by Arkansas Business Staff on Monday, Dec. 27, 2010 12:00 am
1. Republican Victories
The General Election of November 2010 was historic, changing the political landscape of Arkansas.
Republicans candidates won nearly all of their elections, ranging from congressional races to seats in the state General Assembly.
In the U.S. Senate race, Republican John Boozman beat incumbent Democratic Sen. Blanche Lincoln even though she outspent him $11 million to $2 million and touted her position as chairman of the Senate Agriculture Committee. Lincoln had been the first Arkansas senator to hold that seat.
But voter frustration with the new health care reform law and slow economic recovery combined to propel new faces, Republican faces, into office. Nearly all candidates with a "D" next to their names suffered from the anti-Democrat, anti-incumbent and anti-Obama movement experienced not just in Arkansas but throughout the United States.
In the 1st Congressional District, Republican Rick Crawford won his race, making him the first Republican to hold the seat since Reconstruction. In the 2nd District, retiring Democrat U.S. Rep. Vic Snyder was replaced by conservative Republican Tim Griffin, who defeated Democrat Joyce Elliott.
Come January, Republicans will control four of Arkansas' six seats in the U.S. Congress.
On Nov. 2, Republicans also did well in constitutional elections, winning the posts of lieutenant governor, secretary of state and land commissioner.
The Republican tidal wave on Election Day carried through to the races for the Arkansas Legislature. The GOP won all seven state Senate races, though Democrats still will hold a narrow majority: 20 to 15.
The Arkansas House of Representatives will have 44 Republicans in January, a result of the GOP gaining 15 seats. The previous record number of Republicans in the House had been 30.
One of the Democratic bright spots on Nov. 2 was Gov. Mike Beebe. Not only did he trounce Republican candidate Jim Keet, but Beebe won in every county, making it one of the most decisive victories ever by an Arkansas politician - on a night that, otherwise, was a rout of Democrats by the GOP.
2. Health Care Reform
In March, President Barack Obama signed landmark legislation to overhaul the health care industry in an attempt to provide coverage to the millions of Americans without insurance.
In more than 2,000 pages, the health care reform law - the Patient Protection & Affordable Care Act - spelled out how by 2014 most Americans would have to buy health insurance or face civil penalties.
In Arkansas, about 500,000 people out of 2.8 million don't have health insurance.
But the legislation proved to be divisive. Republicans didn't support the legislation and made it a campaign issue in the 2010 election, saying they would repeal it, which is unlikely because of the Democratic majority in the Senate (not to mention the president's veto pen).
The first wave of expanded benefits started appearing in 2010.
Insurance companies could no longer deny coverage to children under 19. Also for group policies, dependents up to age 26 are now covered. And a lifetime cap for benefits has been eliminated.
Health insurance companies expected, because of the reforms, to see more revenue from premiums but not necessarily an increase in profits.
Some in the health insurance industry said they feared healthy people wouldn't buy insurance until they needed medical care.
Others in health care said that the days were numbered for single-doctor practices and independently owned small-town hospitals because of the new health care act.
Governors and attorneys generals have filed lawsuits in federal court challenging the reforms, claiming the federal government doesn't have the power to force people to buy health insurance. Arkansas Attorney General Dustin McDaniel, a Democrat, said his office wasn't going to sue the federal government over health care reform. He said he didn't think a lawsuit would be successful.
Some judges have upheld the reforms, but in December, a Virginia judge ruled the health care reform law unconstitutional.
The question will inevitably be decided by the U.S. Supreme Court.
3. Razorbacks Resurgence
The University of Arkansas Razorbacks hit the halfway point of the 2010 football season and appeared headed for the sort of year fans had experienced so many times before. It seemed that once again the big expectations of the offseason would go unfulfilled.
Losses to Alabama and Auburn put the Razorbacks 1-2 in the Southeastern Conference and 4-2 overall with six games left. All the preseason talk of making a BCS bowl seemed silly, and another New Year in Dallas or Memphis looked likely.
As it turns out, the season was hardly a disappointment. By the end of the year, few teams were hotter than the Razorbacks, who ended the regular season ranked in the Top 10 for the first time since 1989.
Arkansas, which faces Ohio State in the Sugar Bowl on Tuesday, Jan. 4, closed the season by winning six consecutive games. The Razorbacks outscored their opponents by nearly 20 points per game and knocked off three Top 25 programs during the win streak.
Coach Bobby Petrino kept the team from fixating on the early-season struggles and guided them to the first BCS bowl in school history. Arkansas is appearing in the Sugar Bowl for the first time since the 1979 season (Lou Holtz's third year on campus) and finished the regular season ranked No. 8 nationally.
Few teams in the country were better offensively. Arkansas finished in the Top 10 in passing offense, total offense and pass efficiency, further cementing Petrino's legacy as one of the game's great offensive minds.
Defensively, the Razorbacks enjoyed a surprising turnaround from Petrino's first two seasons. Arkansas won several games thanks to defensive play, a change from 2008 and 2009 when defense actually cost victories.
It's not a stretch to think the success is just beginning for Petrino and the Razorbacks.
Petrino was rewarded with a new employment agreement that runs through 2017 and pays an average of $3.56 million annually. Ground will be broken in April on a football operations facility that Petrino thinks will be a crucial piece of continued success for the Razorbacks.
Keeping the success going will cost money, but Arkansas administrators are banking on the success bringing in additional revenue. Fees to purchase season tickets are increasing in 2011 through the Razorback Seat Value Plan and could generate up to $5 million annually.
4. Bank Expansions and Profits
If growing and making money were on their list of resolutions, some Arkansas bankers scored two big check marks during 2010.
Conway's Home BancShares Inc., Little Rock's Bank of the Ozarks and Pine Bluff's Simmons First National Corp. made out-of-state moves to expand their operations through the Federal Deposit Insurance Corp.
Florida was home to a string of six (at last count) FDIC-assisted transactions for Home BancShares. The acquisitions grew its Centennial Bank branch network in Florida to 49, compared with 52 in Arkansas.
Total assets were boosted by about $500 million with Sunshine State deals that stretched from the Panhandle to the Keys: Old Southern Bank of Orlando and Key West Bank in March; Coastal Community Bank of Panama City and Bayside Savings Bank of Port St. Joe in July; Wakulla Bank of Crawfordville in October; and Gulf State Community Bank of Carrabelle in November.
Bank of the Ozarks closed four FDIC-assisted transactions in Southeastern banks with combined total assets topping $1.1 billion: Unity National Bank of Cartersville, Ga., in March; Woodlands Bank of Bluffton, S.C., in July; Horizon Bank of Bradenton, Fla., in September; and Chestatee State Bank of Dawsonville, Ga.
George Gleason, chairman and CEO of Bank of the Ozarks, was honored as a Community Banker of the Year by American Banker.
Simmons First went north to expand its total assets by more than $420 million in FDIC-assisted deals for Southwest Community Bank of Springfield, Mo., and Security Savings Bank of Olathe, Kan., in October.
The conventional, $3.15 million acquisition of Community State Bank of Bradley (Lafayette County) in September brought additional assets of $24 million to the Golden family's Allied Bank operations in Arkansas.
"Record quarterly profits" during 2010 was a refrain enjoyed by both public and private banking ventures, highlighted by Bank of the Ozarks on the public end of the spectrum and First Security Bancorp of Searcy among private holding companies.
Arvest Bank of Fayetteville, the largest bank headquartered in Arkansas with total assets of $11.3 billion, started the year at No. 92 among the nation's largest banks thanks in part to the disappearance of nearly 300 charters during 2009.
5. High-Profile Financial Meltdowns
Bankruptcies, collection suits and federal indictments have become lagging indicators of the ferocity of the Great Recession as over-leverage and sagging real estate values finally caught up with some of the biggest names in Arkansas business.
Gene Cauley, lawyer and real estate investor, got the party started by reporting to federal prison in Colorado in January after pleading guilty in 2009 to stealing $9.3 million from a client trust fund.
In February, John David Lindsey, son of Fayetteville real estate magnate Jim Lindsey, filed the largest personal bankruptcy in memory: $169.6 million in debts against $9.9 million in assets.
March brought news from the Arkansas Insurance Department that Steve Standridge of Mount Ida, patriarch of one of the largest insurance agencies in the state, had falsified $4 million in collateral to buy a small workers compensation insurance carrier, Gibraltar National Life Insurance of Little Rock. State regulators also said that banks made millions of dollars worth of premium finance loans against Standridge policies that never existed or that were quickly canceled.
The Little Rock businessman who sold Gibraltar to Standridge was also a victim of the recession. In July, Ed Harvey, 78 and diagnosed with Alzheimer's disease, was accused by two banks of transferring assets to his wife to avoid paying debts. The Harveys have avoided bankruptcy and receivership, but they have been selling off assets, including a 126-foot yacht for the bargain-basement price of $2.27 million.
Also in July, Steve Clary of Little Rock, developer of Shackleford Crossings and dabbler in many other businesses, was indicted by a federal grand jury on four counts of wire fraud and one count of mail fraud for allegedly misappropriating $1.6 million in bank loan proceeds. Clary, who claimed net worth of $92 million at the end of 2007, in August filed a bankruptcy petition that was nearly as big as John David Lindsey's: $168.6 million in liabilities and only $1.4 million in assets.
In September, a federal court jury found lawyer and real estate developer Aaron Jones guilty of burning down his west Little Rock house in an insurance fraud scheme, and he was sentenced in December to serve 10 years in prison and pay $1.3 million in restitution.
Brandon Barber, once a high-flying developer in northwest Arkansas, filed for bankruptcy protection in mid-2009. But he was stripped of that protection last month when U.S. Bankruptcy Judge Ben Barry denied his discharge because "Barber was actively engaged in transferring and concealing his available money with the intent to delay, hinder, and defraud his creditors."
6. The Stimulus Effect
Some politicians, pundits and just the general public may deride the federal stimulus program (official name: the American Recovery & Reinvestment Act of 2009), but Arkansas Business' conversations with contractors, builders, architects and engineers left us with one impression: It may not have created a lot of jobs, but it certainly helped insulate these professions from the Great Recession.
Arkansas' portion of the $787 billion came to about $3.1 billion, of which almost $2 billion had been spent as of late December. The $3.1 billion is going, or has gone, to more than 2,000 projects.
More than half - 1,021 - are education-related, and they range from improving the quality of school meals to the renovation and repair of education buildings throughout the state. One example: $6 million toward a $21 million student life complex at the Arkansas School for Mathematics, Sciences & the Arts in Hot Springs.
The state Highway & Transportation Department also has benefited greatly from the federal funding, with $416 million in projects awarded. The department said that in 2010, it had funded 132 road projects using stimulus money, resulting in "296 miles of improvements on Arkansas highways."
On Dec. 8, the Arkansas Office of Recovery & Reinvestment issued its report on programs and projects funded by ARRA in Arkansas for the quarter ending Sept. 30. It said that "the equivalent of 3,652 full-time jobs were created during the three months ending Sept. 30, 2010. This was the single largest number of jobs created during a calendar quarter since the start of the Recovery Act."
Although, the report said, the jobs aren't necessarily one person working full-time during the quarter, a full-time equivalency can represent several people working part time because of stimulus money.
Arkansas' unemployment rate, which stood at 7.6 percent in January, reached 7.9 percent in November, compared with the U.S. jobless rate of 9.8 percent. The state generally has tracked a couple of percentage points below the national unemployment rate throughout 2010.
In addition, since March 2009, the act has provided $667 million to help support Arkansas unemployment insurance.
As Don Weaver, part-owner and EVP of Weaver-Bailey Contractors of El Paso, put it: The stimulus act "didn't really increase people's employment, but it saved a lot of jobs."
7. Baldor Sale
It was a big year for Baldor Electric of Fort Smith, which makes electric drives and motors. The company saw increasing profits throughout the year, which culminated with the late November announcement that the company had been sold to Swiss power and technology company ABB in a deal valued at $4.2 billion.
First-quarter sales were $397.5 million, down 1 percent from the same period a year earlier. But profits for the quarter were up $7 million year over year.
Stronger demand led the company to beat estimates for the second quarter, in which sales were up 14 percent over the previous year. Improvements continued for the third quarter, with Baldor nearly doubling quarterly net income year over year and setting a record operating margin.
In August, Baldor CEO John A. McFarland announced his plan to retire on Dec. 31.
On Nov. 30, Baldor announced its sale to ABB. Under the terms of the agreement, unanimously approved by both companies' boards of directors, publicly traded ABB agreed to pay $63.50 per share in cash. That's a 41 percent premium over Baldor's Nov. 29 closing price of $44.99.
The company's single largest investor is its employees' profit-sharing plan. Based on the number of shares in Baldor's most recent proxy, those shares are now worth a total of $227 million in the sale.
McFarland owns 247,118 shares, not including unexercised options, which are now worth about $15.7 million.
McFarland said in an announcement that he would stay on "to support a successful integration." Ronald E. Tucker, Baldor's current president and COO and designated successor to McFarland, will run Baldor, including the mechanical power transmission products business and ABB's motor and generator business in North America, after the transaction is completed.
ABB said it would retain the Baldor brand, the company's Fort Smith headquarters and its management. The deal is expected to close in the first quarter of 2011.
Baldor is the seventh-largest publicly traded company in Arkansas by revenue, with $1.52 billion in sales in 2009 and $1.95 billion in 2008. It employs about 7,000 people in various locations in the U.S., Canada, England, Mexico and China.
8. After Alltel
When the sale of Alltel Corp. to Verizon Wireless was announced back in June 2008, there was, understandably, a great deal of worry about the effect that the loss of high-paying jobs might have on Little Rock's economy.
To be sure, a good number of people lost their jobs as a result of the $28.1 billion sale, but 2010 saw many of them continuing their careers in telecom or going on to start new ventures in other fields.
Former Alltel exec Frank O'Mara is doing a bit of both. He and fellow Alltel alum Gary Taylor opened a running supply store in the Heights called Go! Running.
More significantly for Little Rock, O'Mara is also now CEO of a wireless service with a familiar name: Alltel.
In April, Atlantic Tele-Network Inc. of Massachusetts announced it purchased $223 million worth of former Alltel assets from Verizon Wireless. ATN also secured a license to use the Alltel name and trademarks. The new Alltel is based in Little Rock, but it provides wireless service to nearly 900,000 subscribers in parts of Georgia, North Carolina, South Carolina, Illinois, Ohio and Idaho.
Also in April, former Alltel CEO Scott Ford's Westrock Coffee made a $5 million investment in a 56,000-SF production facility in North Little Rock that will employ 25 people.
In June, former Alltel execs Randy Wilbourn and David Martin announced their new marketing and PR firm Martin-Wilbourn Partners LLC. Martin served as CEO of Cranford Johnson Robinson Woods starting in 2006 and left the company in May, along with Andy Moreau, also formerly of Alltel, and several others.
Also in June, ex-Alltel exec Phil Brandon opened Rock Town Distillery, which produces bourbon, gin and vodka at its 15,000-SF downtown facility.
In September, the Circumference Group, which was started by former Alltel COO Jeff Fox and employs several veterans of the Little Rock telecom, hired John S. Haley as its president. Haley served two stints with Alltel.
Speaking of Jeff Fox, in February, he was appointed president and CEO of Convergys of Cincinnati. His initial contract was for one year, but in November, that was extended through Jan. 31, 2013.
9. Bureaucratic Bumbling
In the realm of public money and politics, 2010 could easily go down in the Arkansas almanac as the Year of the Double B: Bureaucratic Bumbling.
Mark Wilcox, outgoing state land commissioner and would-be secretary of state, became the poster boy for Double B antics. Wilcox was busted out for his extended junket to Alaska and more. His perks on the state's dime included having not one but two state-owned vehicles.
Scrutiny of the state's fleet of 8,653 vehicles prompted many an elected official to reach for the checkbook to pay taxes on the benefits derived from personal use. No state agency had more vehicles per staffer than the Game & Fish Commission: 658 vehicles to 613 employees. For an added layer of bumbling, the agency attempted briefly to draw up its own version of freedom of information.
The stated reason? The Arkansas Freedom of Information Act is a detriment for endangered species.
The operational side of the Arkansas Scholarship Lottery has drawn raves from a startup-results perspective. The administrative side? Not so much.
At the top of the list of line items for criticism was the generous allotment of 200 hours of compensatory time for very well-paid lottery staffers awarded by Ernie Passailaigue, lottery chief.
The recipients were Passailaigue, with his $324,000 salary, and two underlings who each draw $225,000 annually: David Barden, vice president of gambling operations, and Ernestine Middleton, vice president for administration.
More than aircraft was buzzing the Little Rock National Airport after the discovery of a $40,000 donation to Little Rock Christian Academy that masqueraded as a marketing expense.
Ron Mathieu, executive director of the airport, was called on the carpet for that and more as the free-spending ways of airport staffers was exposed by the Arkansas Times.
Tiajuana "T.J." Williams, manager-media and marketing, also drew fire for her unfriendly media stance regarding public business and a misguided play to back her boss and his obfuscations.
10. Entrepreneurial Development
Say hello to homegrown innovation. Arkansas startup companies - particularly those of the high-tech variety - began showing signs of significant nurturing received during the past few years.
The entrepreneurial environment in Arkansas may not yet be ready to emulate Boston, Austin or Silicon Valley, but seeds were sewn that began to reveal fruit in 2010.
University of Arkansas startups enjoyed a banner spring, led by firms such as Silicon Solar Solutions and BiologicsMD, winning nine of 14 international business plan competitions.
UA startup mentor Carol Reeves called it a feat that may never be matched. Jeff Amerine, who teaches aspiring entrepreneurs at the UA and advises startups in his role at Innovate Arkansas, went so far as to say that Arkansas startups opened up a "serious can of kick-butt" on business plan teams from schools such as MIT, Harvard, Stanford and the London School of Economics.
Several Arkansas startups - Arkansas Power Electronics International, NanoMech, Acumen Holdings among them - reached the cusp of major commercial success. Fayetteville's Virtual Incubation Co. lured former high-level public company executives to its board with its portfolio of promising ventures.
The UA expanded its Arkansas Research & Technology Park, opening the $16 million Enterprise Center, with its 65,000 SF of office and lab space for UA-affiliated startups, and Pulaski County announced plans to open the Innovation Conference Center at Verizon Arena.
Meanwhile, the Northwest Arkansas Entrepreneurship Alliance was launched in Fayetteville.
Commitments were made, both public and private, to Arkansas entrepreneurship. Gravity Ventures joined the state's fledgling venture-capital community in December, promising active investment in Arkansas' seed and early-stage firms. Winrock International launched two programs to assist aspiring entrepreneurs in rural Arkansas.
The state upped its commitment by investing further in ventures such as the Arkansas Development Finance Authority and its Risk Capital Matching Program.
A national investor based in Little Rock who attended the Arkansas Venture Forum in September told Arkansas Business that the quality of the presenting startups surpassed what he had seen elsewhere.
"This was much better," he said. "This was really impressive. The early-stage activity hasn't been here in Arkansas but has really emerged the last three years. This is really exciting for Arkansas."
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