The York Group, Inc.

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The York Group, Inc.

8554 Katy Freeway, Suite 200
Houston, TX 77024
U.S.A.
Telephone: (713) 984-5559
Toll Free: (800) 223-4964
Fax: (713) 935-7636
Web site: http://yorkgrp.com

Public Company
Incorporated: 1996
Employees: 1,667 (2000)
Sales: $150.7 million (2001)
Stock Exchanges: NASDAQ
Ticker Symbol: YRKG
NAIC: 339995 Burial Caskets and Manufacturing

The York Group, Inc. is the second largest casket and funerary product manufacturer in the United States. (Hillenbrand’s Bates-ville Casket is the largest.) Based in Houston, Texas, the company also produces cremation containers, memorial plaques, and other bronze memorial products. York’s services include financial planning and insurance for funerals, as well as such non-funerary services as architectural and interior design. The company also runs The York Children’s Foundation, a nonprofit division that donates portions of casket sales to charitable children’s organizations nationwide. In May of 2001, York is purchased by Matthews International Inc., the largest maker of cremation urns and bronze memorials in the United States.

Company Beginnings

The York name can be traced back to 1892 when the company was a wooden horse-drawn carriage manufacturer in York, Pennsylvania. At the dawn of the century, York Wagon Gear Company literally changed gears when it switched from manufacturing wagon bodies to hardwood caskets. For the next 60 years the company (now called York Hoover due to an earlier acquisition) continued to make hardwood caskets, when it was bought by the Simmons Mattress Co., who also owned Elgin Metal Caskets.

Ten years later, Simmons was acquired by Gulf + Western, who in turn bought several other casket companies. Gulf then sold these to Amedco, a manufacturing company, in 1982, and in 1986 Amedco was acquired by Service Corporation International (SCI), the nation’s largest funerary services company.

In 1990, SCI decided to return to its core business of funeral services and cemeteries. They sold two of its casket divisions: the Distribution division, which became Houston Casket Co., and the Supply division, which was sold to a group of independent investors who incorporated as York. The group paid $55 million for a new start of selling caskets in Houston.

Rapid Acquisitions Focus of First Years

During its first few years, York operated as a supplier of wood and metal caskets through about 60 domestic distributors, who in turn sold the caskets to funeral directors. The funeral industry was booming by 1996 with death-care stocks in general showing attractive gains. The death rate in the U.S. was rising by 0.8 percent a year and was forecasted to rise by 1.4 percent after 2040. However, because caskets were sold mainly by local funeral directors, competition was soft. Often funeral homes clustered around other funerary services such as embalmers or cemeteries, which cut down on costs, but which also limited their proximity to customers. With a $6 to $8 billion industry at hand, York saw a significant opportunity and quickly got started with a rapid growth plan.

In 1996 the company completed its initial public offering (IPO) of stock at $13 a share, raising $29.9 million. With this capital the company began to expand through acquisitions, starting with acquiring their own distributors. This opened the door for expanding their product base as well. While it broadened the company, one analyst deemed their moves as “low-risk acquisitions that don’t give you a lot of bang for your buck.” However, York was expanding according to plan.

The next year was pivotal for York as the business grew. They created a former-SCI reunion when they acquired the Houston Casket Company. Soon after, they bought West Point Casket Co., a metal- and cloth-covered casket manufacturer, adding one more type of casket to their product line. West Point distributed both their own caskets and York’s in seven Southern states. Venturing into California for its potential sales—due to its higher death rate than most of the nation—York then bought the Sacramento Casket Co. Branching out into the growing cremation industry, they purchased Elder Davis, Inc., also a cloth-covered casket and cremation container manufacturer. These purchases allowed York to reach a whole new customer need and to extend their product offering, a move that “… expands the full complement of products and programs we offer, serving both funeral and cremation customers,” said President and CEO Bill W. Wilcock in a press release. By 1997 the company was producing 300,000 caskets and 200,000 casket components each year, and with all their acquisitions they had operations in ten states: Missouri, Georgia, Alabama, Kentucky, North Carolina, Florida, New Mexico, Texas, California, and Louisiana.

The later 1990s continued to see rapid growth for the company. In March 1998 they acquired Colonial Guild, Ltd., a company that specialized in bronze memorials and commemorative products. This marked York’s foray into products other than caskets. That year, they also acquired Cercueil Lauzier, Inc., establishing the company’s first foothold in Canada. Cercueil Lauzier manufactured wood caskets. In 1999, York added another metal casket business to their family when they bought Star Manufacturing Corporation of Indiana. York moved the product manufacturing to their other production facilities but kept the distribution intact.

New Burial Options Threaten Traditional Casket Sales

The middle of the 1990s brought new challenges to the funeral industry. The Internet provided an opportunity for discounters to sell lower-priced caskets, undercutting funeral directors’ prices. No expensive showrooms meant lower overhead. Large discount stores, including some found in shopping malls, also entered the marketplace. While a traditional funeral-home funeral cost an average of about $5,000, discounters and Internet sellers were offering simpler funerals and caskets for as little as half that amount. One Internet seller, Casket Royale, even called itself the “Wal-Mart of the funeral industry.” Other business threats included growing interests by consumers in biodegradable caskets, custom-decorated caskets, and cremation.

By 1999, one in four burials involved cremation. The number of cremations had been rising one percentage point a year and was forecasted to continue increasing. Cemeteries also started encroaching on funeral directors’ traditional markets by offering flowers and burial ceremonies. Customers were becoming more interested in simpler, non-traditional ceremonies, or sometimes no ceremony at all. Cemeteries were willing to offer different options. Even though by 1999, discount casket sales totaled less than $35,000 a year in a $10 billion industry, the threat was enough to cause funeral directors to demand some regulations from the Federal Trade Commission (FTC). They wanted the same strict regulations on sales, manufacturing, and quality that were imposed on the traditional funeral industry.

York had to face these new challenges in the marketplace at the same time they had to deal with challenges within their own company as it struggled with the very expansion it had spawned. At the end of 1999, the company carried $80 million in debt, partly due to massive loans and rapid growth. As a result, York closed the Star Manufacturing plant in Indiana that it had acquired a year earlier, paying $4.5 million in severance expenses, and absorbing the product production into their other manufacturing plants.

In February 1998, York suffered another blow when they lost their contract with Service Corporation International. SCI was Houston’s largest funeral home and cemetery company, and its purchases accounted for about 24 percent of York’s revenues. In a major setback for York, SCI had decided to buy all its caskets from Hillenbrand, York’s biggest competitor. Consequently, York’s stock plunged 32 percent. To accommodate the lost revenue, York planned to concentrate on its remaining business with independent funeral homes. Reflecting on these times (before he was at the helm), CEO Tom Crawford attributed the troubles to “[the company growing] too far, too fast in [its] desire to become a larger organization and overran the capabilities of the management and information systems.”

During the 1990s, the funeral industry had been evolving toward a higher awareness of customer service and satisfaction. York adapted to these changes by tapping into consumers’ desires for a more personal touch in their casket buys. One example was York’s introduction of caskets that buyers could personalize with handwritten messages. (Examples of other popular casket offerings of the time included custom-designed vinyl casket art, novelty caskets, and themed-caskets.) New product lines were emerging at trade shows annually, even though historically casket models lasted 10 to 15 years on the market. With York’s new write-on casket and the earlier purchase of cremation container manufacturer Elder Davis, the company started to gain a foothold in the growing custom casket and cremation markets. However, the real boon for York came in 1997 with a concept that overhauled the funeral business itself.

Revamping the Casket Business: The York Merchandising System

As the choices in the death-care industry became more abundant and traditional practices were threatened by consumers’ changing attitudes, it became apparent a change was needed in the funerary sales business. Since York was barely keeping its second-place position to Batesville, they decided to bring in extra help.

Company Perspectives:

Our mission is to be the preferred resource to death-care professionals. We will earn their loyalty by providing superior merchandise, services, and support that enhance the value of their firms and the satisfaction of their customers. These business solutions will include consumer-tested products, merchandising tools and systems, plus advance planning and business management services.

The York Merchandising Systems (YMS) was the brainchild of Alton F. Doody, who based the practice on systems he’d seen in Europe. Up to this point, traditional funeral homes and casket makers had displayed full coffins in stark rooms; the first move Doody made was to create a showcase system that featured partial caskets, drawers of lining material, and displays of hardware. By using this system casket sellers could remove the harsh reality of a full coffin from the buyer, while maximizing their space for more options. The prevailing theory behind it was that consumers, when given a wide range of choices, would gravitate toward the higher-priced goods.

After unsuccessfully pitching the idea to Batesville, Doody turned to York, who bought Doody’s consulting company. They gave the concept a name and pitched it to morticians. It was a hard sell at first. Morticians were used to full caskets and traditional setups. The costs in overhauling a funeral home were substantial. And morticians did not like that they could not sell other casket brands. The concept had a slow start.

But once funeral directors took a chance on the system, favorable results were apparent. Those who employed the systems lauded them. Large inventories of full caskets were gone. Personalization was easier, since caskets were made to order. One funeral director called it the “first new innovation in caskets in 75 years,” in a Wall Street Journal article. York’s first 50 displays showed an average gain of $438 per sale under the new system, with the next batch following suit. Some funeral directors also found they could create a more-friendly atmosphere with additions such as coffee bars, bookstores, greeting cards, and memorial items. By 2000 more than 500 funeral homes were using the York system.

Wilbert Inc. Tries to Take Over

New CEO Tom Crawford had a lot to manage when he took charge of York in March 2000. That month, Wilbert Inc. proposed to buy York by investing $6.50 per share, 40.5 percent above the market price. Based in Illinois, Wilbert was the world’s largest burial vault company. They were already the largest shareholders of York stock with 14.1 percent. Wilbert also wished to replace the entire board of York with six of its own members.

York mulled over the offer for several months, even bringing in a financial advisor to assess their situation. Industry analysts noted the absence of a shareholder meeting date and proxy filing early on, causing speculation that York was considering the Wilbert offer. But in May, the company sold its metal vault business to Doric Products, Inc., reducing York’s debt to $30 million from $40 million. Wilbert Inc. increased their offering price to $7.75 per share. York indicated that they were exploring several options, including merging with another firm, staying independent, or not taking any action. In September, York rejected Wilbert’s offer. York CEO Crawford said the deal was “inadequate and substantially undervalues” the York company.

When the talks fell through, Wilbert bought an additional 11 percent of York in a continued attempt to gain control of the business. They then offered individual shareholders the opportunity to sell their shares to Wilbert for 39 percent higher than York’s closing price of $4.69 on March 16, 2001, a year after Wilbert’s first acquisitions attempt. They also offered to swap York shares for Wilbert shares. While the York stock jumped, the company still spurned Wilbert thanks in part to a shareholder rights plan, called a “poison pill,” that was designed to fend off hostile takeover attempts. Exercisable only in the event that a group or company acquired more than 15 percent of York stock, the plan entitled York shareholders to purchase York stock in bulk and also acquire stock in the acquiring company at 50 percent of its market price. In Security Exchange Commission (SEC) documents filed by York in December 2001, explaining its rejection of Wilbert’s offer, the company stated, “We believe continuing to pursue discussions with Wilbert is not in the best interest of York’s shareholders.”

The Future of York and Matthews International

The Wilbert ordeal had taken its toll. York’s stock dropped 29 percent in 2000. CEO Crawford was at the helm of a company that needed refinancing strategies and some new plans. He started by taking a $10 million write-off for the fourth quarter of 2001 and sold 32 of York’s distribution centers. (Three-quarters of the company’s caskets were sold through independent distributors anyway.). “We primarily are manufacturers,” said CFO Dan Malone.

Key Dates:

1990:: York Group is formed by a group of private investors after the sell-off of casket businesses by Service Corporation International (SCI).
1996:: York Group goes public; later acquires The Doody Group, Inc.
1997:: The company acquires Sacramento Casket Co. and Houston Casket Co.
1997:: York Group introduces The York Merchandising Systems (YMS), which displays caskets in a non-traditional way.
1998:: The company acquires Colonial Guild, Ltd. and Cercueil Lauzier, Inc.
2000:: Wilbert Inc. tries to take over company and Tom Crawford is the appointed CEO.
2001:: Matthews International Corporation purchases The York Group.

York had another plan fermenting when in early 2001 the company announced that Matthews International Corporation had bought York for $10 a share, marking Matthews International’s foray into the casket business. Matthews also bought the commemorative products division of York for $45 million. Fresh on the heels of the unsuccessful Wilbert takeover bid, it was a move that surprised the industry, though Crawford indicated in Today in Deathcare that they had established a relationship with Matthews as early as 1996. Matthews, based in Pittsburgh, Pennsylvania, was a leading designer of custom identification products and made 60 percent of the industry’s bronze grave markers and cremation urns, including Hall of Fame plaques and Elvis Presley’s grave marker at Graceland. They also produced printing plates, pre-press services, imaging systems, mausoleums, cremators, and other memorialization products. In 2000 they made Forbes magazine’s “Eleven to Watch” list as one of the country’s most promising companies.

The company had set a goal to reduce net debt to $30 million by the end of May 2001, and when Matthews bought the company a few weeks later the debt was reduced to zero. Now York could focus on building their casket business while battling new challenges in an evolving industry. “Our priorities continue to be executing our strategic plan, organizing the company’s assets in the most efficient way possible, improving our cash flow, strengthening our organization and refinancing [debt],” said Crawford in a Houston Business Journal article in late 2000.

With refocused attention, the York Merchandising System was expanded, and plans to offer more features to the Funeral Resource Center concept were made. The company started to think about a new direction in the death-care industry, called “pre-need.” This new direction involved advance sales of caskets and specific burial insurance, as well as other prepayment practices and funding plans.

The next few years looked to be lucrative for the death-care industry as the nation’s 78 million Baby Boomers aged. The National Funeral Directors Association estimated that annual deaths would increase 50 percent by 2020, to three million a year. Given those statistics, and given new challenges in the sales market, and a new parent company, York plans to expect many new challenges in the years to come.