<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: October 2, 1999
----------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from:_________to _______________
Commission file number: 333-37135
---------------------
Omega Cabinets, Ltd.
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(Exact name of registrant as specified in its charter)
Delaware 42-1423186
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(State or other jurisdiction (I.R.S. Employer
incorporation or organization Identification Number)
1205 Peters Drive, Waterloo, Iowa 50703
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(Address of principal executive offices)
(Zip Code)
(319) 235-5700
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(Registrants telephone number, including area code)
Not Applicable.
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [x] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ ] No [ ] Not Applicable.
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date. Not Applicable.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The following financial statements are presented herein:
Condensed Consolidated Balance Sheets as of October 2, 1999
and January 2, 1999
Condensed Consolidated Statements of Income for the three
months and nine months ended October 2, 1999 and September 26, 1998
Condensed Consolidated Statements of Cash Flows for the nine
months ended October 2, 1999 and September 26, 1998
Notes to Condensed Consolidated Financial Statements
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<PAGE>
Omega Cabinets, Ltd.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
October 2 January 2
1999 1999
(Unaudited) (Note)
------------- -------------
<S> <C> <C>
Assets
Current assets:
Cash $ 1,879,597 $ 650,703
Accounts receivable 27,613,632 13,788,890
Inventories (Note 2) 18,849,821 11,764,729
Other current assets 2,059,315 1,637,794
------------ ------------
Total current assets 50,402,365 27,842,116
Property, plant and equipment 54,361,146 36,439,585
Less accumulated depreciation 10,098,024 7,602,297
------------ ------------
44,263,122 28,837,288
Deferred financing costs, net 7,396,845 5,360,388
Goodwill, net 93,528,686 51,418,582
Other assets 865,440 749,389
------------ ------------
Total assets $196,456,458 $114,207,763
============ ============
Liabilities and stockholder's equity (deficit)
Current liabilities:
Accounts payable and accrued expenses $ 26,688,409 $ 11,511,438
Current portion of long-term debt 12,238,178 11,105,324
------------ ------------
Total current liabilities 38,926,587 22,616,762
Deferred income taxes 3,122,834 1,150,000
Long-term debt, less current portion 163,511,438 130,750,000
Stockholder's equity (deficit):
Common stock, $.01 par value; 10,000 shares
authorized; 1,000 shares issued and outstanding 10 10
Additional paid-in capital 79,752,443 61,072,025
Predecessor basis adjustment (11,031,662) (11,031,662)
Foreign currency translation adjustment (1,021,938) --
Retained earnings (deficit) (76,803,254) (90,349,372)
------------ ------------
Total stockholder's equity (deficit) ( 9,104,401) (40,308,999)
------------ ------------
Total liabilities and stockholder's equity (deficit) $196,456,458 $114,207,763
============ ============
</TABLE>
Note: The balance sheet at January 2, 1999 has been derived from the audited
financial statements at that date but does not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying notes.
-3-
<PAGE>
Omega Cabinets, Ltd.
Condensed Consolidated Statements of Income (Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
October 2 September 26 October 2 September 26
1999 1998 1999 1998
------------------------------ -------------------------------
<S> <C> <C> <C> <C>
Net sales $72,576,330 $43,027,044 $205,070,491 $124,786,461
Cost of goods sold 50,905,579 30,436,316 144,384,419 89,446,442
-------------------------------- --------------------------------
Gross profit 21,670,751 12,590,728 60,686,072 35,340,019
Selling, general and
administrative expenses 8,519,505 5,151,219 23,566,558 15,029,185
Amortization of goodwill 640,174 359,920 1,824,628 1,079,760
-------------------------------- --------------------------------
Operating income 12,511,072 7,079,589 35,294,886 19,231,074
Interest expense 4,489,402 3,689,899 13,185,970 11,436,596
-------------------------------- --------------------------------
Income before income
taxes 8,021,670 3,389,690 22,108,916 7,794,478
Income tax expense 3,151,687 1,288,000 8,562,826 2,974,000
-------------------------------- --------------------------------
Net income $ 4,869,983 $ 2,101,690 $ 13,546,090 $ 4,820,478
================================ ================================
</TABLE>
See accompanying notes.
-4-
<PAGE>
Omega Cabinets, Ltd.
Condensed Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Nine months ended
October 2 September 26
1999 1998
-----------------------------
<S> <C> <C>
Operating activities
Net income $ 13,546,090 $ 4,820,478
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 5,116,516 3,430,797
Noncash stock option expense 205,000 -
Deferred income taxes 1,230,000 1,300,000
Changes in operating assets and liabilities:
Accounts receivable (6,926,506) (2,563,439)
Inventories (2,671,788) (530,070)
Other assets (260) 1,989,950
Accounts payable, accrued expenses and other liabilities
8,083,741 3,002,659
-----------------------------
Net cash provided by operating activities 18,582,793 11,450,375
Investing activities
Purchases of property, plant and equipment (8,639,260) (1,984,104)
Payments for acquisition of business (54,250,653) -
-----------------------------
Net cash used in investing activities (62,889,913) (1,984,104)
Financing activities
Payments for deferred financing costs (2,787,463) (239,456)
Payments of long-term debt (13,239,146) (8,000,000)
Proceeds from long-term debt 43,062,408 1,380,000
Capital contributions by parent 18,681,060 118,627
Payment to parent to redeem common stock and options at parent level
(102,821) (2,605,236)
-----------------------------
Net cash provided (used) by financing activities 45,614,038 (9,346,065)
Effect of foreign exchange rate changes on cash (78,024) -
-----------------------------
Net increase in cash 1,228,894 120,206
Cash at beginning of period 650,703 157,520
-----------------------------
Cash at end of period $ 1,879,597 $ 277,726
=============================
</TABLE>
See accompanying notes.
-5-
<PAGE>
Omega Cabinets, Ltd.
Notes to Condensed Consolidated
Financial Statements (Unaudited)
October 2, 1999
1. Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and nine month periods ended October 2, 1999 are
not necessarily indicative of the results that may be expected for the full 1999
fiscal year. For further information, refer to the Company's consolidated
financial statements and footnotes thereto for the year ended January 2, 1999.
2. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
October 2 January 2
1999 1999
------------ ------------
<S> <C> <C>
Raw materials $ 8,271,889 $ 4,541,976
Work-in-process 6,861,258 4,837,431
Finished goods 3,716,674 2,385,322
----------- -----------
$18,849,821 $11,764,729
=========== ===========
</TABLE>
-6-
<PAGE>
3. Acquisition
On January 29, 1999, the Company acquired Kitchen Craft of Canada, Ltd.
("Kitchen Craft") for a purchase price of approximately $54 million. The
transaction was accounted for as a purchase. The accounts and transactions of
Kitchen Craft are included in the accompanying condensed consolidated financial
statements from the date of acquisition. As more fully described in the
Form 10-K, the acquisition was financed by additional equity and long-term debt,
primarily senior bank term loans payable over approximately six years. Pro forma
results, assuming the acquisition had occurred at the beginning of fiscal 1998,
are as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended Nine months ended
----------------------------- -----------------------------
October 2 September 26 October 2 September 26
1999 1998 1999 1998
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Net sales $72,576 $61,680 $210,584 $176,119
Net income 4,870 3,158 13,925 6,544
</TABLE>
4. Comprehensive Income
Comprehensive income was $4,929,203 and $2,101,690 for the three months ended
October 2, 1999 and September 26, 1998, respectively, and $12,524,152 and
$4,820,478 for the nine months ended October 2, 1999 and September 26, 1998,
respectively.
5. Guarantor and Non-guarantor Subsidiaries
The Company's senior subordinated notes in aggregate principal amount of $100
million are fully and unconditionally guaranteed by Panther Transport, Inc.
("Panther"), the Company's only wholly-owned subsidiary prior to 1999. Separate
financial statements or summarized financial information for Panther have not
been presented since its operations are inconsequential and its accounts and
transactions represent less than 1% of each of the consolidated total assets,
liabilities, equity, net sales, operating income, and net income of the Company.
Management believes that the separate financial statements and summarized
financial information of Panther are not material to investors.
-7-
<PAGE>
Omega Cabinets, Ltd.
Notes to Condensed Consolidated
Financial Statements (Unaudited) (continued)
5. Guarantor and Non-guarantor Subsidiaries (continued)
Beginning in fiscal 1999 as a result of the Kitchen Craft acquisition, the
Company also has two wholly-owned subsidiaries which do not guarantee the senior
subordinated notes. These non-guarantor subsidiaries generally comprise the
Kitchen Craft business. Set forth below are consolidating condensed financial
statements as of and for the three and nine months ended October 2, 1999, which
separately reflect the combined non-guarantor subsidiaries (amounts in
thousands):
<TABLE>
<CAPTION>
The Non-guarantor
Company* Subsidiaries Eliminations Consolidated
--------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Condensed Consolidating Balance Sheet
Current assets:
Cash $ 1,062 $ 818 $ - $ 1,880
Accounts receivable 19,231 8,383 - 27,614
Inventories 14,378 4,472 - 18,850
Other 1,382 677 - 2,059
-------- ------- -------- --------
Total current assets 36,053 14,350 - 50,403
Property, plant and equipment, net 34,025 10,238 - 44,263
Goodwill, net 50,847 42,682 - 93,529
Other noncurrent assets 46,524 524 (38,787) 8,261
-------- ------- -------- --------
Total assets $167,449 $67,794 $(38,787) $196,456
======== ======= ======== ========
Current liabilities:
Accounts payable and accrued expenses $ 18,991 $ 7,914 $ (216) $ 26,689
Current portion of long-term debt 10,239 1,999 - 12,238
-------- ------- -------- --------
Total current liabilities 29,230 9,913 (216) 38,927
Long-term debt, less current portion 150,507 38,004 (25,000) 163,511
Other noncurrent liabilities 2,380 743 - 3,123
Total stockholder's equity (deficit) (14,668) 19,134 (13,571) (9,105)
-------- ------- -------- --------
Total liabilities and stockholder's
equity (deficit) $167,449 $67,794 $(38,787) $196,456
======== ======= ======== ========
</TABLE>
* Includes Panther which is inconsequential as described above.
-8-
<PAGE>
Omega Cabinets, Ltd.
Notes to Condensed Consolidated
Financial Statements (Unaudited) (continued)
5. Guarantor and Non-guarantor Subsidiaries (continued)
<TABLE>
<CAPTION>
Three months ended October 2, 1999
-----------------------------------------------------
The Non-guarantor
Company Subsidiaries Eliminations Consolidated
-----------------------------------------------------
Condensed Consolidating Statement of Income
<S> <C> <C> <C> <C>
Net sales $49,122 $23,454 $ - $72,576
Cost of goods sold 36,259 14,646 - 50,905
-----------------------------------------------------
Gross profit 12,863 8,808 - 21,671
Selling, general and administrative
expenses 5,815 3,345 - 9,160
Interest expense 3,668 821 - 4,489
-----------------------------------------------------
Income before income taxes 3,380 4,642 - 8,022
Income tax expense 1,290 1,862 - 3,152
-----------------------------------------------------
Net income $ 2,090 $ 2,780 - $ 4,870
=====================================================
<CAPTION>
Nine months ended October 2, 1999
-----------------------------------------------------
The Non-guarantor
Company Subsidiaries Eliminations Consolidated
-----------------------------------------------------
Condensed Consolidating Statement of Income
<S> <C> <C> <C> <C>
Net sales $146,803 $58,267 $ - $205,070
Cost of goods sold 107,187 37,197 - 144,384
-----------------------------------------------------
Gross profit 39,616 21,070 - 60,686
Selling, general and administrative
expenses 17,614 7,777 - 25,391
Interest expense 10,864 2,322 - 13,186
-----------------------------------------------------
Income before income taxes 11,138 10,971 - 22,109
Income tax expense 4,178 4,385 - 8,563
-----------------------------------------------------
Net income $ 6,960 $ 6,586 $ - $ 13,546
=====================================================
</TABLE>
-9-
<PAGE>
5. Guarantor and Non-guarantor Subsidiaries (continued)
<TABLE>
<CAPTION>
Condensed Consolidating Statement of Cash Flows
Operating activities:
<S> <C> <C> <C> <C>
Net cash provided by operating $ 11,741 $ 6,842 $ - $ 18,583
activities
Investing activities:
Purchases of property, plant and
equipment (7,160) (1,479) - (8,639)
Payments for acquisition of business (516) (53,735) - (54,251)
-------------------------------------------
Net cash used in investing activities (7,676) (55,214) (62,890)
Financing activities:
Proceeds from long-term debt 25,000 15,727 - 40,727
Capital contributions, net of
redemptions 17,269 12,746 (13,571) 16,444
Intercompany funding (37,583) 24,012 13,571 -
Payments of long-term debt (6,108) (2,661) - (8,769)
Payments for deferred financing costs (2,231) (557) - (2,788)
-------------------------------------------
Net cash provided by (used in) financing
activities (3,653) 49,267 - 45,614
Effect of foreign exchange - (78) - (78)
-------------------------------------------
Net increase in cash 412 817 1,229
Cash at beginning of period 651 - - 651
-------------------------------------------
Cash at end of period $ 1,063 $ 817 $ - $ 1,880
===========================================
</TABLE>
-10-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
General
The following discussion should be read in conjunction with the
accompanying Condensed Consolidated Financial Statements for the period ended
October 2, 1999 and the Company's audited consolidated financial statements and
Annual Report on Form 10-K for the year ending January 2, 1999.
1999 Kitchen Craft Acquisition
On January 29, 1999, the Company consummated the acquisition of Kitchen
Craft of Canada, Ltd. ("Kitchen Craft") as further described in the Notes to
Condensed Consolidated Financial Statements. The acquisition was accounted for
as a purchase, with Kitchen Craft consolidated with the Company effective from
the acquisition date forward. Accordingly, the Company's results of operations
for the third quarter of fiscal 1999 reflect eight months of results of Kitchen
Craft.
Results of Operations
Net Sales for the three months ended October 2, 1999 ("third quarter 1999") were
$72.6 million compared to $43.0 million for the comparable period in 1998
("third quarter 1998"), an increase of 68.7%. This increase was primarily
attributable to the addition of Kitchen Craft, strong consumer spending on
remodeling projects, and robust new housing starts. Net sales for Kitchen Craft
for third quarter 1999 were $23.5 million and were not included in 1998 results.
For the first nine months of 1999, net sales were $205.1 million compared to
$124.8 million for the comparable period in 1998 ("first nine months of 1998"),
an increase of 64.3%. Net sales for Kitchen Craft for the first nine months of
1999 were $58.3 million and were not included in 1998 results. Net sales of the
Omega lines (custom and semi-custom cabinetry and bath vanities) were $22.4
million in the third quarter 1999 compared to $20.1 million for the third
quarter 1998, an increase of 11.3%, primarily attributable to higher sales of
custom cabinetry. For the first nine months of 1999, net sales of the Omega
lines were $67.4 million compared to $60.6 million for the first nine months of
1998, an increase of 11. 1%. This increase was driven by new custom cabinetry
dealers who produced strong sales results, increased Omega exposure as a result
of new Home Depot EXPO Design Center openings, and strong remodeling spending.
Net sales of HomeCrest stock cabinetry were $26.7 million in the third quarter
1999 compared to $22.9 million in third quarter 1998, an increase of 16.7%.
Strong sales to existing dealers, impact of sales by new dealers, and strong new
housing starts drove this growth. For the first nine months of 1999 net sales
of HomeCrest stock cabinetry were $79.4 million compared to $64.1 million for
the first nine months of 1998, an increase of 23.9%.
Gross Profit for the third quarter 1999 was $21.7 million compared to $12.6
million for the third quarter 1998, an increase of 72.1%. As a percentage of
net sales, gross profit increased to 29.9% in the third
-11-
<PAGE>
quarter 1999 from 29.3% in third quarter 1998, primarily as a result of the
Kitchen Craft acquisition and higher selling prices at every division, which was
partly offset by additional hiring and training expenses at HomeCrest to support
extraordinary growth and start-up costs related to Omega's new rough mill
facility. Kitchen Craft realized the highest gross profit percentage at 37.6%.
Omega's and HomeCrest's combined gross profit percentage for third quarter 1999
was 26.2% compared to 29.3% for third quarter 1998 as a result of additional
hiring and training expenses at HomeCrest and start-up costs related to Omega's
new rough mill facility. For the first nine months of 1999, gross profit was
$60.7 million compared to $35.3 million for the first nine months of 1998, an
increase of 71.7%. As a percentage of net sales, gross profit increased to 29.6%
in the first nine months of 1999 compared to 28.3% in the first nine months of
1998 primarily as a result of the Kitchen Craft acquisition, though partly
offset by modestly lower gross margins at both HomeCrest and Omega as discussed
previously.
Selling, General and Administrative Expenses for the third quarter 1999 were
$8.5 million compared to $5.2 million for the third quarter 1998, an increase of
65.4%. The increase of $3.4 million is primarily attributable to Kitchen Craft
expenses of $3.1 million, which were not included in 1998 results, higher sales
commissions related to revenue growth, and $0.2 million related to non-cash
stock option expense, partly offset by $0.5 million of non-recurring expenses
incurred during third quarter 1998 related to a broken acquisition deal. As a
percentage of net sales, selling, general and administrative expenses declined
to 11.7% in the third quarter 1999 from 12.0% in the third quarter 1998,
primarily due to non-recurring costs in 1998 supporting various sales growth
initiatives. For the first nine months of 1999, selling, general and
administrative expenses were $23.6 million compared to $15.0 million for the
first nine months of 1998, an increase of 56.8%. The increase of $8.5 million
was primarily attributable to Kitchen Craft expenses of $7.0 million, higher
sales commissions related to revenue growth, and $0.2 million non-cash stock
option expense, partly offset by the 1998 broken deal costs. As a percentage of
net sales, selling, general and administrative expenses declined to 11.5% for
the first nine months of 1999 from 12.0% for the first nine months of 1998.
Operating Income for the third quarter 1999 was $12.5 million compared to $7.1
million for the third quarter of 1998, an increase of 76.7%. As a percentage of
sales, operating income increased to 17.2% for the third quarter 1999 from 16.5%
for the third quarter 1998, primarily attributable to the addition of Kitchen
Craft, sales price increases, and aggressive overhead cost control. For the
first nine months of 1999, operating income was $35.3 million compared to $19.2
million for first nine months of 1998, an increase of 83.5%. As a percentage of
sales, operating income increased to 17.2% for the first nine months of 1999
compared to 15.4% for the first nine months of 1998.
Interest Expense for the third quarter 1999 was $4.5 million compared to $3.7
million for the third quarter 1998, an increase of 21.7%, primarily due to
increased borrowings associated with the Kitchen Craft acquisition, which was
partly offset by lower interest rates on senior debt. For the nine months of
1999, interest expense was $13.2 million compared to $11.4 million for the first
nine months of 1998, an increase of 15.3%. During September 1999, the Company
realized a 75 basis point reduction in senior debt interest as a result of
attaining certain debt coverage levels.
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<PAGE>
Income Taxes for the third quarter 1999 reflected an effective tax rate of 39.3%
compared to 38.0% for the third quarter 1998. For the first nine months of
1999, the effective tax rate was 38.7% compared to 38.2% for the first nine
months of 1998. The increase was attributable to a slightly higher effective
tax rate at Kitchen Craft.
Net Income for the third quarter 1999 was $4.9 million compared to $2.1 million
for the third quarter 1998, primarily attributable to the Kitchen Craft addition
as well as other factors described above. For the first nine months of 1999,
net income was $13.5 million compared to $4.8 million for the first nine months
of 1998.
Results of Operations -- Pro Forma
The historical consolidated results discussed above include Kitchen Craft
results only since the January 29, 1999 acquisition date. To provide more
insight into the underlying performance of the consolidated group, a pro forma
summary for third quarter and first nine months are shown below treating Kitchen
Craft as if it has been acquired prior to 1998.
<TABLE>
<CAPTION>
Third Third
Quarter Quarter
1999 1998 Increase TTM(1)
-------- -------- --------- -----------
<S> <C> <C> <C> <C>
Net Sales:
Omega/HomeCrest $ 49.1 $ 43.0 14.2% $191.2
Kitchen Craft 23.5 18.7 25.7% 82.2
------ ------ --------
Consolidated $ 72.6 $ 61.7 17.7% $273.4
====== ====== ========
EBITDA(2):
Omega/HomeCrest $ 8.2 $ 8.7 -5.1% $ 33.6
Kitchen Craft 6.1 3.5 71.0% 18.5
------ ------ --------
Consolidated $ 14.3 $ 12.2 17.0% $ 52.1
====== ====== ========
EBITDA Margin(2):
Omega/HomeCrest 16.7% 20.1% 17.6%
Kitchen Craft 25.8% 19.0% 22.4%
Consolidated 19.7% 19.8% 19.0%
First 9 First 9
Months Months
1999 1998 Increase
---- ---- --------
Net Sales:
Omega/HomeCrest $146.8 $124.8 17.6%
Kitchen Craft 63.8 51.3 24.2%
------ ------
Consolidated $210.6 $176.1 19.6%
====== ======
EBITDA(2):
Omega/HomeCrest $ 25.6 $ 23.0 11.0%
</TABLE>
-13-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Kitchen Craft 14.7 7.7 89.2%
------ ------
Consolidated $ 40.2 $ 30.8 30.7%
====== ======
EBITDA Margin (2):
Omega/HomeCrest 17.4% 18.4%
Kitchen Craft 23.0% 15.1%
Consolidated 19.1% 17.5%
</TABLE>
____________
(1) Trailing twelve months through third quarter 1999.
(2) EBITDA Margin represents EBITDA as a percentage of net sales. EBITDA
represents income from operations before interest expense (including
amortization of deferred financing costs), income taxes, depreciation, and
amortization of goodwill. EBITDA is presented because it is a widely
accepted financial indicator of a leveraged company's ability to service
and/or incur indebtedness and because management believes that EBITDA is a
relevant measure of the Company's ability to generate cash without regard to
the Company's capital structure or working capital needs. EBITDA as
presented may not be comparable to similarly titled measures used by other
companies, depending upon the non-cash charges included. When evaluating
EBITDA, investors should consider that EBITDA (i) should not be considered
in isolation but together with other factors which may influence operating
and investing activities, such as changes in operating assets and
liabilities and purchase of property and equipment, (ii) is not a measure of
performance calculated in accordance with generally accepted accounting
principles, (iii) should not be construed as an alternative or substitute
for income from operations, net income or cash flows from operating
activities in analyzing the Company's operating performance, financial
position or cash flows and (iv) should not be used as an indicator of the
Company's operating performance or as a measure of its liquidity.
Pro Forma Net Sales for third quarter 1999 were $72.6 million compared with
$61.7 million for third quarter 1998, an increase of 17.7%. All three divisions
experienced double-digit sales growth driven by strong new construction and
sales of existing homes as well as the introduction of new products and an
increase in selling locations. For the first nine months of 1999, pro forma net
sales were $210.6 million compared to $176.1 million for the first nine months
of 1998, an increase of 19.6%. Kitchen Craft sales to the U.S. market increased
45% during first nine months of 1999 compared to first nine months of 1998,
driven by strong growth at existing dealers, the addition of new selling
locations, and an increase in cabinet average selling price. Kitchen Craft
Sales to the Canadian market increased 5% as lower margin project business was
pruned and cabinet prices increased.
Pro Forma EBITDA for the third quarter 1999 was $14.3 million compared with
$12.2 million for the third quarter 1998, an increase of 17.0%. As a percentage
of net sales, EBITDA was 19.7% during the third
-14-
<PAGE>
quarter 1999, similar to the third quarter 1998. Kitchen Craft EBITDA and
percent to sales increased dramatically during the third quarter 1999 compared
to the third quarter 1998, primarily as a result of higher sales of semi-custom
cabinetry to U.S. dealers that have substantially higher margins than stock
cabinetry sales in Canada. Both the Omega and HomeCrest divisions experienced
EBITDA margin declines resulting from additional hiring and training expenses at
HomeCrest to support growth and start-up costs at Omega related to a new rough
mill facility. For the first nine months of 1999, EBITDA was $40.2 million
compared to $30.8 million for the first nine months of 1998, an increase of
30.7%. EBITDA margin increased to 19.1% compared to 17.5% during first nine
months of 1998.
Liquidity and Capital Resources
The Company's primary cash needs are working capital, capital expenditures
and debt service. The Company has financed these cash requirements primarily
through internally generated cash flow and funds borrowed under the Company's
credit facilities.
Net cash provided by operating activities for the first nine months of 1999
was $18.6 million as compared to $11.5 million for the first nine months of
1998. The increase of $7.1 million was driven primarily by an 8.7% million
increase in net income resulting from the Kitchen Craft acquisition and strong
operating performance, partly offset by higher working capital to support
revenue growth.
The Company used cash in investing activities of $62.9 million in the first
nine months of 1999 compared to $2.0 million for the first nine months of 1998,
an increase of $60.9 million attributable to $54.3 million related to financing
of the Kitchen Craft acquisition and $6.7 million increase in capital
expenditures. Total capital expenditures for the first nine months of 1999 were
$8.6 million compared to $2.0 million for the first nine months of 1998, due
primarily to 1999 spending for the Omega rough mill, Omega ERP implementation,
and Kitchen Craft.
Cash provided by financing activities was $45.6 million for the first nine
months of 1999 compared to a cash usage of $9.3 million for the first nine
months of 1998. This change of $55.0 million was due primarily to financing of
the Kitchen Craft acquisition and related financing costs.
The Company's ability to make scheduled payments of principal of, or to pay
the interest or premium, if any, on, or to refinance, its indebtedness, or to
fund planned capital expenditures will depend on its future performance, which,
to a certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond its control. Based
upon the current level of operations, management believes that cash flow from
operations and available cash, together with available borrowings under its bank
loans, will be adequate to meet the Company's anticipated future requirements
for working capital, budgeted capital expenditures and scheduled payments of
principal and interest on its indebtedness for the next several years. There can
be no assurance that the Company's business will generate sufficient cash flow
from operations or that future borrowings will be available
-15-
<PAGE>
under its bank loans in an amount sufficient to enable the Company to service
its indebtedness or make anticipated capital expenditures.
As a result of the fiscal 1999 acquisition of Kitchen Craft, the Company's
long-term debt structure has changed substantially. At October 2, 1999, the
Company's long-term debt consisted of (i) the $100.0 million of senior
subordinated notes; (ii) a U.S. senior credit facility, consisting of a $55.9
million term facility (the "U.S. Term Facility") and a $20.0 million revolving
facility (the "U.S. Revolving Facility"); and (iii) a Canadian senior credit
facility, consisting of a (Cdn) $20.7 million term facility (the "Canadian Term
Facility") and a (Cdn) $15.0 million revolving facility (the "Canadian Revolving
Facility").
As of October 2, 1999, the Company had additional borrowing availability of
$15.2 million under the U.S. Revolving Facility and (Cdn) $13.8 million under
the Canadian Revolving Facility. In addition, the Company had cash of $1.9
million that was subsequently used to reduce both the U.S. and Canadian
Revolving Debt. The U.S. Term Facility requires quarterly principal payments
that began in April 1999 at $1.0 million per quarter and increasing at each
September anniversary. Subsequent payments will be approximately $1.3 million,
$1.4 million, $1.8 million and $2.2 million per quarter during the four quarter
periods beginning September 1999, 2000, 2001, and 2002, respectively, with $2.6
million payments due the last two quarters in 2003. Finally, four equal
quarterly payments will occur during 2004 with the term loan fully amortized on
December 31, 2004. Additional payments are also due each year based on 75% of
the Company's defined excess cash flow, if any. The Canadian Term Facility
requires quarterly payments beginning in April 1999 at approximately (Cdn) $0.4
million per quarter and increasing at each anniversary. Subsequent payments
will be approximately (Cdn) $0.5 million, (Cdn) $0.6 million, (Cdn) $0.8
million, (Cdn) $0.9 million and (Cdn) $2.3 million per quarter during 2000,
2001, 2002, 2003, and 2004. Both the U.S. and Canadian Term Facilities mature
on December 31, 2004. Revolving Facilities will mature on December 26, 2003 and
have no scheduled interim amortization.
Computer Systems and Year 2000
The Year 2000 issue, common to most companies, concerns the inability of
information technology, ("IT") and non-information technology ("non-IT") systems
to recognize and process date-sensitive information after 1999 due to the use of
only the last two digits to refer to a year. This problem could affect both
information systems (hardware and software) and other equipment that relies on
microprocessors. This could result in a system failure or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, schedule production, send invoices, or engage
in similar normal business activities.
The Company has completed an assessment of its IT systems, both hardware
and software, and has developed a plan to timely address the Year 2000 issue.
Systems that interact with customers and that focus on the core business
functions of buying, manufacturing, selling and accounting have been given the
highest priority. Systems and equipment, particularly production equipment that
utilize embedded chips, that are not Year 2000 compliant have been identified
and remediation efforts are in process. Management estimates that nearly 95% of
the remediation efforts were completed as of
-16-
<PAGE>
October 2, 1999. Some of the Company's current systems are being upgraded and
others are being replaced with Year 2000-compliant systems. System upgrades and
replacements are being unit-tested as they are completed. All remediation
efforts and testing of replacement systems are expected to be completed by
December 1, 1999. The Company is monitoring the need to develop contingency
plans to remediate information systems scheduled to be replaced in case delays
in the installation schedule for the new systems make remediation of the older
systems necessary. The Company currently believes that it will complete all
phases of its plan without any material adverse consequences to its business,
operation, or financial condition.
The Company's assessment of its non-IT systems (including phone, voicemail,
heating/air-conditioning, electricity and security systems) was completed as of
January 2, 1999. The Company used internal resources to address the Year 2000
Issue of its non-IT systems and has not incurred significant separately
identifiable costs and does not expect to incur significant additional costs in
order to upgrade its non-IT systems. All validation and implementation of these
non-IT systems has been completed.
The Company has spent approximately $1.8 million to date in the execution
of its Year 2000 plan. Total costs to address Year 2000 issues are currently
estimated not to exceed $2.0 million and consist primarily of costs for the
remediation of internal systems, including internal programming time. Funds for
these costs are expected to be provided by the operating cash flows of the
Company.
The Company is also in the process of monitoring the progress of
significant third parties in their efforts to become Year 2000 compliant. Those
third parties include, but are not limited to product suppliers, large
customers, financial institutions, third party benefit administrators, and
utilities. The Company has requested confirmation from all material third
parties as to when they will be Year 2000 compliant and has obtained responses
from approximately 95% of material third parties. Although the Company is not
aware of any material third parties who are not Year 2000 compliant, if the
Company's customers and suppliers do not achieve Year 2000 compliance before the
end of 1999, the Company may experience a variety of problems, which may have a
material adverse effect on the Company. To the extent such suppliers are not
Year 2000 compliant by the end of 1999, such suppliers may fail to deliver
ordered materials and products to the Company and may fail to bill the Company
properly and promptly. Consequently, the Company may experience delays in
manufacturing product to send to its customers. The Company plans to address
potential problems with its suppliers by identifying and arranging for
alternative sources of supplies. Due to the nature of its product, the Company
does not believe it has any exposure to contingencies related to the Year 2000
Issue for the products it has sold.
The Company could be faced with severe consequences if Year 2000 issues are
not identified and resolved in a timely manner by the Company and significant
third parties. A worst-case scenario would result in the short-term inability to
manufacture adequate amounts of product to support incoming customer orders
resulting in lost revenues and customer loyalty. The amount would be dependent
on the length and nature of the disruption, which cannot be predicted or
estimated. In light of the possible consequences, the Company is devoting the
resources needed to address Year 2000
-17-
<PAGE>
issues in a timely manner. Management receives monthly (if not more often)
updates as to project status. While management expects a successful resolution
of these issues, there can be no guarantee that material third parties, on which
the Company relies, will address all Year 2000 issues on a timely basis or that
their failure to timely and successfully address all issues would not have an
adverse effect on the Company.
Forward Looking Statements
When used in this quarterly report on Form 10-Q, the word "believes,"
"anticipates" and similar expressions are used to identify forward looking
statements. Such statements are subject to risks and uncertainties which could
cause actual results to differ materially from those projected. The Company
wishes to caution readers that the following important factors and others in
some cases have affected and in the future could affect the Company's actual
results and could cause the Company's results for 1999 to differ materially from
those expressed in any forward statements made by the Company: (i) economic
conditions in the remodeling and housing markets, (ii) availability of credit,
(iii) increases in interest rates, (iv) cost of lumber and other raw materials,
(v) inability to maintain state-of-the-art manufacturing facilities, (vi)
heightened competition, including intensification of price and service
competition, the entry of new competitors and the introduction of new products
by existing competitors, (vii) inability to capitalize on opportunities
presented by industry consolidation, (viii) loss or retirement of key executives
and (ix) inability to grow by acquisition of additional cabinetry manufactures
or to effectively consolidate operations of businesses acquired.
-18-
<PAGE>
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The Company is subject to interest rate market risk in connection with its
long-term debt. These financial instruments are entered into for purposes other
than trading. As of October 2, 1999, the Company's debt instruments consisted
of certain obligations which bear a fixed interest rate and others which bear
interest at variable rates. The following table provides information about the
Company's debt instruments that are sensitive to changes in interest rates, and
presents the principal cash flows and related interest rates by expected
maturity dates (in thousands):
<TABLE>
<CAPTION>
Variable Rate (a) Fixed Rate (b)
<S> <C> <C>
Maturing in:
1999 $ 1,613 $ --
2000 6,970 --
2001 8,171 --
2002 9,990 --
2003 17,763 --
2004 31,242 --
Thereafter -- 100,000
------- --------
Total $75,749 $100,000
======= ========
Fair value at July 3, 1999 $75,749 $100,125
</TABLE>
(a) $35.7 million at LIBOR plus 1.75%, $25.0 million at LIBOR plus 2.00% and
$15.0 million at Canadian BA rate plus 2.00% (7.90% weighted average at
October 2, 1999). Spread reduced by 75 basis points during the third
quarter of 1999.
(b) All at 10.5%.
The Company's interest expense is most sensitive to changes in the general
level of U.S. and certain foreign (LIBOR and Canadian BA) interest rates. In
this regard, changes in such interest rates affect the interest paid on certain
of its debt. To manage the impact of fluctuations in interest rates, the Company
continually monitors and may select a variety of rate options on its variable-
rate debt. In addition, the Company has maintained a majority of its debt
borrowings as fixed-rate debt. Although it has not historically done so, the
Company in the future may consider entering into interest rate swaps or similar
transactions in order to fix certain interest costs on variable-rate debt.
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is a party to various legal actions arising in the ordinary
course of its business. The Company believes that the resolution of these legal
actions will not have a material adverse effect on the Company's financial
position or results of operations.
-19-
<PAGE>
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
In the third quarter of 1999, Omega Holdings, Inc., the sole stockholder of
the Company, consented to the removal of Mr. Costa Littas as a director of the
Company.
Item 5. Other Information.
On June 25, 1999 Mr. Earl Lytle resigned from his position as Vice
President of Manufacturing. Pursuant to a Severance Agreement dated May 5, 1999,
Mr. Lytle was granted a salary continuance for four weeks following his
resignation in an approximate aggregate amount of $7,000 and his equity
investments in the Company were repurchased in accordance with the terms of the
Shareholders Agreement. In addition, Mr. Lytle agreed not to seek employment
with any Omega competitors until July 1, 2000.
Commencing June 14, 1999, Mr. David Romeo was hired by the Company to serve
as the Senior Vice President of Operations. Pursuant to an Employment Agreement
dated May 27, 1999, Mr. Romeo will receive an annual base salary of $145,000
plus a bonus in accordance with the Company's Bonus Plan. In addition, Mr.
Romeo is eligible to purchase up to 300 shares of Holdings stock in exchange for
$200,000 and a $328,245 long term note. Mr. Romeo also became eligible to
participate in the Company's Stock Option Plan.
The Company's Annual Report on Form 10-K filed on April 1, 1999,
incorrectly reported Mr. David Kim and Mr. Herbert Buller as directors of the
Company. Messrs. Kim and Buller were elected in February, 1999 as directors of
Holdings, the Company's parent and sole stockholder. Messrs. Buller and Kim are
not at this time and were at no time directors of the Company.
In the third quarter of 1999, Costa Littas resigned as a director of the
Company. On October 29, 1999, Robert Bertch resigned as a director of the
Company. Robert Moran, Gilbert Butler and Donald Cihak remain as members of the
Company's Board of Directors.
Item 6. Exhibits and Reports on Form 8-K.
-20-
<PAGE>
(a) Exhibit Index.
2.1 Master Transaction Agreement dated as of January 29, 1999 (Incorporated
by reference to Exhibit 2.1 to the Current Report on Form 8-K filed with
the Commission on February 12, 1999).
3.1 Certificate of Incorporation, as amended, of the Registrant*
3.2 By-laws of the Registrant*
4.1 Indenture dated as of July 24, 1997*
4.2 First Supplemental Indenture dated January 28, 1999 (Incorporated by
reference to Exhibit 99.1 to the Current Report on Form 8-K filed with
the Commission on February 12, 1999).
4.3 Second Supplemental Indenture dated January 29, 1999 (Incorporated by
reference to Exhibit 99.2 to the Current Report on Form 8-K filed with
the Commission on February 12, 1999).
10.1 First Amended and Restated Credit Agreement dated as of January 29
(Incorporated by reference to Exhibit 4.1 to the Current Report on Form
8-K filed with the Commission on February 12, 1999).
10.2 Panther Security Agreement dated as of January 29, 1999. (Incorporated by
reference to Exhibit 10.2 to the Annual Report on Form 10-K file with the
Commission on April 1, 1999).
10.3 Omega Security Agreement dated as of January 29, 1999. (Incorporated by
reference to Exhibit 10.3 to the Annual Report on Form 10-K file with the
Commission on April 1, 1999).
10.4 Omega Pledge Agreement dated as of January 29, 1999. (Incorporated by
reference to Exhibit 10.4 to the Annual Report on Form 10-K file with the
Commission on April 1, 1999).
10.5 Collateral Assignment of Trademarks dated as of June 13, 1997.*
10.6 Management Agreement dated June 13, 1997*
10.7 Financing Agreement dated June 13, 1997*
10.8 Deferred Compensation Plan dated June 13, 1997*
10.9 Rabbi Trust Agreement dated June 13, 1997*
10.10 Key Employment Agreement dated September 16, 1997*
10.11 Key Severance Agreement dated October 30, 1998. (Incorporated by
reference to Exhibit 10.11 to the Annual Report on Form 10-K file with
the Commission on April 1, 1999).
10.12 Moran Employment Agreement dated September 11, 1995, as amended June 13,
1997*
10.13 Moran Severance Agreement dated April 24, 1997*
10.14 [Reserved]
10.15 [Reserved]
10.16 Goebel Employment Agreement dated April 10, 1995, as amended June 13,
1997*
10.17 Goebel Severance Agreement dated April 24, 1997*
10.18 Hagan Employment Agreement dated April 10, 1995*
10.19 Hagan Severance Agreement dated April 24, 1997*
10.20 Schmidt Employment Agreement dated April 10, 1995*
10.21 Schmidt Severance Agreement dated April 24, 1997*
-21-
<PAGE>
10.22 Deferred Non-Qualified Compensation Agreement dated June 28, 1997*
10.23 Company Bonus Plan*
10.24 Stockholders Agreement dated June 13, 1997*
10.25 Omega Holdings, Inc. Stock Option Plan*
10.26 Key Put Agreement dated June 13, 1997*
10.27 Goebel Put Agreement dated June 13, 1997*
10.28 Bulrad Illinois Security Agreement dated as of January 29, 1999.
(Incorporated by reference to Exhibit 10.28 to the Annual Report on Form
10-K file with the Commission on April 1, 1999).
10.29 Omega Kitchen Craft Holdings Pledge Agreement dated as of January 29,
1999. (Incorporated by reference to Exhibit 10.29 to the Annual Report on
Form 10-K file with the Commission on April 1, 1999).
10.30 Omega Kitchen Craft U.S. Corp. Pledge Agreement dated as of January 29,
1999. (Incorporated by reference to Exhibit 10.30 to the Annual Report on
Form 10-K file with the Commission on April 1, 1999).
10.31 Bulrad Illinois Guaranty dated as of January 29, 1999. (Incorporated by
reference to Exhibit 10.31 to the Annual Report on Form 10-K file with
the Commission on April 1, 1999).
10.32 Credit Agreement dated as of January 29, 1999 (Incorporated by reference
to Exhibit 4.2 to the Current Report on Form 8-K filed with the
Commission on February 12, 1999).
10.33 3578275 Canada General Security Agreement dated as of January 29, 1999.
(Incorporated by reference to Exhibit 10.33 to the Annual Report on Form
10-K file with the Commission on April 1, 1999).
10.34 Omega Guarantee dated as of January 29, 1999. (Incorporated by reference
to Exhibit 10.34 to the Annual Report on Form 10-K file with the
Commission on April 1, 1999).
10.35 Kitchen Craft Guarantee dated as of January 29, 1999. (Incorporated by
reference to Exhibit 10.35 to the Annual Report on Form 10-K file with
the Commission on April 1, 1999).
10.36 Kitchen Craft Security Agreement dated as of January 29, 1999.
(Incorporated by reference to Exhibit 10.36 to the Annual Report on Form
10-K file with the Commission on April 1, 1999).
10.37 Supplement No. 1 to the Management Agreement dated January 29, 1999.
(Incorporated by reference to Exhibit 10.37 to the Annual Report on Form
10-K file with the Commission on April 1, 1999).
10.38 H. Buller Employment Agreement dated January 29, 1999. (Incorporated by
reference to Exhibit 10.38 to the Annual Report on Form 10-K file with
the Commission on April 1, 1999).
10.39 M. Buller Employment Agreement dated January 29, 1999. (Incorporated by
reference to Exhibit 10.39 to the Annual Report on Form 10-K file with
the Commission on April 1, 1999).
10.40 J. Horton Employment Agreement dated October 15, 1998. (Incorporated by
reference to Exhibit 10.40 to the Annual Report on Form 10-K file with
the Commission on April 1, 1999).
-22-
<PAGE>
10.41 C. Rae Employment Agreement dated October 22, 1997. (Incorporated by
reference to Exhibit 10.41 to the Annual Report on Form 10-K file with
the Commission on April 1, 1999).
10.42 Offer and Acceptance Contract dated September 15, 1998 for sale of land
to Company. (Incorporated by reference to Exhibit 10.42 to the Annual
Report on Form 10-K file with the Commission on April 1, 1999).
10.51 E. Lytle Severance Agreement dated May 5, 1999.
10.52 D. Romeo Employment Agreement dated May 27, 1999.
27.1 Financial Data Schedules.
______________
* Incorporated by reference to the similarly numbered exhibit in the
Company's Registration Statement on Form S-4, No. 333-37135, filed
October 3, 1997.
(b) Reports on Form 8-K.
None.
-23-
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OMEGA CABINETS, LTD.
By: /s/
------------------------------
Name: Robert L. Moran
Title: Chief Executive Officer
(Principal executive
officer and principal
financial officer)
Dated: November 8, 1999
<PAGE>
Exhibit 10.51
[Omega Cabinets Letterhead]
May 5, 1999
Mr. Earl Lytle
855 Prospect Blvd.
Waterloo, IA 50701
Dear Earl:
The nature of this letter is to serve as a follow up to the conversation that
you and I shared in which you elected to resign from your position as Vice
President, Manufacturing of Omega Cabinets, Ltd. It is with regret that we
accept your resignation, but we understand that your doing so is for personal
family reasons.
It is understood that your resignation is conditional. It is understood that you
will maintain the duties of your position until at which time the Rough Mill
2000 project is complete and facility is producing a deliverable product. In
addition, you agree not to seek employment opportunities that could be deemed to
be in competition with Omega Cabinets, until July 1, 2000.
In consideration of the above, your post-employment package is as follows:
. Re-purchase of your equity investments in Omega Cabinets, Ltd. per the
terms of the shareholders Agreement. Settlement shall include purchase
of original stock and reconciliation of granted options at a price
consistent with a calculation for Fair Market Value. Fair Market Value
to be established on the end of closing day May 31, 1999.
. COBRA benefits (see enclosed letter).
. Salary continuance for four weeks following official resignation date;
which shall include all unused vacation to date of severance.
We trust that the considerations listed above are agreeable to you, and that we
can expect that your daily performance will continue at the level you have
displayed in the past.
Please note your agreement and understanding by signing below.
Sincerely,
/s/
Robert L. Moran
President and CEO
Reviewed and Approve:
/s/
________________________ Date: ________________
<PAGE>
Exhibit 10.52
[Omega Cabinets Letterhead]
Robert L. Moran The Omega Group
President & CEO 1205 Peters Drive Waterloo, IA 50703
Phone 319-235-5700 Fax 319-235-5827
www.omegacab.com
May 27, 1999
Mr. David Romeo
1211 Barclay Circle
Barrington, IL 60010
Dear David:
On behalf of Omega Holdings, Inc. it is my pleasure to confirm our offer of
employment as Senior Vice President of Operations for Omega Holdings, Inc. In
this position you will report directly to me and participate with the other
officers in establishing corporate policy, procedure and direction. You will
have responsibility for all aspects of operations.
. Base Salary
You will be paid $5,576.92 bi-weekly (an amount equal to $145,000
annually).
. Bonus
Your annual bonus potential at 100% of plan will be equal to 40%
of base salary. The actual amount of bonus paid will be based
upon the company achieving certain earnings goals and your
personal performance as measured against agreed-upon objectives.
The plan has the following sliding scale:
% Plan % Target Bonus
------ --------------
90% 25.0%
95% 62.5%
100% 100.0%
105% 125.0%
The bonus will be paid on a pro-rate basis for 1999, with full
participation in 2000.
. Equity
You will be eligible to purchase up to 300 shares of stock in
Omega Holdings at a fair market value purchase price of
$1,760.8185 per share. This represents a total equity investment
of $528,245.55 comprising (1) $200,000.00 to be paid to Omega
Holdings, Inc. at a mutually agreeable date near your start date
and (2) $328,245.55 long-term loan with principal and interest
<PAGE>
payable upon an "event". The interest rate represents a fixed
rate pegged off the Applicable Federal Rate as published by the
IRS (5.66% for May, 1999) and will be accrued annually at year-
end.
Stock options will be granted in a ratio of 1.25 times shares
purchased to be granted over a three and one-half (3.5) year
period ending December, 2002. The grant will be awarded annually
at the original cost of the stock ($1,000) and will be tied to
the Company's achievement of financial targets to be set on an
annual basis and approved by the Board of Directors.
Enclosed Omega Holdings, Inc. documents include (1) Summary Description of the
Stock Option Plan and Stockholders Agreement, (2) Stockholders Agreement and (3)
Stock Option Plan. Details addressing the valuation of equity upon termination
of employment are outlined in the Stockholders Agreement.
. Relocation
Your relocation package will cover usual and customary costs
associated with your relocation per Omega policy, including the
cost of the physical move, closing costs (not including points)
and temporary living expenses for 60 days including morning and
evening meals. In addition, Omega will reimburse monthly rental
housing costs for one year and pay for weekly travel between
Waterloo and Chicago (bi-weekly airfare and mileage
reimbursement).
. Benefits
You will be eligible to participate in health, life, dental,
vision, 401(k), and short and long-term disability plans as
provided to all employees. For all plans the coverage is not
immediate and will require your personal enrollment. With
exception of the 401(k) plan, for which you will become eligible
January, 2000, eligibility to participate commences sixty (60)
days following your date of hire. Should you elect to continue
your present medical insurance coverage through the COBRA
provisions offered by your current employer, Omega will reimburse
you for the premium cost for a period not to exceed sixty (60)
days beyond your employment date. Enclosed is an Omega Cabinets
Employee Handbook.
. Vacation
You will be entitled to two weeks of paid vacation. Our executive
staff members have additional days available on a discretionary,
as-needed basis.
. Performance Review
A position performance review is to occur January 1, 2000 or
before.
David, we believe that you have the background and experience for this
responsibility and that you shall enjoy great personal success while helping
Omega achieve its objectives. We are excited about your joining the Omega team
and getting at the many challenges and opportunities before us!
If this opportunity meets with your expectations, please acknowledge acceptance
by signing in the space provided and return a copy to me at your earliest
convenience.
Sincerely, Date this ______ day of ___________, 1999
/s/
Robert L. Moran _________________________________________
David Romeo
cc: Don Cihak
John Horton
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
FINANCIAL STATEMENTS PROVIDED BY ERNST & YOUNG LLP AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> JUL-04-1999
<PERIOD-END> OCT-02-1999
<CASH> 1,879,597
<SECURITIES> 0
<RECEIVABLES> 29,747,632
<ALLOWANCES> 2,134,000
<INVENTORY> 18,849,821
<CURRENT-ASSETS> 50,402,365
<PP&E> 54,361,146
<DEPRECIATION> 10,098,024
<TOTAL-ASSETS> 196,456,458
<CURRENT-LIABILITIES> 38,926,587
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> (9,104,401)
<TOTAL-LIABILITY-AND-EQUITY> 196,456,458
<SALES> 205,070,491
<TOTAL-REVENUES> 205,070,491
<CGS> 144,384,419
<TOTAL-COSTS> 144,384,419
<OTHER-EXPENSES> 25,391,186
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,185,970
<INCOME-PRETAX> 22,108,916
<INCOME-TAX> 8,562,826
<INCOME-CONTINUING> 13,546,090
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,546,090
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
