Pacific Clay Products Inc.

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Pacific Clay Products Inc.

14741 Lake Street
Lake Elsinore, California 92530-1610
U.S.A.
Telephone: (951) 674-2131
Web site: http://www.pacificclay.com

Wholly Owned Subsidiary of Pacific Holding Company
Incorporated: 1886 as Pacific Sewer Pipe Company
Employees: 200
Sales: $80 million (2005 est.)
NAIC: 327123 Other Structural Clay Product Manufacturing

Based in Lake Elsinore, California, Pacific Clay Products Inc. is a subsidiary of Pacific Holding Company, an investment vehicle of investor David H. Murdock, best known as the chief executive and chairman of Dole Food Company, Inc. Through its successors, Pacific Clay has been doing business for well over 100 years, making use of the geologically unique clay deposits located near Alberhill, California. Because both sedimentary and metamorphic clays are blended together in these deposits they can be used to produce multiple ceramic products.

Pacific Clay products include bricks, available in a variety of colors, sizes, and textures and suitable for a wide range of construction and remodeling uses; and paving stones in a wide range of styles and colors for patios, sidewalks, pools, and streets. In addition, Pacific Clay offers a collection of stylish porcelain tiles for both indoor and outdoor applications. Another unit, Pacific Sewer Pipe Company, uses the clay deposits to produce sewer pipe. Other subsidiaries include Yankee Hill Brick, based in Lincoln, Nebraska; Pacific Aggregates, Inc., and Castaic Brick in Castaic, California.

CALIFORNIA BRICK-MAKING INDUSTRY TAKES SHAPE IN THE 19TH CENTURY

California possesses a long history in brick making. The early Spanish and Mexican settlers used mud, straw, and wooden molds to produce sun-dried adobe bricks for construction. Deposits of red-burning clays were also plentiful and later used to make common bricks. The first was produced in 1847 in Sutterville (now part of Sacramento), and a year later about 30,000 of them were used to make California’s first brick house. In the late 1800s clay and coal deposits were discovered near Alberhill, close to San Bernardino. By most accounts the successor to Pacific Clay Products was formed as Pacific Sewer Pipe Company in 1886, but an advertisement for the company that appeared in the Los Angeles Times in 1924 indicates that operations commenced in 1888. Regardless, the company soon moved beyond the production of vitrified clay sewer pipe to add such products as fire brick, face brick, fire clay flue lining, electric conduit, roofing tile, and terra cotta. It also produced household items such as bowls, jugs, and jars.

As Los Angeles emerged as a major port in the new century, Pacific Sewer Pipe also began to export its wares to Mexico, Central America, and the Pacific Islands. Because the company’s focus was no longer sewer pipe, in 1921 the name was changed to Pacific Clay Products. The company’s president was Edward M. Durant. Two years later he was replaced by William Lacy, a member of a pioneering California family, the president of the Lacy Manufacturing Company as well as a banker and one-time president of the Los Angeles Chamber of Commerce. Under his guidance Pacific Clay continued to grow in the 1920s, investing in new equipment in order to manufacture higher quality face brick. The company operated three plants, two in Los Angeles as well as one in Los Nietos that was the largest clay pipe plant in the world. The capacity was put to full use as the company thrived along with California’s building boom. In 1926 Lacy took the company public, issuing 100,000 shares of common stock.

The stock crash of 1929 ushered in the Great Depression of the 1930s, adversely impacting Pacific Clay’s business as the bottom fell out of the building market. Lacy’s other business interests also suffered greatly. In June 1932 the 67-year-old Lacy was found dead in the laundry room of his home with a pillow case over his head near an open gas jet. He was replaced as Pacific Clay’s president by John D. Frederick, Jr., and then in 1936, Lacy’s son, Roy, assumed the presidency. The company had been losing money in the early years of the 1930s but was enjoying success selling a line of colorful high-quality dinnerware under the Pacific Art Pottery label. As a result, Pacific Clay returned to profitability. When the United States entered World War II in late 1941, Pacific Clay, like many other companies, converted its operations to the production of war materials. When the economy boomed after the war, home construction soared and Pacific Clay returned its focus to building products and ceased producing dinnerware, which then became collectors’ items.

Roy Lacy died in 1950 at the age of 51 following a brief illness. His replacement as president, John D. Fredericks, would oversee an extended growth spurt for the company. Revenues reached $5.6 million in 1952 and topped $10 million by 1958. Along the way, the company expanded its operations to include a silica sand processing plant that supplied raw materials to bottle and glass container companies like United Can & Glass, Glass Container Corp., and Gallo Wines. At the Los Nietos location, a research facility was added in 1954, and two years later work was begun on a $1 million expansion to the plant, including the addition of a $600,000 continuous tunnel kiln. Pacific Clay also grew through external means. Acquisitions included Tillotson Refractories Co., a maker of vitrified clay pipe, and Western Refractories Co., which brought with it large reserves of refractory clay.

LOS ANGELES BRICK & CLAY ACQUIRED: 1963

Sales totaled $12.2 million in 1959, and business continued to improve as the company entered the 1960s, spurred by the rapid growth experienced by other western states, especially Arizona and to a lesser extent Nevada, Oregon, Washington, and Hawaii. About 90 percent of its revenues came from the sale of sewer pipe to municipalities, the rest coming from underground conduit used for telephone lines and flue lining for chimneys. Although a construction strike hurt business in 1962, sales reached the $15 million level in 1963, due in part to the $4.4 million acquisition of Los Angeles Brick & Clay Products Co. in June 1963. The company had been founded in Alberhill in 1895 to produce sewer pipe and a variety of paving and face bricks, and it had become the largest manufacturer of high-grade face brick in Southern California. Its addition provided much-needed diversity to Pacific Clay, which was overly dependent on its sewer pipe business.

Pacific Clay was reorganized in 1969, placed under a new holding company called Pacific Holding Corporation. In 1972 a group of investors, mostly based in New York, gained control, but just two years later they were ousted by a group of dissident shareholders led by Los Angeles real estate developer, David H. Murdock, who took over as the company’s president.

COMPANY PERSPECTIVES

Pacific Clay has experienced a unique history in the ceramic industry.

Murdock’s life was a true rags-to-riches story. Born in Kansas City, Missouri, in 1923, he grew up during the Depression. Times became difficult for his father, a traveling salesman, who peddled small Delco electric generators in the country. Sales collapsed with the start of a federally funded, rural electrification program. The family moved to Ohio, where Murdock attended high school. A dyslexic, he had trouble in school and dropped out after ninth grade and took a job pumping gas in 1940. Soon the country was at war, and in 1943 Murdock was drafted into the Army Air Corps. Upon his discharge in 1945 he settled in Detroit. Despite being broke he managed to borrow $1,800 to buy a small restaurant. He built up the business and quickly sold it at a $3,600 profit, the first notable achievement in an illustrious financial career. With money in his pocket he moved to Phoenix and took on a partner, a carpenter, to build houses. In a matter of months he struck out on his own to build houses, then turned his attention to more profitable duplexes, and finally strip malls. Just like Pacific Clay, Murdock prospered from the Arizona boom times. When he needed a major tenant to anchor an office high-rise in Phoenix, he recruited a dozen businessmen and started a bank. It became part of Financial Corp. of Arizona (FCA), along with a savings-and-loan association, a pair of title insurance companies, and David H. Murdock Development Co., his property management and development firm. Unfortunately, Arizona’s real-estate market collapsed in 1964, leading to the loss of virtually all of these assets by the end of 1968. As FCA’s largest shareholder, Murdock was ruined, on paper at least.

Undaunted, Murdock decided to set up shop in Southern California to pursue real estate development in Orange County as well as to buy and sell building materials companies. All he had to work with in making acquisitions were FCA’s $4.4 million in tax-loss credits that had to be used by 1973. First he was able to secure a short-term loan to buy Lincoln, Nebraska-based Yankee Hill Brick Manufacturing Co. in 1969. By modernizing the operation he quickly doubled the company’s profits, providing more than enough cash flow to quickly pay off the debt, and he turned his attention to buying California building materials companies through FCA.

He snapped up Huntington Tile, a pair of distributors for its ceramic tiles, and a hardware company. While reviewing scores of acquisition targets, Pacific Holdings caught his eye. In addition to its primary materials business, the company owned a struggling real estate development firm, McCarthy Co., which was dragging down earnings. If McCarthy were eliminated, Pacific Holdings presented an outstanding opportunity. A number of other investors recognized this as well, and the company’s management was also doing everything it could to block any takeover attempts. Murdock outmaneuvered all of them and at the annual meeting in April 1974, he was at the head of the rebel group that toppled management.

Once installed as president, Murdock engineered the purchase of FCA stock at a price 2.5 times higher than what it was trading at over the counter, although the deal was delayed until 1976. McCarthy was also sold, allowing Murdock to arrange a significant line of credit, which he put to use, essentially turning Pacific Holding into an investment vehicle. The company acquired International Mining, a New York-based conglomerate possessing many attractive assets, followed by Iowa Beef Processors and a major stake in Union Oil. In 1978 he bought Pacific Holding for $29 million, taking it private. In 1982 Pacific Holding became involved in textiles when Murdock gained control of Cannon Mills Company. Between 1979 and 1985, he quadrupled the assets of Pacific Holding to almost $800 million.

The contributions of Pacific Clay to the company that took its name were almost an afterthought by that time, especially after Murdock used another company he controlled, Flexi-Van Corporation, a container leasing company, to gain control of Castle & Cooke, best known for the Dole brand of pineapples but also the owner of about 150,000 acres of choice land in Hawaii. Murdock became its chairman and the chief executive officer of both Castle & Cooke’s real estate ventures and the Dole Food Company unit, which generated the lion’s share of his empire’s revenues.

KEY DATES

1886:: Pacific Sewer Pipe Company founded.
1921:: Name changed to Pacific Clay Products.
1923:: Company goes public.
1958:: Revenues reach $10 million.
1969:: Pacific Holding Corporation is formed.
1978:: David Murdock takes Pacific Holding private.
1996:: New Lake Elsinore plant opens.
2002:: Yankee Hill Brick merges with Pacific Clay.

NEW PLANT OPENS: 1996

Although Murdock’s attention was focused on higher-profile assets, he continued to hold onto Pacific Clay through Pacific Holdings. In 1980 Pacific Sewer Pipe’s plant, located at Santa Fe Springs, was closed and the operation moved to Corona to be closer to the Alberhill clay deposits. By the start of the 1990s Pacific Holding was producing about $1 billion in annual sales from a variety of assets that included building material companies like Pacific Clay, water companies, mining operations, and real estate ventures. Nevertheless, Murdock continued to hold on to the company and invest in its facilities. In 1996 a new state-of-the-art brick production plant was opened in Lake Elsinore, California. Low-thermal-mass (LTM) tunnel kilns replaced the company’s 1950s-era tunnel kilns. As a result, the time needed to burn bricks was reduced from 35 hours to just 14 hours. The largest facility in the western United States, it was able to produce 40 million bricks a year. Because it was more efficient, Pacific Clay cut costs, giving it a competitive advantage, while also reducing emissions, which made the operation more environment friendly.

Under the leadership of David Hollingsworth, Pacific Clay entered the new century. In 2002 the Yankee Hill Brick operations in Lincoln, Nebraska, were folded into the company. Two years later Yankee Hill opened a new brick plant, virtually doubling its output. As a result, Pacific Clay, with its plant in Lake Elsinore and the new Nebraska facility, increased its production capacity to more than 100 million bricks, a more than adequate amount to serve the needs of its customers across the United States.

Ed Dinger