Rock of Ages is an integrated quarrier and manufacturer of granite and products manufactured from granite. During the first half 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 and normally have a year-to-date net loss at the end of the first half of the year as well.

In the first half of 2009 revenue decreased 10% to $20.4 million from $22.7 million for the same period last year, but gross profit increased 11% to $4.1 million from $3.6 million. SG&A expenses decreased 3% and unallocated corporate overhead decreased 20% to $1.7 million from $2.2 million. The net loss for the first six months of 2009 was $1.3 million or $0.18 per share compared to a loss from continuing operations of $2.4 million or $0.33 per share for the same period in 2008. The net loss for the first six months of 2008 was $2.6 million or $0.35 per share, which included a loss from discontinued operations of $142,000 or $.02 per share.

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, valuation of deferred tax assets, accounting for pensions and other post-employment benefits and valuation of 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 expenses, which are shown as a percentage of their respective segment's net revenues.

                                Three Months Ended                 Six Months Ended
                          July 4, 2009     June 28, 2008    July 4, 2009     June 28,2008
Net Revenues:
     Quarry                       47.9%             38.8%          49.3%             45.0%
     Manufacturing                52.1%             61.2%          50.7%             55.0%

      Total net                  100.0%            100.0%         100.0%            100.0%
revenues

Gross Profit:
     Quarry                       25.2%             20.8%           7.5%              6.5%
     Manufacturing                32.4%             29.9%          12.4%             23.8%

       Total gross                29.0%             26.3%          19.9%             16.0%
profit

Selling, general and
administrative
expenses:
     Quarry                        8.4%             11.1%          11.3%             12.0%
     Manufacturing                14.1%             11.7%          19.6%             16.3%
     Corporate overhead            4.8%              6.2%           8.5%              9.6%
    Effect of pension                 -                 -           0.5%                 -
 curtailment

       Total SG&A                 16.2%             17.6%          24.5%             23.9%
expenses

Income (loss) from                12.8%              8.7%          (4.6% )          (7.9%)
continuing operations
before interest and
income taxes

Other income, net                 (0.3% )           (0.4% )        (0.7% )          (0.5%)
Interest expense                   2.3%              2.5%           2.6%              3.1%

Income (loss) from                10.8%              6.6%          (6.5%  )        (10.5%)
continuing operations
before income taxes

Income tax expense                 0.9%              1.5%           0.1%              0.2%

Income (loss) from                 9.9%              5.1%          (6.6% )         (10.7%)
continuing operations

Discontinued operations               -                 -              -            (0.6%)

Net income (loss)                  9.9%              5.1%          (6.6% )         (11.3%)

Three Months Ended July 4, 2009 Compared to Three Months Ended June 28, 2008

On a consolidated basis for the three-month period ended July 4, 2009, compared to the three-month period ended June 28, 2008, revenue increased slightly, less than 1%, gross profit increased 11% and total SG&A expenses, including corporate overhead, decreased 8%. The Company reported a net profit of $1.4 million in the second quarter of 2009 compared with a profit of $727,000 for the second quarter of 2008.

Quarry Segment Analysis
Revenue in our quarry division for the three-month period ended July 4, 2009 of $6.9 million was up 24% from the three-month period ended June 28, 2008, of $5.6 million. Strong demand for our Bethel White and Salisbury Pink granites, both primarily export granites, contributed to the increase. The other quarries were either comparable or down slightly from the prior period.

Productivity improvements such as the diamond wire sawing technology and the extension of electric power lines into the Bethel quarry are showing positive results as the gross profit increased 51% or $592,000 from the same period last year.

SG&A expenses decreased 5% or $32,000 due to staffing reductions, lower bad debt expense, decreased office expenses and lower export costs due to the decrease in the euro compared to the same time last year. These decreases were somewhat offset by increased convention expenses and professional services related to an appeal of our local property taxes.

Due to all of the factors listed above, the quarry division operating income more than doubled to $1.2 million from $500,000.

Manufacturing Segment Analysis
Revenue in our manufacturing division for the three-month period ended July 4, 2009 decreased 14% or $1.3 million from the three-month period ended June 28, 2008. Most of the decrease in the manufacturing segment revenue reflected weakness in the precision products division, whose customers have been hard hit by the recession, a small decrease in mausoleum sales and the decrease in the value of the Canadian dollar relative to the U.S. dollar compared to last year at this time.

SG&A costs for the three-month period ended July 4, 2009 for the manufacturing division increased $30,000 or 3% compared to the three-month period ended June 28, 2008. This increase is due primarily to an increase in bad debt expense.

Consolidated Items
Corporate overhead, consisting of operating costs not directly related to an operating segment, decreased 22%, or $222,000, for the three-month period ended July 4, 2009 compared to the three-month period ended June 28, 2008 due to the reduction in personnel and related costs.

Other income, which includes rental income from non-operating properties, was comparable to the same period last year.

Net interest expense decreased $20,000, or 6%, for the three-month period ended July 4, 2009 compared to the three-month period ended June 28, 2008 reflecting a reduced level of debt which was offset largely by an increased interest rate which took effect in April 2009 when our lenders granted a waiver for non-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%.

Income tax expense was $135,000 for the three-month period ended July 4, 2009, compared to $223,000 for the same three-month period in 2008. The tax expense reported in both periods was entirely due to our Canadian subsidiary and is less in 2009 than 2008 due to lower net income in our Canadian subsidiary in 2009 and the effect of the decrease in the exchange rate. During the second quarter of both years we continued to fully reserve against all our U.S. deferred tax assets.

Six Months Ended July 4, 2009 Compared to Six Months Ended June 28, 2008

On a consolidated basis for the six-month period ended July 4, 2009, compared to the six-month period ended June 28, 2008, revenue decreased 10%, gross profit increased 11% and total SG&A expenses, including corporate overhead, decreased 10%. The Company reported a net loss of $1.3 million in the first six months of 2009 compared with a loss of $2.6 million for the first half of 2008.

Quarry Segment Analysis
Revenue in our quarry division for the six-month period ended July 4, 2009 of $10.0 million was down $193,000 or 2% from the six-month period ended June 28, 2008, of $10.2 million. Bethel White sales of $2.5 million in 2009 were more than double the amount of last year of $1.1 million, and all other quarries were either comparable or down from the prior year. Demand for Barre Gray, which is mainly used in monuments, was down 7% from the prior year and, due to management issues there was very little production in the quarry in the Ukraine, therefore there were no sales of Galactic Blue in the first six months of 2009 compared to $500,000 in the same period of 2008. The management issues have been addressed and we expect modest production of Galactic Blue going forward. While the Company sold its ownership interest in the Ukrainian quarry in June 2009, we continue to have exclusive rights to sell all production.

Productivity improvements such as the diamond wire sawing technology and the extension of electric power lines to the Bethel quarry are showing positive results as the gross profit increased 129% or $857,000 from the same period last year.

SG&A expenses decreased 8% or $94,000 due to staffing reductions, lower bad debt expense, decreased office expenses and lower export costs due to the decrease in the euro compared to the same time last year. These decreases were somewhat offset by increased professional services related to an appeal of our local property taxes.

Quarry division operating income increased $951,000 from a loss of $560,000 at June 28, 2008 to a profit of $391,000 at July 4, 2009.

Manufacturing Segment Analysis
Revenue in our manufacturing division for the six-month period ended July 4, 2009 decreased 17%, or $2.2 million, from the six-month period ended June 28, 2008. Most of the decrease in the manufacturing segment revenue reflected weakness in the precision products division, whose customers have been hard hit by the recession, lower sales to PKDM, the owners of our former retail division, a small decrease in mausoleum sales and the decrease in the value of the Canadian dollar relative to the U.S. dollar compared to last year at this time.

Gross profit dollars from the manufacturing division decreased 15% or $441,000 while gross profit as a percentage of manufacturing revenue increased by .7 percentage points for the six-month period ended July 4, 2009 compared to the six-month period ended June 28, 2008. The increase in the gross profit percentage is primarily the result of decreased labor and supplies costs offset by the effect of overall reduced shipments.

SG&A costs for the six-month period ended July 4, 2009 for the manufacturing division decreased slightly compared to the six-month period ended June 28, 2008. This decrease is due primarily to the decrease in the value of the Canadian dollar relative to the U.S. dollar offset largely by an increase in bad debt expense.

Consolidated Items
Corporate overhead, consisting of operating costs not directly related to an operating segment, decreased 20%, or $443,000, for the six-month period ended July 4, 2009 compared to the six-month period ended June 28, 2008 due to the reduction in personnel and related costs throughout 2008.

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 half of 2009. 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.

Other income, which includes rental income from non-operating properties, at $144,000 for the six-month period ended July 4, 2009, was 17% higher than the same period last year.

No interest expense has been allocated to discontinued operations in 2009 and $23,000 was allocated in the first half of 2008. Net interest expense, including amounts allocated to discontinued operations, decreased $194,000, or 27%, for the six-month period ended July 4, 2009 compared to the six-month period ended June 28, 2008 reflecting a reduced level of debt partially offset by an increased interest rate due to the lenders granting a waiver for non-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%.

Income tax expense was $19,000 for the six-month period ended July 4, 2009, compared to $57,000 for the same six-month period in 2008. The tax expense reported in both periods was entirely due to our Canadian subsidiary and is less in 2009 than 2008 due to lower net income in our Canadian subsidiary in 2009 and the effect of the decrease in the exchange rate. During the second quarter of both years we continued to fully reserve against all our U.S. deferred tax assets.

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, lead by CIT Business Group, which is scheduled to expire in October 2012. We rely on CIT Business Group, a subsidiary of CIT Group, Inc. ("CIT") to fund our working capital needs. Beginning in the second quarter of 2009, a number of concerns have been raised, including those by CIT, around CIT's liquidity and whether it could continue to operate without additional funding or government assistance. On July 20, 2009, CIT Group announced a restructuring plan and that it had secured $3 billion in short-term funding from private sources, although if CIT's financial condition continues to worsen or its operations are adversely affected for any reason, it may not be able to continue to honor its commitment to the Company under the credit facility.

During 2009, the Company has consistently had positive cash flow that has been used to reduce its borrowings on the line of credit. Management believes that it has adequate funds available for current operations and continues to monitor the situation closely, including discussions with the co-lender of the facility and their commitment under the facility.

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 (excluding the purchase of land and granite reserves). 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 and has been completely repaid at July 4, 2009.

Cash Flows

At July 4, 2009, we had cash and cash equivalents of $315,000 and working capital of $18.5 million, compared to $888,000 of cash and cash equivalents and working capital of $20.5 million at June 28, 2008.

Cash Flows from Operations. Net cash provided by operating activities was $6.6 million in the six-month period ended July 4, 2009 compared to $247,000 in the same six-month period of 2008. The increase in cash flow from operations is due primarily to a lower net loss in 2009, the increase in the amount of collections on accounts receivable and the decrease in inventory in the first half of 2009.

Cash Flows from Investing Activities. Cash flows used in investing activities were $2.3 million in the first six months of 2009 compared to $5.0 million provided by investing activities in the six-month period ended June 28, 2008. In 2009, we purchased property, plant and equipment (PP&E) totaling $1.2 million and land and granite reserves in Canada for $1.3 million. In the first half of 2008 we purchased $2.5 million 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 six-month period ended July 4, 2009 was $4.8 million which consisted of repayments on the long-term debt of $135,000 and net repayments on the revolving line of credit of $4.7 million. This compares to $6.3 million used in financing activities in the six-month period ended June 28, 2008 which consisted of repayments on the long-term debt of $4.7 million and net repayments on the revolving line of credit of $1.6 million.

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 $2,715,000 and $13,991,000 as of July 4, 2009 and $8,873,000 and $14,356,000 as of June 28, 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 July 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 July 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 July 4, 2009 were as follows:

                                     Amount         Formula      Effective Rate
      Revolving Credit Facility $ 2.7 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 were no borrowings outstanding as of July 4, 2009 and June 28, 2008.

Off-Balance Sheet Arrangements

With the exception of our operating leases and obligations under supply agreements, 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.