by Arkansas Business Staff on Monday, Dec. 26, 2011 12:00 am
Crystal Bridges Museum Opens
After six-and-a-half years of buildup, the question was, could Crystal Bridges Museum of American Art live up to the hype?
We learned the answer on Nov. 11, the day the Bentonville institution opened: A resounding "yes."
Alice Walton, only daughter of Wal-Mart founder Sam Walton, announced plans for the museum in May 2005, soon after news reports revealed she had paid what was thought to be more than $35 million for "Kindred Spirits," an Asher B. Durand painting, from the New York Public Library.
At the time, Crystal Bridges was projected to cost $50 million, come in at 100,000 SF and open in 2009. The museum, designed by famed architect Moshe Safdie, eventually encompassed 201,000 SF, cost something north of $150 million and opened in 2011.
Decried, mostly in the big-city Eastern press, as a "culture vulture" seeking to snap up American masterworks only to display them in the hinterlands of Arkansas, Walton ignored her critics and, with the multimillion-dollar support of the Walton Family Foundation, continued her art-shopping spree.
Just a couple of the best-known prizes: Charles Willson Peale's "George Washington and Norman Rockwell's "Rosie the Riveter." The collection, however, came to cover the history of American art and feature works from lesser-known artists and edgier, contemporary pieces.
From the start, civic leaders in northwest Arkansas predicted the museum would be an engine for economic development in the region, forecasting up to 250,000 visitors a year. Bentonville Mayor Bob McCaslin said in early 2008 that the museum would be "the greatest catalyst for growth that this area has ever, ever experienced."
Indeed, construction of an upscale 104-room hotel in the city began earlier this month, and state tourism officials planned to buy advertising in national magazines to tout Arkansas as a cultural destination. In addition, Crystal Bridges and two other U.S. museums announced plans to partner with the Louvre in Paris to exhibit both American and European art.
For Walton, the museum is about more than telling the American story through its art; it's a tribute to her late mother, Helen, who shared with her daughter her own love of art. In an interview with Arkansas Business, Walton called that love "one of the real motivations for Crystal Bridges."
Although Alice Walton, whose net worth is estimated at about $21 billion, has been the driving force behind the museum, the Walton family and its foundation have shown increasing involvement in the project. The foundation disclosed that it had spent more than $1.2 billion on the museum in 2010 alone, including an $800 million endowment.
In July, the museum announced that Wal-Mart Stores Inc. was giving Crystal Bridges $20 million to cover admission fees for all visitors, with the intent of making museum admission free in perpetuity.
Kevin Lewis Admits Fraud
On Dec. 9, former Little Rock attorney Kevin Lewis was sentenced to 121 months in federal prison for committing the largest fraud prosecuted in Arkansas' history.
Lewis orchestrated a fake special improvement district bond scheme that cost Arkansas banks more than $50 million.
Lewis, 43, specialized in a niche of the law involving special improvement districts. Lewis knew and exploited the lax regulation of the districts.
Starting in 1997, Lewis created phony bonds that were either sold to banks or used as collateral for bank loans. The money fueled a luxurious lifestyle for Lewis that included buying in 2007 a $1.2 million home in west Little Rock that was then expanded. Lewis also bought stock in First Southern Bank of Batesville, eventually becoming its majority shareholder using borrowed money secured by the bank stock.
His scheme, a classic Ponzi in that new loans backed by phony bonds were used to pay interest on earlier phony bonds and loans, worked flawlessly until September 2010. Then, in a routine examination, the Federal Deposit Insurance Corp. questioned why First Southern Bank had invested $22.7 million in rural improvement district bonds. Further investigation revealed that the bonds, purchased from the bank's controlling shareholder, were worthless.
The bank never recovered. The FDIC took receivership in December 2010, rendering its stock worthless as collateral.
At the beginning of 2011, Home BancShares Inc. of Conway and a string of other Arkansas banks announced that they suffered losses from Lewis. At least 11 banks were victimized by Lewis, who spent months dodging process servers attempting to serve him with lawsuits from the various banks.
On Aug. 2, Lewis pleaded guilty to one count of bank fraud in U.S. District Court in Little Rock and agreed to pay restitution of nearly $40 million. He is scheduled to report to federal prison on Feb. 7.
While Lewis' fraud was the largest prosecuted in Arkansas, it's not nearly the largest with Arkansas connections. Former North Little Rock businessman W.A. "Tony" Rand and his five sons cost oil and gas investors more than $110 million. Most of them committed their crimes in Texas and were sent to prison in 2011.
Rand and three of his sons were convicted in federal court in Texas for operating an oil and gas scam and started serving their sentences in 2011. Tony, Greg, Mark and Bill Rand also agreed to pay restitution of $99.7 million. Tony's oldest son, Wayne Rand, was sentenced to 20 years in Texas state prison in 2011 for conning investors out of $8 million.
Tony's other son, Jeff, started scheming when he was living in Hot Springs and continued after he moved to Houston. In July, Jeff pleaded guilty to fraud of between $2.5 million and $7 million in U.S. District Court in Fort Smith. No sentencing date had been set as of last week.
Arkansas manufacturing took some body blows in 2011.
The Arkansas Department of Workforce Services reported in October that manufacturing had the largest over-the-year decline of all the business sectors in the state, with a loss of 6,400 jobs "related to multiple layoffs and business closures."
State manufacturing took two especially newsworthy hits in 2011: The Yarnell's Premium Ice Cream Co. of Searcy closed abruptly in June, and Whirlpool Corp. of Benton Harbor, Mich., announced plans to close its Fort Smith plant in 2012.
About 200 Yarnell's employees lost their jobs suddenly when the 79-year-old family company closed and subsequently filed for Chapter 7 bankruptcy. Yarnell's listed $15.7 million in debts and $8 million in assets.
Although the number of workers was relatively small, Yarnell's was very much an Arkansas tradition. The Yarnell family had operated the company from its 1932 beginning until its end. With a nod to its Arkansas origin, the manufacturer made an ice cream flavors in honor of the University of Arkansas Razorbacks.
Yarnell's ice cream was sold in Arkansas, Tennessee and parts of Missouri, Kentucky, Texas, Oklahoma and Louisiana.
Schulze & Burch Biscuit Co. of Chicago bought equipment, the Searcy plant, recipes and other assets for $1.34 million at an auction in November. Schulze & Burch has indicated an interest in reviving the Yarnell's brand, but firm plans to restart production have not been announced.
The pending Whirlpool closure in Fort Smith will affect many more workers.
As recently as 2007, Whirlpool was reported to be the ninth-largest employer in Arkansas, with 4,200 employees at the company's Fort Smith plant. But the number of employees working at the plant had declined. A year ago, the company said it employed 2,150 people in Fort Smith.
When the 45-year-old Fort Smith plant closes, about 1,000 employees will lose their jobs, and hundreds of jobs at companies dependent upon Whirlpool are also expected to disappear.
In an official statement, the company said, "This difficult but necessary announcement is being driven by a decrease in demand for the side-by-side refrigerator platforms that has resulted from the continued weakness in the global economy, and the aggressive pricing actions of global competitors."
2011 was dramatic for one of Arkansas' most lucrative resources: Billions of dollars were traded as some energy companies left the Fayetteville Shale Play and others moved in.
This year's first shakeup happened in February, when Chesapeake Energy Corp. of Oklahoma City announced it was selling all its Fayetteville Shale assets, including equity investments in Frac Tech Holdings LLC of Cisco, Texas, and Chaparral Energy Inc. of Oklahoma City.
Chesapeake's assets included about 487,000 net acres of leasehold and gas-producing properties. The company was producing about 415 million cubic feet of natural gas equivalent per day through 420 miles of underground pipeline.
The company said it was selling the assets as part of a plan to reduce its overall debt by 25 percent.
The news came shortly after Petrohawk Energy Corp. of Houston also pulled out of the shale, selling all its Arkansas assets to Exxon Mobil subsidiary XTO Energy Inc. for some $575 million.
Chesapeake's assets weren't on the market for long: Less than a month after the announced departure, BHP Billiton, a huge Australian energy company, swooped in, dropping $4.75 billion for its first entry into the U.S. market.
Later, Frontier Gas Services of Tulsa sold its midstream assets in the shale to Crestwood Midstream Partners of Houston, tallying up $338 million.
Initial reactions to the big changes showed fear that the shale might not have been as much of a golden goose as originally thought. What would happen to all those jobs? Why were companies deserting the shale?
But experts were calm. The sales were a natural evolution, they said. The companies that explored the shale were simply done exploring, and were ready to hand over their treasures to long-term operators.
BHP, Exxon Mobile and Crestwood were settling in for the long haul, they said.
And they seem to be right, so far. By the end of 2011, XTO had hundreds of active wells in the state. In a presentation to investors, BHP lauded the cost-effectiveness of drilling in the shale. At only $3 million a pop, building new wells was a steal. Not only that, the company said it was hoping to build 14 more drilling rigs, adding to Chesapeake's original six.
Windstream Expands Dramatically
In a hurricane of expansion, Little Rock's Windstream Corp. spent billions absorbing other companies throughout 2010 and making its largest acquisition yet in 2011.
The company has been working to build innovation as thousands of customers discontinue their traditional landline services.
"What happened over the last five years was clearly part of a five-year plan we put together to pretty radically change the focus at Windstream," President and CEO Jeff Gardner said in April.
During those years, the telecom invested more into rural broadband networks, as well as business services, data centers and cloud computing. To further this goal, the company acquired multiple companies with similar aims.
2010, Windstream absorbed Iowa Telecommunications Services Inc. for $1.2 billion; NuVox Inc. of Greenville, S.C., for $647 million; Q-Comm Corp. of Overland Park, Kan., for $782 million; and Hosted Solutions of Raleigh, N.C., for $310 million.
But the single largest purchase, by far, occurred in 2011. In August, Windstream announced it would merge with Paetec Holding Corp. of Fairport, N.Y., in a $2.3 billion deal.
The huge merger turned Windstream into an empire commanding 100,000 miles of fiber cables and promises to send the company into the Fortune 500.
But some opposition to the purchase was raised because Paetec had been planning a new headquarters building in Rochester, N.Y. The structure was to replace Midtown Plaza, a decaying downtown shopping mall, and was intended to house some of Paetec's 900 employees in the area.
With the 8.6-acre plot in limbo, locals in Rochester were worried the merger would stall downtown redevelopment. But in November, Windstream announced it would continue with the building project, completing the 335-person office. Gardner said Windstream would commit to a 15-year lease for 67,000 SF of office space in the building starting no later than August 2013.
Windstream also announced it would contribute $100,000 toward redevelopment of a Rochester community center. Rochester, in turn, withdrew all opposition.
By the end of November, the Federal Communications Commission had approved the merger. It closed in December.
BOZ Grows, Banks Profit
Banks around the nation continued to feel the lingering effects of
the financial meltdown. While many lenders busied themselves mending fences and rebuilding, Bank of the Ozarks Inc. kept baling hay and adding new fields.
The company made its sixth and seventh FDIC-assisted purchase in April, expanding its total assets by nearly $1.3 billion with First Choice Community Bank of Dallas, Ga., and The Park Avenue Bank of Valdosta, Ga.
The Park Avenue Bank, a $953.3 million-asset concern, marked its largest such deal to date. The tandem buys in April were preceded by Oglethorpe Bank of Brunswick, Ga., in January.
George Gleason, chairman and CEO of Bank of the Ozarks, was pleased with the company's success ratio of competitive bidding on banks across the Midwest and Southeast. BOZ investors were pretty happy too.
The company outperformed just about every bank of comparable size in the nation as profits through the first nine months of 2011 soared to $83.8 million, a year-to-year gain of 77.9 percent.
Its stock soared as well, prompting a two-for-one split effective Aug. 16, the company's third since its IPO 14 years ago. Shares hit an all-time, split-adjusted high of $28.79 on Dec. 16.
Earnings also were good at another acquisition-minded lender, Home BancShares Inc. of Conway. The company recorded net income of more than $45 million during the first three quarters, a 29 percent gain compared with the same period in 2010.
After completing six FDIC-assisted deals in 2010, Home BancShares paid $27.9 million for 17 branches, $378 million in performing loans and $535 million in deposits at Vision Bank of Panama City, Fla. Eight Alabama branches marked the company's first foray in that state.
In August, Home BancShares repurchased its TARP-funded preferred shares and associated entanglements, clearing the way for the company to unilaterally increase its dividend payments.
Privately held lenders such as Arvest Bank of Fayetteville and First Security Bank of Searcy enjoyed sizable bumps in profits.
Net income through the first nine months of 2011 jumped nearly 30 percent to $62.9 million at First Security, compared with $48.5 million in 2010. The net income leap for the nine-month period at Arvest ($32.9 million to $62.4 million) was even more dramatic: a nearly 90 percent gain.
Lottery Leaders Depart
If the Arkansas Scholarship Lottery were a business, its revenue would rank it among the 25 largest private companies in the state. That alone would make the rapid-fire departure of its top three executives big business news in 2011.
But the lottery isn't a private company; it's a governmental agency with a presumed mission to run efficiently in order to maximize the dollars available for college scholarships. And 2011 was the year that inefficiencies, incompetence and blatant abuse outweighed the expertise that the "South Carolina Three" - Ernie Passailaigue, David Barden and Ernestine Middleton - brought to the table.
It was also the year that legislators responsible for creating the distribution formula for lottery-generated scholarships began to consider some unintended consequences: a shift of students from two-year to four-year schools, high attrition due to academic failure and a shortage of dollars for the nontraditional students most likely to succeed.
The South Carolinians had successfully launched Arkansas' first state lottery in record time on Sept. 28, 2009. Twenty-five months later, on Halloween 2011, the total take from lottery ticket sales reached $1 billion. But by then, Passailaigue and Barden had resigned and Middleton had been fired.
Their combined salaries topped three-quarters of a million a year, yet they over-promised and under-delivered on revenue and especially on dollars available for scholarships. The IRS fined the lottery almost $100,000 for being late in remitting taxes owed by big winners, and a state audit found that Passailaigue and Barden each spent at least a quarter of their working days back home in South Carolina.
Since Passailaigue's departure in September, the lottery has been managed on an interim basis by Julie Baldridge, who had been its spokeswoman and lobbyist. The search for a permanent director began in December.
Meanwhile, 40 percent of the traditional freshmen who qualified for lottery scholarships lost them after their first year for failing to maintain minimum academic requirements. And the state Legislature's limit of $12 million in scholarship money for older, non-traditional students meant that nearly 6,000 of the students most likely to succeed were on a waiting list for scholarship assistance. Also of concern: 80 percent of scholarship recipients were opting for four-year schools, creating a glut of students at universities and hurting enrollment at two-year colleges.
Football Teams Set Records
Mike Anderson returned to Fayetteville to take over as head coach of the Arkansas basketball team, giving hope of a return to the glory years the program enjoyed under the leadership of his mentor, Nolan Richardson. But the gridiron is where the fun manifested. 2011 was a good year to be an Arkansas college football fan.
University of Arkansas: The Razorbacks (10-2) achieved the team's first back-to-back 10-win seasons since 1988-89, with the only losses coming on the road against the top two teams in the nation, LSU and Alabama.
Along the way, junior quarterback Tyler Wilson threw for 510 yards against Texas A&M to set a new single-game school record.
The Hogs climbed as high as No. 3 in the BCS standings in Bobby Petrino's fourth season as head coach and were rewarded with a top 10 clash with the Kansas State Wildcats at the Cotton Bowl in Arlington, Texas, on Jan. 6.
Arkansas State University: The Red Wolves (10-2) made an undefeated run through the Sunbelt Conference under first-year head coach Hugh Freeze. Backed by an 8-0 conference championship, the team was awarded a bid to the GoDaddy.com Bowl in Mobile, Ala., to face the Northern Illinois Huskies on Jan. 8.
ASU enjoyed its first 10-win regular season since its legendary 1975 campaign, backed by a passing offense that ranked No. 26 in the nation (273.6 yards per game). The team amassed 5,441 yards of total offense during 2011, a school record and the first time the 5,000-yard mark was surpassed.
The shock of Freeze resigning to accept the head coaching gig at Ole Miss was replaced with the euphoria of hiring Gus Malzahn, offensive coordinator at Auburn University.
University of Central Arkansas: The Bears (9-4) made their first appearance in the Football Championship Series playoffs in just the team's second season of eligibility. UCA advanced to the second round, losing 41-14 to the Montana Grizzlies on the sub-freezing Sprinturf of John Hoyt Field in Missoula, Mont. All the team's losses came against opponents that ended the season as conference champions.
Clint Conque, in his 12th season as head coach at UCA, was named among the 20 finalists for the 25th annual Eddie Robinson Award honoring the national coach of the year in the NCAA Football Championship Subdivision.
In 2011, Dillard's Inc. of Little Rock continued its major turnaround.
For the three quarters ended Oct. 29, its net income was $120.8 million, compared with $70 million for the same period in 2010. And its sales were $4.29 billion during that time, compared with $4.17 billion during the same period in 2010.
Its same-store sales were up every month except for February and March, when they were off only 1 percent.
This is coming from the retailer that suffered through 18 months of same-store sales declines between August 2008 and January 2010. But then in 2010, Dillard's managers started a stronger push to close underperforming stores, trim expenses and appeal to the affluent customer. At the end of 2010, it announced it was opening a 852,000-SF Internet fulfillment center in Maumelle to support the growth of its online sales, which Dillard's doesn't separate in its filings. The center is expected to open in 2012.
Other strategies paid off in 2011. In January, Dillard's announced it was going to move ownership of some of its real estate into a real estate investment trust. It was unclear, though, what Dillard's exact plans were for the REIT. Dillard's and its auditor, PricewaterhouseCoopers LLP of New York, couldn't agree on when the tax benefit related to the REIT should be recognized. Dillard's wanted it to be claimed in future earning periods. The Internal Revenue Service agreed with Dillard's, and Dillard's fired PricewaterhouseCoopers in October. It has hired KPMG LLP of New York as its replacement.
After the REIT announcement, Dillard's stock price soared. It started the year at $38.45 and then reached a record high of $61 in July. Last week, the stock price was trading just over $43.
Other stock prices of Arkansas companies were also on a wild ride in 2011. The stock price for Deltic Timber Corp. of El Dorado started out at $57 in January 2011 and zoomed up to $70 a share in April, fell and then hit $76 in October. It has since fallen to just over $59 during the week of Dec. 19.
Of the 16 largest public companies in Arkansas, half of them had increases in their stock price from Jan. 1 until the week of Dec. 19.
UCA Makes News
The University of Central Arkansas' past two presidents kept the Conway school linked to controversy and scandals this year.
The former presidents, Lu Hardin and his successor, Allen Meadors, both drew public scrutiny throughout 2011.
Hardin pleaded guilty to two felony charges in March at federal court in Little Rock. He had resigned as president of UCA in 2008 after it was discovered that he had deceived the UCA board of trustees into giving him a $300,000 bonus, and he pleaded guilty this year to the charges arising from that deception: wire fraud and money laundering.
U.S. District Judge James Moody sentenced Hardin to five years of probation.
Meadors, who was named as Hardin's replacement in June 2009, resigned in September after he and UCA board Chair-man Scott Roussel apologized for not revealing the conditions placed on a gift to the school. Aramark, the university's food vendor, offered $700,000 to renovate the UCA president's home but only if its contract was renewed without competitive bidding.
Other UCA board members said they were led to believe Aramark's donation was an outright gift.
No criminal charges have been filed against Meadors, but the UCA board bought out his contract. University trustee Rush Harding said the board opted to buy out Meadors' contract to show its opposition to the lack of transparency.
"And the board just felt like we needed to send a strong message that we're not going to stand for that anymore, and this [buyout] is the result of that," Harding said.
Tom Courtway, the university's general counsel, acted as interim president after the departures of both Hardin and Meadors.
Also attracting an investigation this year was a longtime Meadors' friend, Alex Chen, whom UCA hired as associate vice president for international engagement in 2010.
The university demoted Chen on Nov. 2 to professor after reviewing complaints about him and the international department.
Among the complaints was hat Chen allegedly had Chinese students work at the school more than their visas permitted, some without pay.
Earlier this month, the UCA board of trustees removed "interim" from Courtway's title, although Courtway said he would serve as president for no more than three years. That means a new president for 2015.
Courtway asked for no contract, no money in addition to his existing salary of $162,577, no car allowance and no country club memberships, according to Harding.
Courtway represents "a breath of fresh air" for UCA, Harding said.
- Jerry Jones' Dallas Cowboys Top $3B in Value
- The Capital Hotel Opens One Eleven at the Capital
- Reports: APEX Tool to Close Springdale Plant That Employs 250
- 8 Farmers File Fraud Lawsuit Against Turner Grain 20 hours ago
- NLR Woman Pleads Guilty to $1M Payroll Fraud 2 days ago
- Bruce Oakley To Give Turner Grain Money To Judge 3 days ago
- Clinton National Airport Reveals $20M Concourse Renovation Plans 2 days ago
- Sources: Turner Grain Appears Headed to Bankruptcy, Losses in Millions 5 days ago