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Pacesetter once one of Omaha's best, company now in bankruptcy court
(Omaha World-Herald (NE) (KRT) Via Thomson Dialog NewsEdge) Sep. 17--Pacesetter Corp. was a respected corporate citizen in Omaha. Sponsor of baseball teams and a scholarship program for inner-city youth. Founded by a serious collector of modern art who became a king of Ak-Sar-Ben. Run by two brothers now in the Omaha Business Hall of Fame.
A profitable model of vertical integration, from manufacturing to financing, successful on a national scale.
Today Pacesetter's name is found in bankruptcy filings, where the courts are sorting out its unpaid bills, and in an online complaint site called Pacesettersucks.com.
"They stiffed us for $4 million," fumes Amy Zimmerman, vice president of a Chicago company that produced windows for Pacesetter. "They almost sent our company into bankruptcy."
"In a word, it's a heartache," said company founder Phil Schrager. "It was hard, to put your whole life into it, and it took about a year and a half or two years" for the business to collapse.
Gary Iskra, who bought Pacesetter from the Schragers in 2004 and oversaw its final years, would not comment in detail.
"It was a very unfortunate business situation," he said during a brief telephone interview from Pennsylvania. "It's unfortunate the business failed. A lot of people were disappointed because of it."
The story of Pacesetter Corp. began in 1962 when Schrager returnedto Omaha after serving in the Army and started selling home improvement products door to door. He combined his sales organization with a window manufacturer to create Pacesetter.
Younger brother Harley joined the business and became president. Over four decades, the brothers built Pacesetter into a 2,500-employee specialist in replacement windows, siding, doors and other home repair products, the largest of its kind in the country.
Members of the steelworkers' union manufactured windows at Pacesetter's factory near 96th and F Streets. Its telemarketing division lined up customers, and hundreds of sales people, operating from 70 offices around the country, visited homes to close the deals.
The sales force scheduled installations by independent craftsmen or company employees and, if necessary, arranged financing through Pacesetter's loan division.
In 1972 Pacesetter became one of the first local Omaha companies to sell stock publicly, but in 1984 the Schrager family bought back the shares, saying it was too expensive to provide the required financial reports.
The company made a $6.1 million profit on $61 million in sales in 1983, a healthy margin. Sales peaked at $135 million in the late 1990s. Phil Schrager's son, Rick, rose to president of the company's central division.
But in 2003 federal regulators set up "do not call" lists prohibiting companies from making cold calls to potential customers. The do-not-call rules were "a major killer," Rick Schrager said, sharply reducing Pacesetter's sales leads.
The family had hired Iskra, a veteran of the home improvement industry, in 2000 and soon named him chief executive.
"Our last few years in the business were mediocre at best," Rick Schrager said. "There were hurdles that he had to overcome. He walked into a business that was stagnant, kind of, at the time."
Iskra, from Pittsburgh, had built up a home improvement business, known as Koolvent, and sold it in 1998 to Sears Roebuck, a record that gave him good credentials in the business. He and the Schragers had known each other for years.
Iskra's marketing techniques included sending people $2 bills for photos they submitted of places in their houses they'd like to remodel. Replacement Contractor magazine, a trade journal that chronicled Pacesetter's decline, said Iskra's "Take Your Best Shot" campaign accounted for a third of the company's business in 1996. Iskra retired for a few years, then re-entered the business with his Pacesetter job.
In April 2004 Iskra headed a group of investors who bought the home improvement side of the business from Phil and Harley Schrager, leaving them the finance division. Rick Schrager remained as a part-owner, with Iskra emerging as majority shareholder.
Within a month, Iskra decided to cut costs by closing the Omaha window factory, putting nearly 70 union members, plus supervisory staff, out of work. He signed a contract to buy windows from Republic Windows & Doors of Chicago.
"We were very excited, taking on a dealer of that size," said Zimmerman, the Republic vice president. "We really had a lot of plans for building that relationship."
Phil Schrager didn't agree with the decision. Although Republic might have quoted an attractive price, he said, Pacesetter lost control over deliveries, quality, product development and other vital issues.
Even though he no longer owned Pacesetter, Schrager, with Iskra's permission, helped deliver the bad news to the factory workers, many of them friends and employees for more than 30 years.
"It was a tearful get-together," Schrager said. "We had a lot of loyal, dedicated plant workers."
He said he wrote checks to each one "to try to give them some kind of a soft landing."
Closing the window factory, Schrager said, "was probably the beginning of the end."
To find customers, Pacesetter put salespeople inside Sam's Club and Kmart stores. Regular advertising, direct mail and other methods also brought in sales leads, but not as many as telemarketing.
The in-store sales plan "was probably not a bad idea, but I don't think it was gone about properly," Schrager said. "It added costs without adequate return."
Iskra also changed Pacesetter's sales organization, closing low-performing offices and firing key regional managers. Schrager said the latter move was a serious mistake that altered the company's long-standing culture.
"Pacesetter was run more as an entrepreneurial situation, where we had, let's say, 15 to 20 key sales executives who were overlords, general managers of a network of offices, with three or seven or eight offices each.
"They were incentivized in such a way that they had their own little empires."
Letting them go had "a severe impact on the whole business plan of the company," Schrager said.
"He (Iskra) wanted to run it more like he ran his company in Pittsburgh," Schrager said, relying on sales and marketing plans that didn't include regional managers.
"I think there were changes that needed to be made. Obviously the changes that they made didn't work."
Rick Schrager soon resigned from the company.
Zimmerman said Pacesetter ordered thousands of windows and sold them but quickly fell behind on its payments.
That posed a dilemma for Republic: Do you cut off shipments and make it difficult for a major customer to earn money? Or do you keep supplying windows with the hope of a recovery while the overdue bills pile up?
The sales effort through the retail stores was faltering. With the regional managers gone and a series of offices closed, sales slid quickly and more job cuts followed.
"It got to be a joke," Zimmerman said. "We would call Omaha and ask for somebody we knew, and that person would be gone. The next day we'd call and the other person would be gone. They let go almost everybody.
"It was sad all around, sad for the employees, sad for the customers, sad for the suppliers. They just didn't know how to run a business efficiently. They underestimated the cost of running a business that big."
The "Pacesetter debacle," as Zimmerman calls it, prompted a change in ownership at Republic Windows and required new outside investors to restore the company's financial health.
As Pacesetter's financial troubles deepened, the Pacesettersucks.com Web site began to attract contributions from more disgruntled customers and unpaid employees.
Kenneth and Latrice Innes of Redding, Calif., who hired Pacesetter in 2001 and 2002, started the site after alleging that the work and service were substandard. The site still is drawing responses, Kenneth Innes said in an e-mail interview, even months after Pacesetter shut down.
In his own case, Innes said, Pacesetter offered a refund but less than the full amount, and it never resolved what he said was its mistreatment of customers and the lack of an effective method for customers to voice complaints.
In June 2005, the Pittsburgh Business Times reported that Iskra said he was moving Pacesetter from Omaha to offices in the U.S. Steel Tower, one of Pittsburgh's premier office buildings. The story quoted Iskra as saying he would bring along only three executives and would hire 80 administrative personnel. In another news article, he talked about opening a manufacturing facility in the area.
Phil Schrager said the move violated an unwritten agreement he had with Iskra that the headquarters would stay in Omaha.
"He being a Pittsburgh boy, he didn't relish the idea of staying here, and little by little he moved the company out and transferred the headquarters to Pittsburgh," Schrager said. "There was nothing we could do about it. It made you sick to your stomach, but our hands were tied."
The Business Times article also said Iskra had paid $80 million for Pacesetter, a figure Schrager said is far too high. The actual sales price has never been disclosed.
That summer, Republic Windows stopped shipping to Pacesetter. "At some point you have to cut your losses," Zimmerman said. "I think they ran out of cash. They had a big staff and lots of expenses."
Pacesetter never moved into the Pittsburgh skyscraper, and in July 2005, employees' checks started bouncing. By November, when the company sought protection in U.S. Bankruptcy Court in Pennsylvania, a dozen lawsuits were pending in eight states, mostly filed by suppliers and customers.
Employees were short $60,000 in back wages. Taxes were overdue in 32 states, plus $600,000 to the Internal Revenue Service. In all, creditors listed $14 million in claims. The bankruptcy case is ongoing.
Iskra, who now lists his address as Ligonier, Pa., and a partner, Michael Madden of Leechburg, Pa., also filed for personal bankruptcy, citing the Pacesetter debts. Iskra's two other partners, Gary Kluck of Orangevale, Calif., and Mark Aloe of Pittsburgh, are listed as creditors in the bankruptcy filings.
Phil Schrager said he helped pay off leases so Pacesetter could close unprofitable offices. His finance business, now called AmeriFirst Home Improvement Finance Corp., is listed as a $1.5 million creditor. Schrager, however, said the loss is greater and that Pacesetter doesn't have money to repay the debt.
The debate about Pacesetter and Iskra continues.
A report from the Better Business Bureau of Western Pennsylvania on a company called MyContractor.com says that Fred Redeker is vice president of operations and that Redeker previously was operations manager for Pacesetter.
Redeker could not be reached for comment. Iskra said he is not involved in MyContractor.com, even though an operator who answered the Web site's toll-free number forwarded a call directly to him. Iskra's bankruptcy filing shows income of $18,000 this year for consulting to MyContractor.com.
In a bankruptcy filing, Madden lists income of $12,000 a month as an independent sales consultant for MyContractor.com. An operator at MyContractor.com took a message for Madden, but he did not return the call.
Kenneth Innes, who runs the complaint Web site, said on the site that he received a letter from Charles C. Mason Jr., an attorney from Latrobe, Pa., in February that stated Iskra and Madden are not officers, shareholders, directors or employees of MyContractor.com or its owner, LWS Holdings LLC.
Mason declined a World-Herald request to comment further.
Innes said he lists information on the Web site about MyContractor.com's possible connections with Pacesetter to make people aware that the same managers may be involved in the new business.
Phil Schrager said people who are angry at Iskra should realize that he took the risk of running a major business.
"It's not like he's a bad hombre. It's just that he didn't succeed."
Copyright (c) 2006, Omaha World-Herald, Neb.
Distributed by McClatchy-Tribune Business News.
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