Overview

Rock of Ages is an integrated quarrier and manufacturer of granite and products manufactured from granite. During the first quarter of 2009, we had two business segments: quarry and manufacturing. The quarry division sells granite blocks to the manufacturing division and to outside manufacturers, as well as to customers outside North America. The manufacturing division's principal products are granite memorials and mausoleums used primarily in cemeteries. It also manufactures specialized granite products for industrial applications.

Historically, the Company's operations have experienced certain seasonal patterns. Generally, our net sales have been highest in the second or third quarter and lowest in the first quarter of each year due primarily to weather. Cemeteries in northern areas generally do not accept granite memorials during winter months when the ground is frozen because they cannot be properly set under those conditions. In addition, we either close or reduce the operations 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 significant net loss during the first three months of each calendar year.

In the first quarter of 2009 revenues in our quarry division decreased 33% from the same period last year. We feel the decrease was in part, a timing issue as the quarry shipments in the first and fourth quarters of 2008 were unusually strong. However, even with the decrease in revenue, the gross loss decreased 54% from the same period last year. SG&A expenses decreased 10% due to staffing reductions and other cost cutting measures. The quarry operating loss was 30% lower than the same period last year.

Revenue in our manufacturing division was $907,000 lower in the first quarter of 2009 from the same period last year. The reduction in manufacturing shipments is due to a lower beginning backlog to start the year. As a result the gross profit for the first quarter of 2009 was $250,000 lower than the same period last year. SG&A expenses were comparable with last year. The manufacturing operating loss was $214,000 higher than last year's first quarter.

Critical Accounting Policies

General

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

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

Our critical accounting policies are as follows: revenue recognition, impairment of long-lived assets and long-term investments, valuation of deferred tax assets, accounting for pensions and other post-employment benefits and excess inventory. There have been no material changes in the Company's critical accounting policies or changes in the methodology applied by management for critical accounting policies from what was previously disclosed in our most recent Form 10-K.

Results of Operations
The following table sets forth certain statement of operations data as a
percentage of total net revenues with the exception of quarry and manufacturing
gross profit and SG&A, which are shown as a percentage of their respective
segment's net revenues.




                                                        Three Months Ended
                                                 April 4, 2009     March 29, 2008

Net Revenues:
         Quarry                                           52.6%              55.6%
         Manufacturing                                    47.4%              44.4%

          Total net revenues                             100.0%             100.0%

Gross Profit (Loss):
         Quarry                                           (7.2% )           (10.5% )
         Manufacturing                                     3.7%               9.6%

           Total gross profit (loss)                      (2.0% )            (1.6% )

Selling, general and administrative expenses:
         Quarry                                           17.5%              13.0%
         Manufacturing                                    34.4%              27.0%
         Corporate overhead                               17.5%              15.3%
         Effect of pension curtailment                     1.6%                  -

            Total SG&A expenses                           44.6%              34.6%

Loss from continuing operations before                   (46.6% )           (36.2% )
interest and income taxes

Other income, net                                         (1.5% )            (0.8% )
Interest expense                                           3.5%               4.3%

      Loss from continuing operations before income taxes   (48.6% ) (39.7% )

      Income tax benefit                                     (1.9% )  (2.0% )

      Loss from continuing operations                       (46.7% ) (37.7% )

      Discontinued operations                                    -    (1.7% )

      Net loss                                              (46.7% ) (39.4% )

Three Months Ended April 4, 2009 Compared to Three Months Ended March 29, 2008

On a consolidated basis for the three-month period ended April 4, 2009, compared to the three-month period ended March 29, 2008, revenue decreased 29%, gross loss decreased 10% and total SG&A expenses decreased 9%. The Company reported a net loss of $2.8 million in the first quarter of 2009 compared with a loss of $3.3 million for the first quarter of 2008.

Quarry Segment Analysis

Revenue in our quarry division for the three-month period ended April 4, 2009 of $3.1 million was down 33% from the three-month period ended March 29, 2008, of $4.7 million. We feel the decrease was in part, a timing issue as the quarry shipments in the first quarter of 2008 were unusually strong. The shipments in the first quarter of 2009 are on par with where we expected them to be. SG&A expenses decreased 10% due to staffing reductions and other cost cutting measures. The quarry operating loss was 30% lower than the same period last year.

The productivity improvements such as the diamond wire sawing technology which were implemented in 2008 are showing positive results as even with the decrease in revenue, the gross loss decreased 54% or $265,000 from the same period last year.

SG&A expenses decreased 10% or $62,000 due to staffing reductions, decreased travel costs and lower bad debt expense.

Manufacturing Segment Analysis

Revenue in our manufacturing division for the three-month period ended April 4, 2009 decreased 24% or $907,000 from the three-month period ended March 29, 2008, primarily due to the lower backlog to begin the year. Due to the decreased backlog, we increased the winter layoff period for the manufacturing production personnel to improve efficiency.

Gross profit dollars from the manufacturing division decreased 71% or $252,000 and gross profit as a percentage of manufacturing revenue decreased by 6 percentage points for the three-month period ended April 4, 2009 compared to the three-month period ended March 29, 2008. These decreases were primarily the result of the overall reduced shipments due to the lower beginning backlog.

SG&A costs for the three-month period ended April 4, 2009 for the manufacturing division decreased $38,000 or 4% compared to the three-month period ended March 29, 2008. This decrease is due primarily to the decrease in the average Canadian exchange rate.

Consolidated Items

Corporate overhead, consisting of operating costs not directly related to an operating segment, decreased 19%, or $246,000, for the three-month period ended April 4, 2009 compared to the three-month period ended March 29, 2008 due to the reduction in personnel and related costs throughout 2008. Because audit and related fees are disproportionately incurred in the first quarter, we expect lower quarterly unallocated corporate overhead expenses for the balance of 2009.

Other income, which includes rental income from non-operating properties, was up 38%, or $24,000, in the first quarter of 2009.

Effective March 31, 2009 the Company's defined benefit pension plan was amended by freezing membership and future benefits in the plan. Accordingly, we recognized an additional pension expense of $95,000 as the effect of the pension curtailment in the first quarter. If the pension plan had not been frozen, the pension expense for the year would have been $1.3 million. Because the plan was frozen, the 2009 pension expense will be $760,000, which includes the $95,000 expense for the effect of the curtailment.

No interest expense has been allocated to discontinued operations in 2009 and $23,000 was allocated in the first quarter of 2008. Net interest expense, including amounts allocated to discontinued operations, decreased $175,000, or 46%, for the three-month period ended April 4, 2009 compared to the three-month period ended March 29, 2008 reflecting debt repayments in January 2008 from the proceeds of the sale of the retail division and further reductions in debt throughout the year. On March 30, 2009, we reached a definitive agreement with our lenders on the conditions of the grant of a waiver from compliance with certain covenants contained in our Amended and Restated Financing Agreement. In consideration of the consents and waivers the unused line fee went from .25% to .50% and the existing interest rate pricing grid was changed and interest rates increased approximately 3%. We expect this will increase our interest expense around $400,000 for the year but due to the decreased level of debt interest expense will most likely not exceed the amount reported in 2008.

Income tax benefit was $116,000 for the three-month period ended April 4, 2009, compared to $166,000 for the same three-month period in 2008. The tax benefit reported in both periods was entirely due to our Canadian subsidiary and is less in 2009 than 2008 due to a larger first quarter loss in our Canadian subsidiary in 2008 and the effect of the decrease in the exchange rate. During the first quarter of both years we continued to fully reserve against all our U.S. deferred tax assets.

We had a loss from discontinued operations of $142,000 in the first quarter of 2008. This loss is made up of $119,000 of operating losses of the retail division that was sold on January 17, 2008 plus $23,000 of interest allocated to the discontinued operations.

Liquidity and Capital Resources

Historically, we have met our short-term liquidity requirements primarily from cash generated by operating activities and periodic borrowings under the commercial credit facilities described below. Our $50 million credit facility with our Lenders was renewed on October 24, 2007 for a term of five years.

We have historically contributed between $800,000 and $1.0 million per year to the defined benefit pension plan. The Company is not required to make any contribution in 2009, however we expect to contribute $750,000 to the defined benefit plan this year, which, we believe, we will be able to fund either from cash from operations or borrowing under our credit facilities. See note 9 of the Notes to Unaudited Consolidated Financial Statements.

Our primary need for capital will be to maintain and improve our quarry and manufacturing facilities. We have approximately $2.1 million planned for capital expenditures in 2009. We believe we will be able to fund these capital expenditures either from cash from operations or borrowings under our credit facilities.

On April 17, 2009, ROA Canada signed an Asset Purchase Agreement and completed the purchase of the real and personal property comprising the Polycor Stanstead Quarry, located in Stanstead, Quebec, Canada from Carrieres Polycor, Inc. ("Polycor"). The purchase price for the quarry, building and inventory was $1.3 million CDN. This purchase was funded by ROA Canada's line of credit with the Royal Bank of Canada.

In January 2008, we received $7.7 million in net proceeds from the sale of the retail division. We applied $4.5 million of these proceeds to the long-term debt and $3.2 million to the revolving credit facility.

Cash Flows

At April 4, 2009, we had cash and cash equivalents of $589,000 and working capital of $18 million, compared to $1.1 million of cash and cash equivalents and working capital of $20.5 million at March 29, 2008.

Cash Flows from Operations. Net cash provided by operating activities was $2.6 million in the three-month period ended April 4, 2009 compared to net cash used of $2.4 million in the same three-month period of 2008. The increase in cash flow from operations is due primarily to a lower net loss in 2009 and the increase in the amount of collections on accounts receivable in the first quarter of 2009.

Cash Flows from Investing Activities. Cash flows used in investing activities were $281,000 in the first quarter of 2009 compared to $7.1 million provided by investing activities in the three-month period ended March 29, 2008. In 2009, we purchased property, plant and equipment (PP&E) totaling $399,000 less $118,000 received on sales of assets. In the first quarter of 2008 we purchased $422,000 of PP&E and paid the remainder of $179,000 for a customer list in Canada which was offset by proceeds from the sale of the retail division totaling $7.7 million. Cash used in investing activities comes from either borrowings under our credit facilities or from operations.

Cash Flows from Financing Activities. Net cash used in financing activities in the three-month period ended April 4, 2009 was $2.6 million which consisted of repayments on the long-term debt of $126,000 and net repayments on the revolving line of credit of $2.5 million. This compares to $5.5 million used in financing activities in the three-month period ended March 29, 2008 which consisted of repayments on the long-term debt of $4.6 million, net repayments on the revolving line of credit of $862,000 and increased debt issuance costs of $24,000.

CIT Credit Facility

We have a credit facility with the CIT Group/Business Credit and Chittenden Trust Company (the "Lenders") that is scheduled to expire in October 2012 and is secured by substantially all assets of the Company located in the United States. The facility consists of an acquisition term loan line of credit of up to $30.0 million and a revolving credit facility of up to another $20.0 million based on eligible accounts receivable, inventory and certain fixed assets. Amounts outstanding were $4,961,000 and $13,991,000 as of April 4, 2009 and $9,637,000 and $14,356,000 as of March 29, 2008 on the revolving credit facility and the term loan line of credit, respectively. The credit facility financing agreement places restrictions on our ability to, among other things, sell assets, participate in mergers, incur debt, pay dividends, make capital expenditures, repurchase stock and make investments or guarantees, without pre-approval by the Lenders. The financing agreement also contains certain covenants for a Minimum Fixed Charge Coverage Ratio (the "Ratio") and a limit on the Total Liabilities to Net Worth Ratio of the Company. Due to the non-cash impairment charges on the write-down of inventory and the corporate building, we were in violation of the fixed charge coverage ratio covenant at December 31, 2008. We received a waiver of this covenant from the Lenders and amended the agreement as of March 30, 2009.

Minimum Fixed Charge Coverage Ratio. The credit facility requires the ratio of the sum of earnings before interest, taxes, depreciation and amortization (EBITDA), to the sum of income taxes paid, capital expenditures, interest and scheduled debt repayments be at least 1.10 for the trailing twelve-month period at the end of each quarter. The Company was in compliance with the Ratio covenant at April 4, 2009.

Total Liabilities to Net Worth Ratio. The credit facility also requires that the ratio of our total liabilities to net worth (the "Leverage Ratio") not exceed 2.25 for the first two quarters of 2009 and 2.00 for the remainder of the term of the loan. The Leverage Ratio excludes from the calculation the change in tangible net worth directly resulting from the Company's compliance with SFAS No. 158 of $6.0 million. In relevant part, SFAS No. 158 required us to place on our books certain unrecognized and unfunded retirement liabilities beginning December 31, 2006. As of April 4, 2009, we were in compliance with the Leverage Ratio covenant.

Interest Rates. We can elect the interest rate under the credit facility based on the prime rate or LIBOR for both the revolving credit facility and the term loan. The revolving credit facility's rate is based on Prime plus 3% or LIBOR plus 4% with a 2% floor for LIBOR. The term loan's rate is based on Prime plus 3.5% or LIBOR plus 4.5% with a 2% floor for LIBOR.

The rates in effect as of April 4, 2009 were as follows:

                                     Amount         Formula      Effective Rate
      Revolving Credit Facility $ 5.0 million    Prime + 3.00%       6.25%
      Term Loan                   14.0 million   Prime + 3.50%       6.75%

Canadian Credit Facility

The Company's Canadian subsidiary has a line of credit agreement with the Royal Bank of Canada that is renewable annually. Under the terms of this agreement, a maximum of $4.0 million CDN may be advanced based on eligible accounts receivable, eligible inventory, and tangible fixed assets. The line of credit bears interest at the U.S. prime rate. There was -0- outstanding as of April 4, 2009 and March 29, 2008.

Off-Balance Sheet Arrangements

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