profitability of our manufacturing operations, we sold 2 quarries and 2 non-core manufacturing facilities in 2001. In January 2002, we also sold the Lawson manufacturing facility in Barre, Vermont ("Lawson") for a total sales price of $2,550,000. In December 2003, we sold all of our cemetery properties and assets located in Kentucky to Saber Management, LLC, an Indiana-based operator of cemeteries and funeral homes, for $6,750,000 and exited the cemetery business. In connection with that sale, we entered into an agreement with Saber whereby we have retained the right to sell and install upright granite memorials in certain sections of each of the cemeteries sold, as well as in certain other cemeteries owned by Saber.

Also as part of our growth strategy, we have engaged in various strategic acquisitions. From 1997 to 2000, we acquired 26 retail monument companies, expanding our retail presence to 15 states. 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, we acquired exclusive rights to sell the output of the Galactic Blue quarry.

During 2003 we had operations in four business segments: Quarrying, Manufacturing, Retailing and Cemeteries. As discussed above, we exited the cemetery business in late December 2003. 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 14 to our 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 "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.

GROWTH STRATEGY

We seek to expand the scope and profitability of our operations through a growth strategy that focuses on forward vertical integration into retailing, moving Rock of Ages closer to the ultimate customer. The principal elements of this growth strategy include the following:

• Strategic Alliances with Funeral Homes and Cemeteries. We have formed and 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.
   
• Selective Expansion of Company-Owned Retail Network. We expect to continue to expand our 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 our Company-owned retail network, we believe we can capture the higher gross margins (relative to quarrying and manufacturing gross margins) that have historically existed at the retail level.
   
• Adding Independent Authorized Dealers. We will continue to expand where appropriate our base of independent authorized Rock of Ages retailers that are current or potential customers to further our efforts to build an integrated retail network consisting of Company-owned and independent authorized Rock of Ages retail outlets that sell the Rock of Ages' brands.
   
• Brand Enhancement. We believe the Rock of Ages brand is one of the best-known brand names in the memorial industry. As a part of building an integrated network of Company-owned and independent retailers, we will continue to promote the Rock of Ages brand and other proprietary brands sold at our Company-owned retail outlets and independent authorized Rock of Ages retailers.
   
• Acquisitions of Quarries. 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 granites for other uses.
   
• Other Product Line Enhancements. We intend to continue to expand and enhance our memorial product lines in color, design and style. Our objective is to provide a full range of memorials available at various price ranges.

Beginning in January 2004, we decided to merge our retail division and our manufacturing and wholesale division to form the Memorials Division. The Memorials Division will have a unified focus on increasing our retail distribution system of owned and independently operated retailers. This transition to a unified manufacturing/wholesale and retail division is currently underway. We are engaged in a search to hire an executive with significant experience in building a national branded retail distribution system to assume the role of Chief Operating Officer (COO) of the Memorials Division. In the interim, Kurt Swenson, Chairman/CEO of the Company, will assume that role until a Memorials Division COO is hired. The principal changes we have made in forming the Memorials Division relate to the management and implementation of our retail distribution program. We have divided the country into regions with a group of regional vice presidents who will be responsible for our owned stores, our authorized retailers, retail acquisitions, new stores, new authorized retailers, expanding our strategic alliances with funeral homes and cemeteries, and every other aspect of our memorial business in their region. We believe this consolidated regional focus will enhance our success in expanding our retail distribution system.

PRODUCTS

Our 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 2003 to 2001, revenues derived from the sale of granite quarry products have accounted for 32%, 32% and 27%, respectively, of consolidated revenues and revenues derived from the sale of manufactured granite products have accounted for 63%, 63% and 69%, 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. With the sale of our cemetery assets in late 2003, we expect the sales of non-granite memorials, such as bronze markers, to decline and we will no longer sell cemetery products and services.

Granite Quarry Products

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

Granite differs from deposit to deposit by color, grade and/or quality. We quarry and sell blocks of (i) Barre Gray granite from our Barre, Vermont quarry and gray granite from our Stanstead, Quebec quarry, (ii) black granite from our American Black quarry in Pennsylvania, (iii) pink granites from our Laurentian Pink quarry in Quebec and our Salisbury Pink quarry in North Carolina, (iv) white granites from our Bethel White quarry in Vermont and our Gardenia White quarry in North Carolina, (v) brownish red granite from our Autumn Rose quarry in Oklahoma and (vi) grayish pink granites from our Kershaw and Coral Gray quarries in South Carolina. We also sell black granite with prominent blue feldspar from the Galactic Blue quarry in the Ukraine.

We sell granite blocks for memorial, building and other uses. While each of our quarries sell 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 (such as building cladding, tiles, pavers, steps, countertops and other building products) outside North America and the output of the other quarries is primarily used for memorial use in North America.

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

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

Manufactured Products

The principal manufactured product of Rock of Ages is granite memorials, which are sold to retailers of granite memorials, including Company-owned outlets, and substantially all of which are placed in cemeteries in remembrance of the life of a person or persons. Our memorials encompass a wide range of granites, including granite blocks purchased from others, as well as a wide array of sizes, styles and shapes ranging from small, inexpensive markers set flush to the ground, to very elaborate and expensive personal mausoleums 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 as memorial sales. We also sell public and civic memorials not placed in cemeteries both on a wholesale basis and directly to the customer.

Rock of Ages is widely recognized for the personalized granite memorials it produces and the very large memorials it can produce. We have 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.

Our granite memorials are sold to retailers by our memorial sales force that regularly speaks with customers by phone and makes personal visits to customers. We provide various point of sale materials to both our owned and independent authorized Rock of Ages retailers, and we also advertise in various trade publications.

Rock of Ages also manufactures certain precision granite products, which are made along with memorials primarily 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 precision products. We also advertise our precision products in various trade publications and provide printed sales materials to prospective customers.

Retail Products

Our retail stores market and sell granite, bronze and marble memorials primarily to consumers. We currently own and operate approximately 82 retail outlets in 15 states. The granite memorials sold at retail include a wide variety of sizes, styles and shapes. We source memorials from our own plants and a number of additional manufacturers in North America and elsewhere in the world. Our retail operations utilize a retail sales force that markets and sells memorials through relationships with funeral homes and cemeteries and direct meetings with customers in their homes and at retail sales offices. We advertise and promote retail sales through direct mail material, yellow page listings, placing brochures at funeral homes and cemeteries, and newspaper advertising. Our retail sales outlets are positioned to sell branded and unbranded memorials at all price points and qualities based on differences in granite, size, design and level of workmanship.

Cemetery Products

Our cemetery division marketed and sold cemetery lots and funeral services such as grave openings and closings. We also marketed and sold cemetery merchandise such as vaults, bronze markers and niches in community mausoleums at some of our cemeteries. From the time we acquired the cemeteries in early 2001, we opened sections in some of the cemeteries that allow the placement of upright granite memorials. Sales of upright granite memorials were handled either by cemetery sales personnel who were 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. In late December 2003, we sold all of our cemetery properties and assets and exited the cemetery business. However, in connection with that sale we retained the right to sell upright granite memorials in the cemeteries and we will continue to sell our upright granite memorials in these cemeteries using sales personnel from nearby Company stores or from independent authorized Rock of Ages retailers.

MANUFACTURING AND RAW MATERIALS

Rock of Ages quarries and manufactures granite in the United States and Canada at the locations detailed in Item 2 "Properties." We also outsource the manufacturing of certain memorial products pursuant to supply agreements with other manufacturers.  There were no plants acquired or material additions to plants in 2003. 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 $8.7 million as of December 31, 2003 and $10.6 million as of December 31, 2002. These backlogs occurred in the normal course of business. We do not have a material backlog in our quarrying operations. We had retail backlogs of $8.9 million as of December 31, 2003 and $11.1 million as of December 31, 2002. Substantially all of the backlog orders are expected to be filled during the 2004 fiscal year.

We do not normally maintain a significant inventory of finished manufactured products in anticipation of future orders in our manufacturing operations. Our retail outlets do maintain an inventory of memorials for display and delivery purposes. Approximately 75% of our 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. We do accumulate inventory of granite blocks from September through December in preparation for the winter months when our northern quarries are inactive.

Because our Barre quarries are closed from mid-December through mid-March, in December each year we provide 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 our Barre quarries in December on deferred payment terms are invoiced on or about December 31 and removed from our 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

We do not have a research and development department for any of our products. We regularly 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 2001, 2002 or 2003.

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 availability, 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 140 manufacturers of granite memorials in North America. There are also many 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 than we have. Foreign competitors may have access to lower cost labor and extensive commercial deposits of memorial grade granite, and may be subject to less restrictive regulatory requirements. For example, companies in South Africa, India, China and Portugal manufacture and export finished granite memorials into North America, which compete with our products.

The competition for retail sales of granite memorials faced by our 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 we have, 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 religious organizations and municipalities that own and operate cemeteries, and other cemetery owners, including consolidators, which may have greater financial resources. As discussed above, we sold all of our cemetery properties and assets in December 2003 and have exited that business.

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 "Risk Factors That May Affect Future Results."

EMPLOYEES

We had approximately 726 employees as of December 31, 2003.

The collective bargaining agreements with the Granite Cutters Association and the United Steelworkers of America, respectively, which together represent approximately 178 employees in our Vermont manufacturing and quarrying operations, expire on April 25, 2005. 

We believe our relations with our employees are generally good, and recognize our employees are our most important asset.

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 and state governmental statutes and agencies, 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 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 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. We expect to be able to continue to comply, in all material respects, with existing laws and regulations.

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, and amendments to these reports filed as soon as reasonably practicable after such reports are electronically filed with the Securities and Exchange Commission.

ITEM 2.

PROPERTIES

Rock of Ages owns the following quarry and manufacturing properties:

PROPERTY

FUNCTION

VERMONT

Barre

     Quarry Properties

          E. L. Smith Quarry

Quarrying of dimensional Barre Gray granite blocks

          Adam-Pirie Quarry

Quarrying of dimensional Barre Gray granite blocks

     Manufacturing Properties

          Rock of Ages Manufacturing Plant

Manufacturing of memorials and precision products

          Press Roll Production Plant

Manufacturing of granite press rolls

          Rock of Ages Saw Plant #1

Slabbing of granite blocks

Bethel

     Quarry Properties

          Bethel Quarry

Quarrying of dimensional Bethel White granite blocks

CANADA

Stanstead, Quebec

     Quarry Properties

          Stanstead Quarry

Quarrying of dimensional Stanstead Gray granite blocks

Guenette, Quebec

     Quarry Properties

          Laurentian Quarry

Quarrying of dimensional Laurentian Rose granite blocks

Beebe Plain, Quebec

     Manufacturing Properties

          Rock of Ages Manufacturing Plant 

Manufacturing of memorials

          Adru Manufacturing Plant

Manufacturing of memorials

PENNSYLVANIA

St. Peters

     Quarry Properties

          American Black Quarry

Quarrying of dimensional American Black granite blocks

     Manufacturing Properties

          Saw Plant

Slabbing of granite blocks

NORTH CAROLINA

Salisbury

     Quarry Properties

          Salisbury Pink Quarry

Quarrying of dimensional Salisbury Pink granite blocks

Rockwell

     Quarry Properties

          Gardenia White Quarry

Quarrying of dimensional Gardenia White granite blocks

OKLAHOMA

Mill Creek

     Quarry Properties

          Autumn Rose Quarry

Quarrying of dimensional Autumn Rose granite blocks

SOUTH CAROLINA

Kershaw County

     Quarry Properties

          Kershaw Quarry

Quarrying of dimensional Kershaw granite blocks

Lancaster County

     Quarry Properties

          Coral Gray Quarry

Quarrying of dimensional Coral Gray granite blocks

In addition, Rock of Ages owns or operates 82 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, we lease, under customary lease arrangements, the land or other real estate associated with these outlets and facilities. We believe these facilities are suitable and adequate for our present and anticipated near-term needs. Until the sale of such properties in December 2003, we also owned 13 cemeteries in Kentucky.

The following table sets forth certain information relating to our 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 (other than the Bethel quarry which is serviced by internal generators); and (iv) has adequate and modern extraction and other equipment. We presently have no exploration plans. We own each of the quarries listed below (other than the Kershaw quarry, which is leased with 36 years remaining on the lease). As described in Item 1 of this report, we also own a 1/3 interest in VIKA, Ltd., which owns the Galactic Blue quarry in Zhytomir, Ukraine. However, while we consult from time to time on the development of the quarry, we do not directly or indirectly operate the quarry. The Galactic Blue quarry is currently under development and currently does not produce granite in commercial quantities and we do not expect the quarry to achieve significant commercial production quantities in 2004. Accordingly, we do not consider this property to be currently significant or material to our business.

QUARRY

APPROXIMATE
DATE OF
COMMENCEMENT
OF OPERATIONS

PRIOR OWNER
(DATE ACQUIRED)

MEANS
OF
ACCESS

TOTAL
ORIGINAL COST
OF EACH PROPERTY

NET SALEABLE
RECOVERABLE
RESERVES (1)
(CUBIC FEET)

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

4,917

Adam-Pirie

1880

J.K. Pirie Quarry (1955)

Paved road

$4,211,363

984,886,000

6,558

Bethel

1900

Woodbury Granite Company, Inc. (1957)

Dirt road

174,024

76,529,000

381

Stanstead

1920

Brodies Limited and Stanstead Granite Company (1960)

Paved road

$505,453

32,563,000

215

Laurentian Pink

1944

Brodies Limited (1960)

Paved road

$860,115

3,864,000

51

American Black

1973

Pennsylvania Granite Inc. (1997)

Paved road

$2,900,000

14,615,000

96

Salisbury

1918

Pennsylvania Granite Inc. (1997)

Paved road

$3,886,592

19,344,000

85

Autumn Rose (3)

1969

Autumn Rose Quarry Inc. (1997)

Paved road

$200,000

708,000

20

Kershaw

1955

Pennsylvania Granite Inc. (1997)

Paved road

$200,000

591,000

21

Coral Gray

1955

Pennsylvania Granite Inc. (1997)

Paved road

$200,000

No estimate

No estimate

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

36

(1)

Net saleable 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 and for the Gardenia White quarry, which are based on an independent assessment by Geomapping Associates.

(2)

Based on internal Company estimates using current production levels.

(3)

The Autumn Rose quarry is now classified as an asset held for sale. See Item 7 of this report.

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.

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 $40.

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. In addition, we are involved in the arbitration proceeding described below.

Granite Stone Business International Sarl (f/k/a Eurimex SA) (Luxembourg) vs Rock of Ages Corporation (USA) ICC Arbitration 11502/KGA/MS. On April 18, 2001, we received a Request for Arbitration ("Request") from our former distributor outside the United States, Eurimex S.A. (now known as Granite Stone Business International), in connection with our termination of the distribution agreement for our Salisbury Pink granite. Eurimex has also claimed damages in connection with a distribution agreement for our Bethel White granite, which agreement expired by its terms in 1998. Pursuant to those agreements, the arbitration is taking place under the International Chamber of Commerce ("ICC") rules.

The Request includes claims by Eurimex that we wrongfully terminated the Salisbury Pink and Bethel White agreements. The Request also alleges we violated antitrust laws under the European Community Treaty and United States antitrust laws. In the Request, Eurimex alleged it suffered damages in excess of $30 million, and it would seek to have damages trebled under U.S. antitrust laws. In subsequent pre-hearing submissions, however, Eurimex asserted damages of approximately $25.3 million, plus interest, "moral" damages, attorneys' fees and costs.

We deny all of Eurimex's allegations and we further assert Eurimex has engaged in improper or unlawful tying practices in the sale of our products. We have answered Eurimex's Request and have brought certain counterclaims against Eurimex, including a claim for frivolous action. A preliminary scheduling conference was held on October 2, 2001, and both arbitral and subject matter jurisdictional issues were briefed. A second hearing on further procedural issues and jurisdiction was held on March 13, 2002. On July 1, 2002, the arbitral tribunal rendered a decision on the arbitral jurisdictional issues finding it has arbitral jurisdiction over all of the claims brought by Eurimex. The tribunal deferred ruling on whether it had subject matter jurisdiction over Eurimex's U.S. antitrust law claims. The parties have completed the discovery process, and submitted pre-hearing submissions setting out their respective positions. On March 11, 2003, after we had filed our First Pre-Hearing Submission, Eurimex withdrew all of its U.S. antitrust law claims for which it was seeking treble damages. A hearing on the merits of the dispute was held in May 2003, at which time Eurimex confirmed its withdrawal of the U.S. antitrust laws claims was with prejudice. The parties filed post-hearing submissions on August 29, 2003.

We were advised by the arbitral tribunal at the conclusion of the May 2003 hearing that a decision would be rendered on or before November 30, 2003. On November 12, 2003, we were advised by the arbitral tribunal that the deadline for decision in the case had been extended by the tribunal from November 30, 2003 to February 28, 2004, as permitted by ICC rules. On February 9, 2004, we were further advised by the arbitral tribunal the deadline for decision in the case was extended from February 28, 2004 to May 31, 2004.

We deny liability and will continue to vigorously defend the claims made by Eurimex. We have incurred legal fees and expenses of $5.3 million since the inception of the case all of which has been expensed through our quarry segment, as selling, general and administrative expenses. If the arbitral tribunal were to decide in favor of Eurimex, and award substantial damages, our business and financial condition would likely be materially adversely affected. We continue to have a reserve which we believe to be adequate for anticipated legal fees for the review of the decision by the law firms retained to defend the claims and pursue the counterclaims, but this reserve does not contain any provision of any kind for an adverse judgment or an appeal thereof because it is our opinion that we will prevail in this action. Therefore, if a judgment adverse to us is entered by the arbitral tribunal, we will be required to expense the entire judgment against us in 2004.

Kurtz Monument Company (Pennsylvania) v. Rock of Ages Corporation (Delaware) Case No. 03-510 U.S. District Court for the Western District of Pennsylvania. On April 22, 2003, Kurtz Monument Company filed a complaint against Rock of Ages alleging we breached certain terms of a sealed settlement agreement by engaging in conduct constituting commercial disparagement. Damages have not been specified. On October 3, 2003, the Court dismissed all four of the counts of Kurtz's complaint, without prejudice to Kurtz to file an amended complaint. On November 10, 2003, Kurtz filed an amended complaint setting forth essentially the same facts as in the first complaint and alleging breach of contract, commercial disparagement, defamation and tortuous interference with prospective business advantage. Damages have not been specified. The parties are currently engaged in the discovery process. We believe this action by Kurtz Monument Company is without merit, deny liability and will continue to vigorously defend claims made by Kurtz Monument Company.

ITEM 4. 

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

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

ITEM 5. 

 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER REPURCHASES OF EQUITY SECURITIES

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 any time 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 range of high and low per share sales prices for the Class A Common Stock as reported on the NASDAQ National Market for the periods indicated.

As of March 23, 2004, based upon information provided by our transfer agent, there were 252 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. We did not declare dividends during 2002. Rock of Ages paid its first cash dividend on March 28, 2003, and has paid dividends during each subsequent quarter in 2003 at a rate of $.01 per share per quarter. The current rate in 2004 is $.02 per quarter and we expect to pay a dividend for the first quarter of 2004. Future dividend payments will depend on our earnings, capital requirements, financial condition and other factors considered relevant by the Board of Directors.

The information under the heading "Equity Compensation Plan Information" under Item 12 of this report is incorporated herein by reference.

RECENT SALES OF UNREGISTERED SECURITIES

We made no sales of unregistered securities during fiscal 2003.

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, 2003 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.

YEAR ENDED DECEMBER 31,

2003

2002

2001

2000

1999

(U.S. $ IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENT OF OPERATIONS DATA:

Net revenues:

   Quarrying

$

28,381

$

29,540

$

25,504

$

22,676

$

22,016

   Manufacturing

20,373

19,726

22,228

27,184

37,414

   Retailing

35,663

38,449

43,159

40,622

36,933

        Total net revenues

84,417

87,715

90,891

90,482

96,363

Gross Profit:

   Quarrying

11,178

13,132

11,461

9,916

10,014

   Manufacturing

5,774

5,521

5,422

6,801

7,791

   Retailing

20,388

21,314

25,461

22,389

19,579

         Total gross profit

37,340

39,967

42,344

39,106

37,384

Selling, general and administrative expenses

35,182

34,538

35,503

33,164

31,241

Loss on disposal of assets

—

—

2,534

—

845

Income from operations

2,158

5,429

4,307

5,942

5,298

Interest expense

471

522

1,393

2,143

2,034

Income from continuing operations before provision for income taxes

1,687

4,907

2,914

3,799

3,264

Provision for income taxes

578

1,364

1,789

1,300

1,403

Net income from continuing operations, before cumulative effect of changes in accounting principles

$

1,109

$

3,543

$

1,125

$

2,499

$

1,861

Discontinued operations, net of income tax effect

338

252

(692

)

(36

)

(32

)

Cumulative effect of changes in accounting principles

—

(28,710

)

—

—

(150

)

Net income (loss)

1,447

(24,915

)

433

2,463

1,679

PER SHARE DATA:

Net income (loss) per share - basic:

Income from continuing operations before cumulative effect of changes in accounting principles

$

0.15

$

0.45

$

0.15

$

0.34

$

0.25

Discontinued operations

0.05

0.03

(0.09

)

(0.01

)

(0.01

)

Cumulative effect of changes in accounting principle

—

(3.65

)

(0.02

)

Net income (loss) per share

0.20

(3.17

)

0.06

0.33

0.22

Net income (loss) per share - diluted:

Income from continuing operations before cumulative effect of changes in accounting principles

$

0.15

$

0.45

$

0.15

$

0.33

$

0.24

Discontinued operations

0.05

0.03

(0.09

)

0.00

(0.01

)

Cumulative effect of changes in accounting principle

(3.64

)

(0.02

)

Net income (loss) per share

0.20

(3.16

)

0.06

0.33

0.21

Cash dividends paid

0.04

—

Weighted average number of shares outstanding

7,182

7,848

7,606

7,447

7,509

Weighted average number of shares outstanding assuming dilution

7,219

7,880

7,676

7,576

7,826

AS OF ENDED DECEMBER 31,

2003

2002

2001

2000

1999

BALANCE SHEET DATA:

Cash and cash equivalents

$

3,227

$

6,185

$

3,435

$

9,501

$

4,877

Working capital

32,844

31,508

16,794

28,875

18,386

Total assets

102,461

125,834

153,793

135,554

130,669

Long-term debt, net of current maturities

12,794

12,832

323

18,527

12,620

Stockholders' equity

62,970

62,646

89,670

88,720

86,382

ITEM 7. 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the Selected Consolidated Financial Data and the Consolidated Financial Statements, including the related Notes, contained elsewhere in this document.

Overview

Rock of Ages is an integrated quarrier, manufacturer, distributor and retailer of granite and products manufactured from granite. During 2003, we had four business segments, quarrying, manufacturing, retail and cemeteries. The quarry division sells granite blocks both 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 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. On December 17, 2003, we sold all of our cemetery properties and assets to Saber Management, LLC for $6,750,000, thereby exiting the cemetery business. We recorded a gain of $1,139,000 in 2003 after taxes, accounted for as a sale of discontinued operations.

Our quarry division's results were negatively impacted by a decrease in saleable stone from our Pennsylvania Black quarry due to poor geological formations (i.e. cracks and other abnormalities) in the current area of the quarry. These conditions may be encountered from time to time in quarry operations. We believe yields in the Pennsylvania Black quarry should improve during 2004 as we work through the formation. Results were also negatively impacted by a sharp increase in selling, general and administrative expenses primarily caused by the increase in legal fees and expenses in connection with the Eurimex arbitration (See Item 3 - Legal Proceedings). Proceedings of this nature and magnitude have historically been rare and we do not expect these levels of expenditures to be a recurring part of our business. On the positive side, the Bethel White quarry continued to have very good production and yield as well as strong demand during 2003.

Our manufacturing division had a good year, and benefited from a slight increase in the shipments of mausoleums and other larger, estate and feature memorials, which generally have higher than average profit margins. We also benefited from strong outsourcing relationships for certain colors of granite and some lower-end products. The current climate for manufacturing is very competitive, with imported products becoming more and more common. We continue to explore outsourcing relationships with importers, and we also plan to increase the amount of capital investments in our manufacturing plants in 2004 to increase productivity, reduce costs and continue to meet demand for our products.

During 2003, we continued to focus on our strategy of building a profitable retail distribution system. 2003 was a challenging year for retail. We experienced declining revenues as well as a decline in total units sold, and higher than anticipated sales costs. We believe some of the declines may be due to a difficult economy in early 2003 and a colder than normal 2002/2003 winter season, events that are difficult to predict and control. We have been working and continue to work on increasing sales and units sold, as well as controlling sales costs by focusing on factors we can control. We are exploring and implementing a number of initiatives to increase distribution of our products, both through our owned stores as well as through independent authorized retailers and funeral homes and cemeteries. As discussed in Item 1 of this Annual Report on Form 10-K, we are also in the process of merging our retail division with our manufacturing and wholesale division to form the Memorials Division, with a unified focus on increasing our retail distribution system. We believe the changes we are implementing and will continue to implement throughout 2004 will enhance our ability to increase the revenue and profitability of our market share through an expanded distribution system.

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 generally accepted accounting principles (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. 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, valuation of deferred income taxes, contingencies and accounting for pensions.

Revenue Recognition

The Company records revenues from quarrying, manufacturing, retailing and cemeteries.

Quarry Division

The granite we quarry is sold both to outside customers and used by our manufacturing group. Our quarry division recognizes revenue from sales of granite blocks to outside customers when the granite is shipped from the quarry. We 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 request that we store the blocks for them. Many of our customers do not have adequate storage space at their facilities and want to ensure an adequate supply of blocks, especially when the Barre quarries are closed from mid-December through mid-March because of weather. Our quarry division recognizes revenue from blocks purchased when the customer selects and identifies the block at the quarry site and the customer requests the block be stored. At that time, the block is removed from inventory, the customer's name is printed on the block, and title and risk of ownership passes to the buyer. The customer is invoiced and normal payment terms apply, except in the case of December terms described below. Granite blocks owned by customers remain on our property for varying periods of time after title passes 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 selling price. Further, under industry terms of trade, title passes and the payment obligation is established when the block is identified at the quarry.

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

Manufacturing

Rock of Ages does not record a sale, nor do we record gross profit, at the time granite is transferred to the manufacturing division from our quarries. We record revenue and gross profit related to internally transferred granite only after the granite is manufactured into a finished product and sold to an outside customer. Manufacturing revenues related to outside customers are recorded when the finished product is shipped from our facilities. Manufacturing revenues related to internally transferred finished products to our owned retail outlets are recorded when ultimately sold at retail to an outside customer.

Retail

Retailing revenues are recorded when the finished monument is set in the cemetery. In certain instances, we may enter into an agreement with a customer that provides for extended payments terms, generally up to two years from either the date of setting the memorial or, in certain instances, upon the settlement of an estate.

Cemetery Division

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 partly in prearranged receivables (for the portion placed in trust) and partly 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, we recognize as revenue the full contract amount plus all trust earnings associated with that contract.

Impairment of long-lived assets

Our 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 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 undepreciated cost of property and equipment is measured by comparison of the carrying amount to estimated future undiscounted net cash flows the assets are expected to generate. Those cash flows include an estimated terminal value based on a hypothetical sale at the end of 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 as the amount by which the carrying amount of the long-lived asset exceeds its fair value.

Effective January 1, 2002, we assessed impairment of goodwill in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets." The provisions of SFAS No. 142 require 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. Upon implementation of SFAS No. 142, we 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 goodwill recorded in the Retail and Cemetery segments was impaired as of January 1, 2002. Accordingly, we completed the second step of the goodwill impairment test to measure the amount of the impairment loss, and 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.

There were two major factors that contributed to the goodwill impairment in the retail segment. First, we underestimated the amount of time required to fully integrate the branding strategy through the retail network. Second, we had difficulty increasing profitability in the timeframe expected and to the extent we anticipated prior to the retail acquisitions. The major factors that contributed to the goodwill impairment in the cemetery segment were lower than expected revenues and greater than expected selling and administrative costs.

In December 2003, we decided to sell the Autumn Rose quarry in Mill Creek, Oklahoma. Accordingly, it is now classified as assets held for sale in the accompanying balance sheet. We have determined the carrying value of the quarry exceeded its fair value based on discussions with interested parties. As a result, we recognized an after-tax impairment charge of approximately $480,000 in the 4th quarter of 2003, which decreased the carrying value to our best estimate of the fair value of the quarry. We will continue to actively search for a buyer for this quarry and believe our estimate of the fair value is accurate. However, if the ultimate negotiated price for the quarry is below our estimate of fair value, further impairment charges may be required and future operating results could be materially impacted.

We have entered into arrangements whereby we accepted a promissory note as partial or full payment for certain transactions, particularly the sale of an operation. Such notes have varying terms with principle and interest paid to the Company over a period of generally not more than 5 years. While most notes are secured by an interest in real property and/or assets, management must make estimates and judgments as to the collectibility of such promissory notes. Such judgments depend on many factors including current and future economic conditions, the financial condition of the debtor as well as our estimate of the net realizable value of the security interest securing the note. We believe we have accurately assessed the collectibility of these assets, however, the above factors and other factors may cause our accounting estimates concerning the collectibility of the notes to change and future operating results could be materially impacted.

Valuation of deferred income taxes

As of December 31, 2003, we had net deferred tax assets of $5,850,159. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. We have recorded a valuation allowance of $4,129,841 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, we believe it is more likely than not we 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.

Contingencies

We are involved in various types of legal proceedings from time to time. Due to their nature, such legal proceedings involve inherent uncertainties and risks, including, but not limited to, court rulings, judgments, negotiations between affected parties and government action. Management, with the assistance of its outside advisors, assesses the probability of loss for such contingencies and accrues a liability and/or discloses the relevant circumstances, as appropriate.

As described in Item 3-Legal Proceedings, we are currently involved in an ICC arbitration proceeding in which Eurimex, our former distributor outside the United States, has brought claims against us alleging, among other things, breach of contract and violation of antitrust laws under the European Community Treaty. We believe the claims are without merit and we will prevail in this case. Accordingly, we have not accrued a reserve for adverse judgment. However, if the arbitral tribunal were to decide in favor of Eurimex and award substantial damages, our business and financial condition would likely be materially and adversely affected.

Accounting for pensions

We provide defined benefit pension and other postretirement benefit plans for certain of our 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, 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 could result in an increase in our pension liability and a charge to equity as well as increases in pension expenses over time. See Note 9 of the Notes to Consolidated Financial Statements.

RESULTS OF OPERATIONS

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.

Year Ended December 31, 2003 Compared To Year Ended December 31, 2002

On a consolidated basis for all segments for the year ended December 30, 2003 compared to the year ended December 31, 2002; revenue was down 4%, gross profit declined 7% and total Selling, General and Administrative (SG&A) costs increased 2% for reasons discussed in detail in the segment analysis below.

Quarry Segment Analysis

Revenues in our quarry operations for the year ended December 31, 2003 were down 4% from the same period last year primarily as a result of lower shipments from our Pennsylvania Black and Barre Gray quarries. These lower shipments were partially offset by increased shipments from the Bethel White quarry. Our Pennsylvania Black quarry had decreased revenues because of low yields, which means we had lower than normal recoveries of saleable granite. This decreased the quantity of granite available for sale. We believe yields will improve in 2004 as we work through the problematic part of the geological formation. This should lead to increased revenues, as we believe demand for Pennsylvania Black remains good. From time to time, we may experience a decrease in yield at any one of our quarries due to natural variations in the geological formations of the quarry. Historically, these issues have generally been temporary in nature, and are resolved as the geological formation is worked and/or new areas of the quarry are opened. Our Barre Gray quarry revenues have declined in large part due to the increasing consumer demand for colored granites, which has displaced sales of the traditional gray granite. While Barre Gray remains one of the world's finest granites and is very desirable in many markets, we expect sales of Barre Gray will remain flat or decline as imported and other colored granites capture greater market share. Revenues from the Bethel White quarry increased as a result of very strong export customer demand as well as good quarry yields. We believe Bethel White revenues will stay strong in 2004 as demand appears to be very good and the quarry is in good condition to maximize yields.

Gross profit dollars from our quarry operations for the year ended December 31, 2003 decreased 15% and gross profit as a percentage of revenue decreased 5% to 40% from the same period last year. The primary reason for the decrease in gross profit was the decrease in revenue and higher quarrying costs resulting from low yields from our Pennsylvania Black quarry. This was partially offset by the increase in revenue from our Bethel White quarry. Gross profit was affected to a lesser degree by increased productivity and higher gross margins in the Barre Gray quarry which was offset by lower gross margins in the Salisbury Pink quarry as a result of decreased pricing required in an effort to decrease inventory and develop new markets for that stone.

SG&A costs in our quarry segment for 2003 increased 12% from 2002 primarily due to an additional $700,000 in legal expenses associated with the Eurimex arbitration discussed in Item 3 - Legal Proceedings.

Manufacturing Segment Analysis

Revenues in our Manufacturing group for the year ended December 31, 2003 increased 3% over the same period last year. This was primarily due to increased shipments of mausoleums and estate memorials, which was partially offset by a decrease in revenues from the National World War II memorial being constructed in Washington, D.C (which was completed in 2003) compared to 2002. We have received increased order receipts for mausoleums and estate memorials and expect orders for those products to continue to be strong during 2004. While we have added staff and increased our marketing efforts to increase the number of mausoleums and estate memorials sold, demand for these products has historically been cyclical and we cannot predict with certainty whether orders for mausoleums and larger estate memorials will continue to grow, level off, or decline in the long run.

Gross profit dollars from the manufacturing group increased 5% and gross profit as a percentage of revenue increased slightly for the year ended December 31, 2003 compared to the same period last year. The slight increase is consistent with the general improvement in the quality of orders in the division, including larger and more expensive memorials, mausoleums and estate memorials.

SG&A costs for the manufacturing group were up 12% over last year. Roughly half of this increase is a result of unfavorable currency exchange effects of the weakening US dollar on our Canadian manufacturing operations and the balance is from several smaller increases, including an increase in the cost of employee benefits.

Retail Segment Analysis

Revenues for our retail operations were down 7% from last year as our retail group experienced a very difficult year. We believe the reasons behind the decline are a combination of a weak economy in the first quarter of 2003, increased competition primarily from funeral homes selling memorials, and pricing policies for our retail memorials that caused us to lose sales from the lower-end segment of the market. While we have little control over the economy, we are taking measures to partner with certain funeral homes and cemeteries in selected markets where appropriate and modifying and expanding our product offerings in order to better capture sales to those customers who desire a memorial priced at the lower end of the market.

Gross profit dollars for the retail operations decreased 4% from last year as a result of decreased revenue; however gross profit as a percentage of revenue increased 2% to 57% over last year. We remain pleased with gross margins in the 55% to 58% range, but expect this may drop slightly as a result of modifying our product offerings to capture a larger share of the segment of the market buying lower-end memorials. We believe increasing the availability of lower-end memorials will add revenue and will not be a substitute for Rock of Ages personalized branded memorials and will therefore increase overall gross profit, even if gross profit as a percentage of revenue decreases somewhat.

SG&A costs in retail increased just 1% but increased 5% as a percentage of revenue primarily as a result of declining revenues and a certain portion of our SG&A costs being fixed in the short term. We expect SG&A costs will decrease as a result of some cost cutting measures implemented late in 2003 and expect SG&A costs as a percentage of revenue to decrease as a result of the combination of reduced costs and an expected increase in revenue in 2004.

As a result of the sale of our cemetery division in December 2003, our cemetery operations are not shown as a separate segment but as discontinued operations in accordance with GAAP for all years presented. Further details concerning this are explained below.

Consolidated Items

Unallocated corporate overhead decreased 11% from last year primarily as a result of a one-time severance payment of $750,000 in 2002.

As a result of classifying the cemeteries as discontinued operations, a portion of interest expense associated with the debt that was repaid using the proceeds from the sale of our cemetery business was reclassified into discontinued operations in all years presented. Interest expense decreased slightly from the combined effect of slightly lower borrowings and decreased interest rates in 2003 compared to 2002.

Income tax expense as a percentage of pre-tax income increased to 34% for 2003 from 28% in 2002 primarily as a result of a greater portion of our consolidated pre-tax income coming from our Canadian operations, which are taxed at a higher rate. In 2004, we expect our tax rate will return to historical levels in the 26% to 30% range provided our pre-tax profits in the U.S. also return to historical levels.

Income from discontinued operations, net of taxes was $338,000 in 2003 broken down as follows: We had a gain on the sale of the cemetery operations of $1,138,000. This gain was offset by the loss from operations of the cemeteries in 2003 of $244,000, an impairment charge of $488,000 for the discontinued Autumn Rose quarry, and the loss from the operations of the Autumn Rose Quarry of $68,000. In 2002, income from discontinued operations net of taxes was $252,000 consisting primarily of the profit from cemetery operations. The Autumn Rose quarry has been an immaterial contributor to our quarry operations over the last several years and we determined it would be best to sell the quarry so we can focus on other operations. The fair value of the quarry, and the associated impairment charge, is management's best estimate based on discussions with prospective buyers of the quarry. While we believe our estimate of fair value is reasonable, we may need to take additional impairment charges if we are unable to negotiate a sale that is consistent with our estimate of the quarry's value. See additional discussion in "Critical Accounting Policies, Impairment of Long Lived Assets."

Year Ended December 31, 2002 Compared To Year Ended December 31, 2001

On a consolidated basis for all segments for the year ended December 31, 2002 compared to the year ended December 31, 2001; revenue was down 3%, gross profit declined 6% and total SG&A costs decreased 3% for reasons discussed in detail in the segment analysis below.

Quarry Segment Analysis

Revenues for the quarry division increased 16% for the year ended December 31, 2002 compared to the same period in 2001. Strong demand for our Bethel White, Gardenia White and Salisbury Pink quarries, as well as increased revenues from our Pennsylvania Black quarry due to good yields, were the major factors for the revenue increase.

Quarrying gross profit dollars increased 15% for the year ended December 31, 2002 compared to the same period in 2001. During 2002, we elected to change the method of valuing inventory in the quarry division from the 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. We believe the Specific Annual Average Cost method more accurately matches costs with revenue, resulting in an enhanced measurement of operating results. (See note 3 to the Consolidated Financial Statements.) The increase in gross profit dollars was attributable to an increase in revenue and an increase in yields at the Bethel White, Pennsylvania Black, and Gardenia White quarries. The slight decrease in gross margin as a percentage of revenue 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.

Quarry SG&A costs increased 14% for the year ended December 31, 2002 largely as a result of increased legal expenses for the Eurimex litigation compared to the same period in 2001.

Manufacturing Segment Analysis

Manufacturing revenues decreased 11% for the year ended December 31, 2002 compared to the same period in 2001. The decrease was primarily a result of the sale of the Childs & Childs manufacturing facility in Elberton, Georgia ("Childs") in 2001 and a decrease in sales in industrial products as a result of decreased demand for those products due to a general economic slowdown. These decreases were partially offset by revenue recognized on the National World War II memorial.

Manufacturing gross profit dollars increased 2% and gross margin as a percentage of manufacturing revenue increased 4% to 28% for the year ended December 31, 2002 compared to the same period in 2001. The increase in gross margin percentage was a result of improved operations in our Barre manufacturing facility as well as a more favorable product mix, including more branded memorials in this facility compared to the same period in 2001. The sale of the Lawson facility, 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 our 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, we entered into a seven-year contract to purchase memorials from the new owner. Although there are many alternative suppliers of granite memorials, we are dependent on this arrangement to provide product to our customers and believe it will continue to be a favorable arrangement.

Manufacturing SG&A costs decreased 30% for the year ended December 31, 2002 compared to the same period in 2001. The decrease was primarily the result of the sale of the Lawson manufacturing facility as well as the elimination of the SG&A costs associated with the Childs plant in Elberton, GA.

Retail Segment Analysis

Retailing revenues were 11% lower in 2002 compared to 2001. During the preceding 3-year period, order receipts averaged approximately $39 million per year. In 2001, we decreased our 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 was a result of insufficient order receipts from our 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.

Retailing gross profit dollars for the year ended December 31, 2002 declined 16% and gross profit as a percentage of revenues decreased 4% to 55% compared to 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.

SG&A costs in the retail segment decreased 7% for the year ended December 31, 2002 compared to the same period in 2001 primarily as a result of lower commission payments to sales persons as a result of lower revenues.

Consolidated Items

Interest expense for the year ended December 31, 2002 decreased to $522,000 from $1.4 million for the year ended December 31, 2001. This decrease was due to lower interest rates under our credit facilities as well as a reduction in debt funded by cash from operations and from the proceeds of the sale of Southern Mausoleums, Inc. ("SMI"), Childs, the Royalty Quarries ("Royalty") and Lawson.

Income taxes as a percentage of earnings before taxes decreased to 27.8% in 2002 from 61.4% 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.

Income (loss) from discontinued operations for the year ended December 31, 2002 of $252,000, net of taxes, was primarily from cemetery operations (which were reclassified as discontinued operations in 2003), compared to a loss of $692,000 net of taxes for 2001. A significant portion of the increase in 2002 was the result of the completion of a large project that had been presold.

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 deferred 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 to the Consolidated Financial Statements for additional information.)

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

We consider our liquidity to be adequate to meet our long and short-term cash requirements to fund operations and pursue our growth strategy. Historically, we have met these requirements primarily from cash generated by operating activities and periodic borrowings under the commercial credit facilities described below. We anticipate there may be future acquisitions, as we pursue our growth strategy that may require additional financing compared to our existing credit facility.

In January 2003, we repurchased 500,500 shares of our common stock for a total of $2,602,600 as part of our share buy back program. Upon completion of this transaction, we have 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. We 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.

In 2003, the funded status of our defined benefit pension plan improved by approximately $1.2 million primarily as a result of payments to fund the plan of $1.0 million in 2003. We also made payments of $1.4 million in 2002. We have historically contributed between $800,000 and $1.0 million per year and expect to make annual contributions in this range, which, we believe, we will be able to fund either from cash from operations or borrowing under our credit facilities. As a result of the accumulated benefit obligations of our defined benefit plan exceeding the fair market value of the plan's assets, we recorded a $3.1 million minimum liability during 2002, through a charge to equity of $1.6 million, net of taxes of $679,000. This charge is reflected in other comprehensive income (loss).

Cash Flow 

At December 31, 2003, we had cash and cash equivalents of approximately $3.2 million and working capital of approximately $32.8 million, compared to approximately $6.2 million and $31.5 million, respectively, at December 31, 2002.

Cash from Operations. Cash flows from operating activities were $4.9 million in 2003 compared to $6.9 million in 2002. The primary reason for the change is the lower earnings in 2003, (excluding the effects of the write-down of goodwill in 2002) coupled with the non-cash adjustments primarily associated with the sale of the cemeteries, and other working capital changes, which had the effect of decreasing cash from operations.

Cash flows from operating activities were $6.9 million in 2002 compared to $11.6 million in 2001. The primary differences were decreases in working capital in 2001 resulting from the sale of SMI, Childs, the Royalty Quarries ("Royalty") and Lawson, as well as an increase in accrued expenses associated with the purchase of the cemeteries, both of which had the effect of increasing cash from operations in 2001. (See note 16 to Consolidated Financial Statements.)

Cash from Investing Activities. Cash flows used in investing activities were $6.2 million in 2003 compared to $1.8 million in 2002. In 2003, we had higher than normal levels of capital expenditures, especially in our retail segment, as we made improvements to store facilities and constructed new facilities in order to support and enhance the brand image of our company. These expenditures were slightly offset by the $1.5 million in cash received, as of December 31, 2003, toward the total $6.75 million due from Saber Management LLC from the sale of the cemeteries. In 2002, our capital expenditures were at a lower level and were partially offset by the proceeds from the sale of the Lawson facility. Cash used in investing activities comes from either borrowings under our credit facilities or from operations.

Cash flows used in investing activities were $1.8 million in 2002 compared to $7.6 million in 2001. The higher uses in 2001 were primarily the result of the purchase of the cemetery operations.

Cash from Financing Activities. Financing activities used $2.6 million in cash in 2003 primarily as a result of the repurchase of 500,500 shares of the Company's common stock, compared to $2.4 million used in 2002 primarily as a result of principal payments on long-term debt. In 2001, $9.6 million in cash was used in financing activities for repayments of the lines of credit and the long-term debt.

Capital Resources

CIT Credit Facility

We have a credit facility with the CIT Group/Business Credit ("CIT") that expires in October 2007. 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. As of December 31, 2003, we had $12.5 million outstanding and $17.5 million available under the term loan line of credit and $4.8 million outstanding and $15.2 million available under the revolving credit facility. On January 2, 2004, we received payment under a promissory note from Saber in connection with the sale of the Cemetery operations, which closed on December 16, 2003. Following the payment of that note on January 2, 2004, we had $0 outstanding on the revolving credit facility and $12.5 million outstanding on the term loan line of credit. Our loan agreement with CIT places restrictions on our ability to, among other things, sell assets, participate in mergers, incur debt, pay dividends, repurchase stock, and make investments or guarantees. The agreement also contains certain covenants for a minimum Operating Cash Flow to Debt Service Ratio and a limit on the Total Liabilities to Net Worth Ratio of the Company as described below.

Debt Service Coverage Ratio. The facility requires the ratio of the sum of earnings before interest, taxes, depreciation and amortization (EBITDA) less taxes and capital expenditures to the sum of interest and scheduled debt repayments be at least 1.25 for any trailing twelve-month period at the end of a quarter. As of December 31, 2003, this ratio was a negative 2.31 as a result of significant legal expenses in the Eurimex litigation and decreased earnings in our retail operations which lowered EBITDA, as well as much higher than normal capital expenditures in 2003. We have received a waiver of this covenant until September 30, 2004 when we believe we will be in compliance with the Debt Service Coverage Ratio. The waiver requires we meet a minimum interim EBITDA target for the three-month period ended December 31, 2003 of $3.1 million, for the six-month period ending March 31, 2004 of negative $2.0 million, and for the nine-month period ending June 30, 2004 of $2.3 million. As of December 31, 2003, we were in compliance with the amended covenants as our EBITDA for the three-month period ended December 31, 2003 was $6.6 million, which exceeded by $3.5 million our minimum requirement of $3.1 million as outlined in the table below. Finally, the waiver requires our Capital Expenditures for the twelve-month period ending December 31, 2004 not exceed $4.5 million, which historically is a typical level of our annual capital expenditures.

EBITDA consists of: (in thousands)

Three Months Ended
December 31, 2003

Net income

$

4,064

Interest

214

Income taxes

1,536

Depreciation and amortization

821

EBITDA

6,635

Total Liabilities to Net Worth Ratio. The facility also requires the ratio of the Company's total liabilities to net worth not exceed 2.0. As of December 31, 2003, the Company was in compliance with this covenant as our total liabilities to net worth ratio was 0.63.

Interest Rates. We have a multi-tiered interest rate structure on our outstanding debt with CIT. As a result of the covenant violation described above in the Debt Service Coverage Ratio paragraph, we paid an additional 0.25% on both the Revolving Credit Facility and the Term Loan for the three-month period ended December 31, 2003. Those rates were 2.92% for the Revolving Credit Facility for the LIBOR election and 4.0% for the Prime rate election, and 3.16% for the Term Loan as of December 31, 2003.

The rates in effect as of December 31, 2003 (which include the additional 0.25% mentioned above) were as follows:

Amount
Outstanding

Formula

Effective Rate

Revolving Credit Facility

$

1.8 million

Prime - 0.25%

4.00%

Revolving Credit Facility

3.0 million

LIBOR + 1.75%

2.92%

Term Loans

12.5 million

LIBOR + 2.00%

3.16%

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. As a result of the waiver noted above, the incremental rate above or below prime and above LIBOR is based on our Funded Debt to Net Worth Ratio and the Company is currently at the most favorable increments available since we substantially exceeded the interim EBITDA minimum for the quarter ended December 31, 2003. The following table shows the LIBOR or Prime rate elections:

LIBOR Election

Prime Election

Revolving Credit Facility

LIBOR + 1.50%

Prime - 0.50%

Term Loans

LIBOR + 1.75%

Prime - 0.25%

Canadian Credit Facility

As of December 31, 2003, we also had $4.0 million CDN available and $0 outstanding under a demand revolving line of credit with the Royal Bank of Canada.

Contractual Obligations

(1)

Long-Term Debt consists of various notes payable (see note 6 of the Consolidated Financial Statements) for general business use and strategic acquisitions, which will be funded from a combination of cash flow from operations and our existing credit facilities.

(2)

Operating Leases are principally for real estate (see note 4 of the Consolidated Financial Statements) and will be funded from a combination of cash flow from operations and our existing credit facilities.

(3)

The purchase obligation is a supply agreement with Adams Granite Co. The Company has agreed to purchase a minimum of $2,250,000 (+/- 10%) of monuments from Adams Granite each year for a term of seven years with various stipulations as to variations from the "minimum order" and pricing agreements (see note 4 of the Consolidated Financial Statements), and will be funded from a combination of cash flow from operations and our existing credit facilities. The agreement was entered into on January 11, 2002 and the remaining term is five years.

Our primary need for capital will be to maintain and improve our manufacturing, quarrying, and retail facilities and to finance acquisitions as part of our growth strategy. We have approximately $4.5 million budgeted for capital expenditures in 2004. We believe the combination of cash flow from operations and our credit facility will be sufficient to fund our operations for at least the next twelve months.

RECENT ACCOUNTING PRONOUNCEMENTS

In April 2003, the Financial Accounting Standards Board ("FASB") issued Statement No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities," effective for contracts entered into or modified after June 30, 2003. SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under FASB Statement No. 133. The adoption of SFAS No. 149 did not have a material impact on our financial position or results of operations.

In May 2003 the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity," effective for financial instruments entered into or modified after May 31, 2003. SFAS No.150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. The adoption of SFAS No. 150 did not have a material impact on our financial position or results of operations.

In December 2003, the FASB revised Statement No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits - an amendment of FASB Statements No. 87, 88 and 106." The revised SFAS No. 132 requires additional disclosures to those in the original statement about the assets, obligations, cash flows and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. Our Company has adopted the disclosure requirements of SFAS No. 132 (revised 2003) related to pensions and other postretirement benefits. (See note 9 to the Consolidated Financial Statements.)

In November 2002, the FASB issued FASB Interpretation No. 45,"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"), requires that upon issuance of a guarantee, the guarantor must disclose and recognize a liability for the fair value of the obligation it assumes under that guarantee. The initial recognition and measurement requirement of FIN 45 is effective for guarantees issued or modified after December 31, 2002. The adoption of FIN 45 did not have a material impact on our financial position or results of operations.

In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"). FIN 46 clarifies situations in which entities shall be subject to consolidation. FIN 46 is effective for all variable interest entities created after January 31, 2003 and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. On October 9, 2003, the FASB issued Position No. FIN46-6, which delayed the effective date of consolidation provisions of FIN 46 for variable interest entities created before February 1, 2003 if the reporting entity had not yet issued financial statements reporting the variable interest entities in accordance with the consolidation provisions of FIN 46. The new effective date is for reporting periods ending after December 15, 2003. We have determined that we have no variable interest entities and do not believe that the adoption of FIN 46 will have a material impact on our financial statements.

SEASONALITY

Historically, our 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. 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.

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.

Our continued growth depends, at least in part, on our ability to form relationships with funeral directors, cemeteries and other death care providers.

Our ability to continue to grow our retail business depends in part on our ability to develop referral relationships with funeral homes, cemeteries and other death care professionals. We cannot assure you we will be able to successfully form these relationships in all of the areas in which we have retail businesses. In certain areas, we may be unable to form such relationships where our stores are in direct competition with funeral homes and cemeteries that sell granite memorials.

Our continued growth depends, at least in part, on acquisitions, which involve numerous risks that could negatively affect our earnings and financial condition.

Our ability to continue to grow depends in part upon the acquisition of additional companies. We cannot assure you we will identify suitable acquisition candidates, or we will be able to consummate transactions on acceptable terms. Further, even if we successfully acquire additional companies, we cannot assure you we will be able to successfully integrate the operations of such companies with our own. We intend to finance acquisitions through a combination of available cash resources, bank borrowings, and, in appropriate circumstances, the issuance of equity and/or debt securities. Acquiring additional companies will have a significant effect on our financial position, and could cause substantial fluctuations in our quarterly and yearly operating results. Also, acquisitions may result in the recording of significant goodwill and intangible assets on the Company's financial statements, the write-off of which would reduce reported earnings at the point in time the goodwill is deemed impaired. With respect to retail acquisitions, and as a result of our definition of reporting units under SFAS 142, goodwill impairment could be incurred at the closing of the acquisition.

Litigation or similar proceedings could result in substantial expense and distraction and seriously harm our business.

As described in Item 3 of this report, we are involved in an arbitration proceeding with Eurimex involving claims made by Eurimex related to our termination of the distribution agreement for our Salisbury Pink granite and to the distribution agreement for our Bethel White granite, which expired by its terms in 1998. In connection with this matter, Eurimex has claimed damages of $25.3 million, plus interest, "moral" damages, attorney's fees and costs. We have reserved amounts which we believe to be adequate for anticipated legal fees for the review of the decision in this matter when received and the pursuit of counterclaims, but this reserve does not contain any provision of any kind for an adverse judgment or an appeal thereof because it is our opinion that we will prevail in this action. If the arbitral panel were to decide in favor of Eurimex, and award substantial damages, we will not have any reserve to cover these damages and our business would most likely be seriously harmed. We may in the future be the target of other litigations or claims, which could result in substantial costs and divert management's attention and resources.

Opening new stores is a component of our growth strategy and entails uncertainties and risks that could adversely affect our profitability.

Our ability to continue to grow our retail business will depend in part upon our ability to open new retail stores in selected locations. Our success in opening new retail stores will depend on our ability to identify suitable locations for opening new retail stores on acceptable terms, our ability to attract and retain competent management and sales personnel, and our ability to form strategic alliances and relationships with local funeral homes, cemeteries and other death care professionals, and our ability to attract customers to our new stores. It is unlikely new retail stores we open will generate significant profits in the early stages, and many new stores will lose money for the first few years of operation. Accordingly, opening new retail stores may adversely affect our business or profitability.

If we are unable to maintain our relationships with independent retailers, our sales may not continue to grow and could decline.

We have historically sold our granite memorials to consumers through independent retailers. Over the past five years, we have acquired 26 retailers with multiple retail outlets in 15 states. However, we are still 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. Three important components of our growth strategy are to continue to acquire retailers, open new retail stores in selected markets and pursue strategic alliances with funeral homes, cemetery owners, and other death care professionals. Although we have taken steps to reduce conflicts between our owned retail stores and our independent retailers, the implementation of these elements of our strategy has in the past been, and may in the future be, construed by some of our existing independent retailers as an effort to compete with them. In certain cases, this has adversely affected their relationship with us and caused them to decrease or cease their purchases of our products. These issues may continue to arise as we pursue our growth strategy. In addition, significant barriers to entry created by local heritage, community presence and tradition characterize the granite memorial retail industry. Consequently, we have experienced and may continue to experience difficulty replacing retailers or entering particular retail markets in the event of a loss of an independent retailer. 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.

If we lose our key personnel, or are unable to attract and retain additional qualified personnel, our business could suffer.

Our operations and the implementation of our operating and growth strategies, such as integration of acquisitions and the opening of new retail stores, are management intensive. We are substantially dependent upon the abilities and continued efforts of Kurt M. Swenson, our Chairman, President and Chief Executive Officer, and other senior management. Our business is also dependent on our ability to continue to attract and retain a highly skilled retail, quarrying and manufacturing workforce, including sales managers and counselors, stone cutters, sand blasters, sculptors and other skilled artisans. The loss of the services of Mr. Swenson, other members of the Company's 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, 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 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.

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 memorial grade granite, and may be subject to less restrictive regulatory requirements. For example, companies in South Africa, India, China and Portugal also manufacture and export finished granite memorials into North America which compete with our products.

The competition for retail sales of granite memorials faced by our 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 we do, as well as approximately 3,000 independent retailers of granite memorials located outside of cemeteries and funeral homes.

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. According to the Cremation Association of North America, or CANA, cremation was used in approximately 27% of the deaths in the United States in 2001, compared to approximately 17% in 1990, and CANA expects this rate to rise to approximately 36% by 2010. While we continue to believe that many families will choose to permanently memorialize their loved-ones, regardless of whether they choose cremation over a traditional burial, 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 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 certain of our Vermont and Canadian quarries during these months 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, acquisitions, changes in product mix 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 material adverse effect on our business and competitive position.

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

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

Our international operations may expose us to a number of risks related to conducting business in foreign countries.

We derived approximately 28% of our revenues in fiscal 2003 from sales to customers outside the United States, with approximately 8% of revenues in fiscal 2003 from sales in Canada by the Company's Canadian subsidiary. Foreign sales are subject to numerous risks, including currency conversion risks, limitations (including taxes) on the reparation of earnings, slower and more difficult accounts receivable collection and greater complication and expense in complying with foreign laws.

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 64% 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.

We may incur substantial costs to comply with government regulations.

Our quarry and manufacturing operations are subject to substantial regulation by federal and state governmental statutes and 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. While we expect to be able to continue to comply with existing environmental and occupational health and safety laws and regulations, any material non-compliance could adversely affect our business and results of operations.

No-Call Legislation may adversely affect our retail marketing efforts.

Our retail stores and sales counselors are subject to the so-called "No-Call" laws, which allow consumers to place their telephone number on a "no-call" list maintained by various states and the federal government. At present, there are "No-Call" laws in a majority of states in which we do business and the federal "No-Call" law went into effect in the Fall of 2003. Counselors are unable to make telephone calls to any consumer whose number has been placed on the applicable no-call list, subject to certain limited exceptions. Making telephone calls to introduce the Company and set appointments has been an important part of marketing our retail products and services. While we are taking steps to decrease our reliance on telephone marketing calls, compliance with the "No-Call" laws could adversely affect our retail business and results of operations.

Provisions of our corporate organizational documents and Delaware law could delay or prevent a change in control of the Company, even if it would be beneficial to our stockholders.

Certain provisions contained in our Certificate of Incorporation and By-laws: 

• grant ten votes per share to each share of Class B Common Stock;
• divide the Board of Directors into three classes, each of which will have a different three-year term;
• provide the stockholders may remove directors from office only for cause and by a supermajority vote;
• provide special meetings of the stockholders may be called only by the Board of Directors or certain Company officers and not by stockholders;
• establish certain advance notice procedures for nomination of candidates for election as directors and for stockholder proposals to be considered at annual stockholders' meetings;
• authorize the issuance of preferred stock. Accordingly, the Board of Directors is empowered, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights that could materially adversely affect the voting power or other rights of, or be dilutive to, the holders of our Common Stock.

Certain of these provisions may have the effect of discouraging, delaying or preventing a change in control or unsolicited acquisition proposals a stockholder may consider favorable. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which may prohibit or delay large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us.

ITEM 7A. 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Rock of Ages has financial instruments that are subject to interest rate risk, principally debt obligations under its credit facilities. Historically, we have not experienced material gains or losses due to interest rate changes. Based on our current variable rate debt obligations, we believe our exposure to interest rate risk is not material.

We are subject to foreign currency exchange rate risk primarily from the operations of our Canadian subsidiary. Based on the size of this subsidiary and our corresponding exposure to changes in the Canadian/U.S. dollar exchange rate, we do not consider our market exposure relating to currency exchange to be material.

ITEM 8.  

FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

The information required for this item is included in this Annual Report on Form 10-K on Pages i through xxxvii, inclusive, and is incorporated herein by reference.

ITEM 9. 

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

ITEM 9A.

Disclosure Controls

The Company's management, with the participation of the Chief Executive Officer and the Chief Financial Officer has evaluated the effectiveness of our disclosure controls and procedures (as that term is defined in Rules 13a-15(c) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded, that as of the end of such period, our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable SEC rules and forms.

Internal Control Over Financial Reporting.

There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of the fiscal year ended December 31, 2003 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 10. 

DIRECTORS AND EXECUTIVE OFFICERS

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

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

(1)

Each executive officer serves for a term of one year (and until his successor is chosen and qualified) at the discretion of the Board of Directors.

Robert Campo has been Vice President/Quarry Sales and Marketing since February 2003. From 1993 to 2003, he was Director of Quarry Sales and Marketing. From 1986 to 1993, Mr. Campo was District Sales Manager for the Memorials Division. From 1979 to 1986, Mr. Campo worked as a Civil Engineer Tech for the Company.

James L. Fox has been a director of the Company since October 1997. He has been Executive Vice President and Chief Financial Officer of The Bisys Group, a provider of business process outsourcing services to the financial services industry, since September 2003. He was President of Fund Services of The Bisys Group from April 2003 to September 2003. From July 2001 to April 2003, he was President and Chief Executive Officer of govOne Solutions, L.P., an electronic government paying service. From June 2000 to July 2001, he was Vice President-Corporate Development and Chief Financial Officer of Gomez, Inc., a research and consulting firm specializing in Internet quality measurement. Prior to joining Gomez, Mr. Fox had been Vice Chairman of PFPC, Inc., a division of the PNC Financial Services Group, Inc. from December 1999 to June 2000. Before joining PFPC, Inc., Mr. Fox had a twelve year career with the Investor Services Group of First Data Corporation, a provider of processing and mutual fund and retirement services for mutual fund complexes, banks, insurance companies and investment advisory firms, including President and Chief Executive Officer (1999) and Chief Operating Officer (1997-1999).  Mr. Fox's current term as a director of the Company will expire at the 2004 annual shareholder's meeting.

Peter A. Friberg has been Senior Vice President/Northeast Region since March 2004. He was Senior Vice President/Corporate Development from February 2003 to March 2004. From June 2001 to January 2003, he was Senior Vice President/Wholesale Sales and Development. From 1998 to May 2001, Mr. Friberg was Senior Vice President/Retail Acquisitions.  From 1975 to 1995, Mr. Friberg owned and managed the Anderson-Friberg Company, a family wholesale memorial manufacturing company, in Barre, Vermont, serving as President from 1991 to 1995. From 1991 to 1993, Mr. Friberg was President of the Barre Granite Association.

Douglas S. Goldsmith has been Chief Financial Officer and Vice President of Finance and Administration and Treasurer since September 2001. From 1997 until September 2001, Mr. Goldsmith served as the Chief Information Officer of the Company. From 1991 to 1997, he held various positions in the engineering department, and was responsible for the integration of the Company's information systems for the manufacturing operations in the U.S. and Canada.

Jon M. Gregory has been President and Chief Operating Officer/Quarries Division of the Company since 1993. Mr. Gregory was a director of the Company from October 1998 to June 2003. Between 1975 and 1993, Mr. Gregory served in various positions, including Senior Vice President-Memorials Division, Manager of Manufacturing and line production supervisor.

Richard C. Kimball has been Chief Strategic and Marketing Officer since January 2001. From 1993 to January 2001, he was Vice Chairman and Chief Operating Officer/Memorials Division of the Company. He has been a director of the Company since 1986. Prior to joining the Company, Mr. Kimball served as a director, principal and President of The Bigelow Company, Inc., a strategic planning and investment banking firm from 1972 until 1993. Mr. Kimball's current term as a director will expire in 2006.

Donald Labonte has been President and Chief Operating Officer/Manufacturing Division since August 2002 and has been President of Rock of Ages Canada, Inc., a wholly owned subsidiary of the Company, since 1999. From January 2002 to July 2002, he was Vice President/Manufacturing. From 1998 to 1999, he was Vice President/General Manager of Rock of Ages Canada, Inc. From 1993 to 1998, Mr. Labonte was Director of Operations of Rock of Ages Canada, Inc. From 1980 to 1993, Mr. Labonte held various positions in the manufacturing plant at Rock of Ages Canada, Inc.

Dennis I. Merchant has been Vice President/Retail Operations since August 1999. From 1984 to August 1999 he served as Manager/Manufacturing Operations.

Douglas M. Schair has been a director of the Company since June 2001. He has been a principal of Insurance Investment Associates since 1975. From 1988 to 1998, Mr. Schair was Vice Chairman and Chief Investment Officer of Life Re Corporation. Mr. Schair is Vice Chairman of the Board of SatelLife, a nonprofit humanitarian organization dedicated to serving the health communication and information needs in the developing world. He is a trustee of Colby College in Waterville, Maine. Mr. Schair's current term as a director will expire at the 2004 annual shareholder's meeting.

Terry Shipp has been Senior Vice President/Ohio Valley and Central Region since March 2004. He was President and Chief Operating Officer/Retail Division from August 2002 to March 2004. From January 2001 to July 2002, he was Vice President/Retail Sales and Marketing. From 1997 to December 2000, he was the Sales Manager of Keith Monument Company, LLC, a wholly owned subsidiary of the Company.

Kurt M. Swenson has been President, Chief Executive Officer and Chairman of the Board of Directors of the Company since 1984. Prior to the Company's IPO in 1997, Mr. Swenson had been the Chief Executive Officer and a director of Swenson Granite Company, Inc. since 1974. Mr. Swenson currently serves as non-officer 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 American Monument Association, the National Building Granite Quarries Association and Group Polycor International and Polycor, Inc. Mr. Swenson's current term as a director will expire in 2006.

Michael B. Tule has been Vice President/General Counsel and Secretary of the Company since April 2000. From March 1996 to April 2000, he was Vice President, General Counsel and Secretary of WPI Group, Inc., a provider of diagnostic tools for commercial vehicles. Prior to 1996, Mr. Tule was a partner at the Manchester, New Hampshire law firm of McLane, Graf, Raulerson & Middleton.

Charles M. Waite has been a director of the Company since 1985. Since 1989, Mr. Waite has been managing partner of Chowning Partners, a financial consulting firm that provides consulting services to New England companies. Mr. Waite's current term as a director will expire at the 2004 annual shareholder's meeting.

Frederick E. Webster Jr., Ph.D. has been a director of the Company since October 1997. He was a Professor of Management at the Amos Tuck School of Business Administration of Dartmouth College from 1965 until 2002, and is now a Professor Emeritus. He is also a management consultant and lecturer. He is also a director of Image Max, Samuel Cabot, Inc. and Diamond Phoenix Corp.  Mr. Webster's current term as a director will expire in 2005.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires directors, certain officers and beneficial owners of more than 10% of our Common Stock file reports of initial beneficial ownership and changes in beneficial ownership of our 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 such reporting persons, we believe during fiscal year 2003 such persons made all required filings, except Mr. Schair filed a late Form 4 (Statement of Changes In Beneficial Ownership) reporting the acquisition of 20,000 shares of Class A Common Stock; and a late Form 4 reporting the acquisition of an aggregate of 18,800 shares of Class A Common Stock by a trust of which Mr. Schair is co-trustee. Mr. Schair disclaims ownership of the shares held by the trust. The late reports were the result of inadvertent clerical error.

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, Douglas M. Schair and Charles M. Waite. The Board of Directors has determined that each of James L. Fox, Chairman of the Audit Committee, and Audit Committee member Douglas M. Schair is an audit committee financial expert as defined by Item 401(h) of Regulation S-K of the Exchange Act, and is independent under Rule 10A-3(b)(1) under the Exchange Act and the applicable Rules of the National Association of Securities Dealers, Inc. within the meaning of Item 7(d)(3)(iv) of Schedule 14A of the Exchange Act. As disclosed in the table found in Item 12 of this Annual Report on Form 10-K, Mr. Schair currently owns 11.4% of the outstanding shares of Class A common stock of the Company. The board of directors of the Company has determined, based on the facts and circumstances, that Mr. Schair's stock ownership does not affect his independence or his qualifications to serve on the audit committee, particularly in view of the substantial voting power (approximately 64% of the voting power of the outstanding shares) held by Kurt M. Swenson and Kevin C. Swenson.

Rock of Ages is in the process of adopting a code of business ethics for directors, officers (including Rock of Ages' principal executive officer and principal financial and accounting officer) and employees. We expect to formally adopt the code of ethics prior to May 4, 2004. The code of business ethics will be available on Rock of Ages' website at www.rockofages.com as soon as practicable after adoption by the Board of Directors. Stockholders will also be able to request a free copy. We may satisfy the disclosure requirement under Item 10 of Form 8-K regarding an amendment to, or a waiver from, a provision of our code of ethics that applies to our principal executive officer or our principal financial and accounting officer by posting such information on our website.

ITEM 11.

 EXECUTIVE COMPENSATION

The following table sets forth information with respect to the Chief Executive Officer of the Company and each of the four other most highly compensated executive officers of the Company (the "Named Executive Officers") for the years ended December 31, 2003, December 31, 2002 and December 31, 2001.

NAME AND PRINCIPAL POSITION

YEAR

ANNUAL COMPENSATION
SALARY                   BONUS

LONG-TERM
COMPENSATION
SECURITIES
UNDERLYING OPTIONS

ALL OTHER
COMPENSATION (2)

Kurt M. Swenson

2003

$

        430,008 (1)

  $

         15,000 (1)

—

$

7,831

(3)

   Chief Executive Office and Chairman

2002

$

        420,000 (1)

$

         30,000 (1)

—

$

2,878

(3)

   of the Board of Directors

2001

$

        360,000

$

         30,000

—

$

1,200

Richard C. Kimball

2003

$

        300,000 (1)

$

         15,000 (1)

—

$

6,329

(3)

   Chief Strategic and Marketing Officer

2002

$ 

        290,016 (1)

$

         30,000 (1)

—

$

2,335

(3)

   Director

2001

$

        240,000

$

         30,000

—

$

1,200

Jon M. Gregory

2003

$

        260,004

$

         25,000

—

$

1,350

   President and Chief Operating Officer/

2002

$

        250,008

$

         50,000

60,000

$

1,250

   Quarries Division

2001

$

        230,037

$

—

$

1,259

Terry Shipp

2003

$

        235,008

$ 

              —

—

$

1,350

   Senior Vice President/

2002

$

        204,590

$

          5,000

10,000

$

1,250

   Ohio Valley and Central Region

2001

$

$

—

$

1,200

Donald Labonte

2003

$

        175,008

$

        15,000

—

$

12,031

(4)

   President and COO/

2002

$

        135,668

$

          5,000

15,000

$

8,544

(4)

   Manufacturing Division

2001

$

$ 

—

$

—

(1)

Includes $70,000 and $50,000 of salary for 2003, and $60,000 and $40,008 of salary for 2002, earned but deferred at the election of Mr. Swenson and Mr. Kimball, respectively; $15,000 of bonus on account of 2003 deferred by both in 2004, and $30,000 of bonus on account of 2002 deferred by both in 2003, pursuant to the Rock of Ages Key Employees Deferred Salary Plan ("Deferred Salary Plan").

(2)

In each case, represents or includes a matching contribution under the Company's 401(k) plan.

(3)

Includes $6,481 and $4,979 for 2003, and $1,028 and $1,085 for 2002, interest credited on deferred compensation pursuant to the Deferred Salary Plan for Mr. Swenson and Mr. Kimball, respectively, in excess of 120% of the applicable federal long-term rate.

(4)

Represents amounts 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.

STOCK OPTION GRANTS

Rock of Ages did not grant options to purchase its Class A Common Stock or Class B Common Stock to any Named Executive Officer during the 2003 fiscal year.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

None of the Named Executive Officers exercised any options during 2003.

NUMBER OF SECURITIES
UNDERLYING OPTIONS
AT DECEMBER 31, 2003

VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS
AT DECEMBER 31, 2003 (1)

 NAME

EXERCISABLE

UNEXERCISABLE

EXERCISABLE

UNEXERCISABLE

Kurt M. Swenson

0

0

$

0

$

0

Richard C. Kimball

25,000

0

$

0

$

0

Jon M. Gregory

12,000

48,000

$

0

$

0

Donald Labonte

13,000

12,000

$

8,300

$

0

Terry Shipp

17,000

8,000

$

12,450

$

0

(1)

These values are calculated using the $5.77 per share closing price of the Class A Common Stock on the NASDAQ  National Market on December 31, 2003.

PENSION PLANS

We maintain a qualified pension plan (the "Pension Plan"), and have entered into non-qualified salary continuation agreements (the "Salary Continuation Agreements") with certain of our officers, including the Named Executive Officers listed in the table on the next page. Our Pension Plan is noncontributory and provides benefits based upon length of service and final average earnings. Generally, employees age 21 with one year of continuous service are eligible to participate in the Pension Plan. The annual pension benefits shown for the Pension Plan assume a participant attains age 65 during 2003 and retires immediately. The Employee Retirement Income Security Act of 1974 places limitations on the compensation used to calculate pensions and on pensions that may be paid under federal income tax qualified plans, and some of the amounts shown on the following table may exceed the applicable limitations. Such limitations are not currently applicable to the Salary Continuation Agreements.

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