Norwood Promotional Products, Inc.

106 E. Sixth Street, Suite 300
Austin, Texas 78701
U.S.A.
(512) 476-7100
Fax: (512) 477-8606
Web site: http://norwood-promotional.com

Private Company
Incorporated: 1973 as Radio Cap Company
Employees: 1,900
Sales: $175.84 million (1997)
SICs: 3161 Luggage; 2353 Hats, Caps & Millinery; 2759 Commercial Printing, Not Elsewhere Classified; 3086 Plastics Foam Products; 3085 Plastics Bottles; 3949 Sports & Athletics Goods, Not Elsewhere Classified; 2329 Men’s & Boys’ Clothing, Not Elsewhere Classified; 2339 Women’s, Misses’, & Juniors’ Outerwear, Not Elsewhere Classified; 5085 Industrial Supplies

Norwood Promotional Products, Inc. is the leading player in the highly fragmented promotional products marketplace. Norwood, through the companies in its two divisions, manufactures or customizes a variety of products which are imprinted with the names of businesses and generally given away as a form of advertising. Sales of promotional products total nearly $10 billion annually in the United States, and there are several thousand companies in the field, many of them small “mom and pop” operations. Norwood’s strategy has been to acquire other companies whose products are complementary in an attempt to become a “one stop” source of goods. The company went public in 1993, but following several years of disappointing results, it was taken back off the market in a merger with a newly formed corporation backed by founder Frank Krasovec.

Beginnings

Norwood’s origins date to 1973, when the Radio Cap Company was founded in San Antonio, Texas. Radio Cap produced caps which were customized with names of different businesses, which then typically gave them away as part of a promotional campaign. Promotional products such as these were widely used by businesses and salespeople as a way of keeping a company’s name before its customers. In giving them a useful item such as a pen, calendar, cap, etc. which would be used over time, the hope was that the customer would better remember the advertiser’s name and come back for more business. There was no single large promotional products supplier nationwide, and products were mainly produced by small regional companies. Typical orders would only be worth several hundred dollars, and the range of products requested varied widely. Products were sold through regional distributors, who obtained stock from a number of different suppliers. Many items were manufactured overseas and then imprinted with advertisers’ names by companies in the United States. Key factors in the promotional products business were price, quality, and timely shipment of products, with many orders requiring quick turnaround.

In 1976 Frank Krasovec, along with several other investors, purchased Radio Cap. Krasovec, whose background included experience in a variety of businesses including cable television and real estate, bought out his partners in 1983, giving the name Norwood to the new holding company into which Radio Cap was placed. Shortly after this, the manufacturer of Koozie beverage insulators was added to the Norwood stable. This logo-imprinted plastic foam giveaway product, into which a cold beverage container could be placed, was a popular promotional item, and would be a mainstay of the company’s product line for years to come. Manufacture of other promotional products, including mugs and glassware, was added over time at the Radio Cap plant in San Antonio.

In October 1989, Krasovec restructured and recapitalized Norwood, at which point the company’s name was officially changed to Norwood Promotional Products, Inc. Norwood continued to gradually expand its product line, adding a range of imprinted writing instruments by 1991. In May 1992, the company acquired Barlow Specialty Advertising, Inc., a manufacturer of recognition awards and other promotional products, some marketed under the Salm name. The latter were fancier, more expensive items, and gave Norwood a wider price range of goods to offer. Other Barlow wares included key chains and money clips. Norwood also purchased a ceramic mug imprinting facility located in Pittsburgh in early 1993.

Summer 1993: Norwood Goes Public

An initial public offering of stock on the NASDAQ exchange took place in June 1993, as Norwood sought money to refinance and repay debts, and to further expand. Krasovec would retain his positions of chairman and CEO, and keep about 18 percent of the company’s stock, with Robert Whitesell continuing as COO and president, with a three percent stock interest. Following the offering, Norwood began negotiations for several acquisitions. The company purchased Key Industries, Inc. and ArtMold Products Corporation in May and July 1994. Key was an established supplier of inexpensive promotional paper, pen, magnet, button, and plastic items, while Art-Mold focused on golf-related products, higher-priced writing instruments, and other desk accessories.

Norwood’s acquisitions continued in 1995, with purchases of The Bob Allen Companies (subsequently renamed Air-Tex Corp.) in March, Designer Plastics, Inc. in June, BTS Group, Inc. in July, and Ocean Specialty Manufacturing Corp. in November. Bob Allen/Air-Tex was an Iowa company that specialized in promotional sportswear, luggage, gun cases, and accessories. Designer, also known as Designer Line, produced promotional bags, while BTS was a maker of special awards, recognition gifts, and other items. Ocean (renamed The California Line by Norwood) made a range of products including memo and cork boards, buttons, magnets, and other desk accessories.

Norwood’s annual sales had been rising steadily, with its fiscal 1989 sales total of $26.6 million increasing to $103.9 million in 1995. The company’s net profits generally kept pace, growing from $1.2 million to $4 million. Along with the increased revenues generated by its new acquisitions, Norwood was enjoying the benefits of strong growth within the promotional products marketplace. Estimated annual U.S. sales of promotional products grew from $5.3 billion in 1992 to $7 billion in 1995, and continued to rise. Norwood also was expanding its product line and increasing the number of distributors it supplied, reaching a majority of the over 10,000 distributors of promotional products by the mid-1990s. In 1995 the company published its first catalog of corporation-wide “best sellers.” Norwood was also recognized that year by the promotional products industry association as the number one company in the United States in sales. December 1995 saw a secondary offering of stock, with 2.75 million shares made available to secure more funds for debt repayment.

Acquisitions continued apace in 1996, with Tee-Off Enterprises, Inc. purchased in January and Alpha Products, Inc. in April. Tee-Off was a custom imprinter of golf balls, and also produced other golf-related products. Alpha, formerly a subsidiary of Aladdin, Inc., made imprinted insulated drinkware, and its acquisition served to strengthen Norwood’s Koozie line of beverage insulators, which remained the leading seller in its family of products. Alpha also had a retail sales division, a first for Norwood. However, it soon became apparent that the company’s capabilities in this area had been exaggerated, and a year later Norwood sold off that part of Alpha’s operation.

In August 1996, following apparent difficulties integrating its Ocean Specialty and Designer Line businesses, and predicting lower quarterly earnings, Norwood announced it was restructuring. Sales and marketing functions were realigned, and two pairs of the company’s subsidiaries were merged. Air-Tex Corp. (which had previously been combined with Designer Line) was folded into the Radio Cap Co., while ArtMold (which also controlled Tee-Off) was subsumed by Key Industries, Inc. Other acquisitions had previously been aligned in this way, so that Norwood was left with a total of three direct subsidiaries, which it called divisions, the other being Barlow Promotional Products, Inc. CEO Krasovec, in a conference call with stock analysts, remained upbeat, claiming that Norwood was in the “best shape we’ve been in,” and anticipated annual sales of $500 million in as little as five years’ time.

Company Perspectives:

The Company’s business strategy is to continue to improve its market position in each of its existing product lines and to expand into new product lines and distribution channels. Key elements of this strategy include: (i) expanding product offerings by developing new products and innovative imprinting and decorating techniques and applications; (ii) increasing penetration of existing markets through enhanced customer service and coordinated marketing efforts among its operating companies; (iii) making selective acquisitions to add new product lines and expand distribution; (iv) introducing new management and operating systems to reduce order processing times, increase production efficiency and increase processing capacities of existing and acquired businesses; and (v) exploring new markets, primarily through international marketing and alternative distribution arrangements.

1997-98: Acquisitions Continue; Norwood Goes Private

Following an aborted attempt to acquire a German promotional products company, Norwood completed two further purchases in February 1997, buying Wesburn Golf and Country Club, Inc., and DM Apparel, Inc. Wesburn’s line of imprinted golf balls gave Norwood the lead in the promotional golf ball game, when added to the company’s Tee-Off business. DM Apparel, a jacket company, further extended Norwood’s clothing offerings. With revenues continuing to fall below expectations in 1997, the company decided to make further changes, and realigned its management structure in August. Robert Whitesell resigned his posts of president and COO, with Krasovec adding the president position to his CEO and chairman roles. He had sold his remaining real estate interests in July 1996 to devote his complete attention to Norwood. The company’s limited retail operations also were sold or closed, leaving sales of Norwood’s 2,400 plus products completely up to the more than 11,000 distributors it now serviced. A further consolidation of the company’s operating divisions realigned these into two, Radio Cap Co. and Barlow. The company’s corporate office, which had remained in San Antonio, Texas, was moved to Krasovec’s home base of Austin.

Though the company was still making a profit, Norwood’s stock had been stagnant for some time. Citing his frustration with the apparent indifference of investors, Krasovec decided to take Norwood private again. Forming a new limited liability company called FPK LLC, Krasovec announced in March 1998 a plan to purchase Norwood’s outstanding shares of stock for $20.70 a share. FPK formed a unit which would merge with Norwood, the latter continuing as the name of the surviving company. Krasovec stated that, “The completion of this transaction is a significant event in Norwood’s history. By being a private company, the managers of the Norwood family of supplier companies will be better able to collectively and individually direct resources to provide creative solutions and service to our customers in these fast changing times.” Following the approval in August of the company’s shareholders, the transaction was completed by the end of October.

Norwood Promotional Products, having grown into a stronger, more diverse company, and the largest single supplier of promotional products in the United States, appeared poised for greater success with its restructuring of operations and return to private ownership. The promotional products marketplace was still highly fragmented, but continued to expand as advertisers recognized the value of such products in their overall promotional mix. Frank Krasovec, Norwood’s founder and longtime chief, was now devoting his full attention to the company, and had an experienced management team on board. With all of these elements in place, it seemed likely that Norwood would regain its momentum and continue on an upward trajectory as the 1990s drew to a close.

Principal Subsidiaries

Air-Tex Corp.; ArtMold Products Corp.; Barlow Promotional Products, Inc.; BTS Group; Concept Enterprises, Inc.; Key Industries, Inc.; Radio Cap Company.

Further Reading

Breyer, R. Michelle, “Dominance Isn’t a Gimme; Savvy Propels Promotional Materials Maker Norwood,” Austin American-Statesman, January 26, 1996, p. Dl.

______, “Norwood Sees Third-Quarter Earnings Dip,” Austin American-Statesman, August 16, 1997, p. D2.

______, “Weak Wall Street Showing Prompts Norwood to Return to Private Life,” Austin American-Statesman, March 17, 1998, p. Dl.

Fohn, Joe, “Norwood Promotional Products, Inc.,” San Antonio Express-News, January 19, 1997, p. 29G.

Haines, Renee, “Hip on Hype—Norwood Promotional Products Catching Investors’ Attention,” San Antonio Express-News, March 26, 1995.

Levaux, Janet Purdy, “The New America: Norwood Promotional Products, Inc., San Antonio, Texas—Leading with Products That Raise Profiles,” Investor’s Business Daily, February 22, 1996, p. A6.

Menshesa, Mark, “Norwood Secures Large Loan Package,” San Antonio Business Journal, November 4, 1994, p. 6.

“Norwood Promotional to Sell Alpha Products in Restructuring Effort,” Dow Jones Online News, August 12, 1997.

Nowlin, Sanford, “Norwood Plans $20 Million Public Offering,” San Antonio Business Journal, May 21, 1993, p. 1.

Windle, Rickie, “Wall Street Darling in a Gimme Cap,” Austin Business Journal, February 2, 1996, p. 10.

—Frank Uhle