Clark Contractors Open for Business After CDI Split

From the time he finished college, William Clark’s dream was to succeed his father, Bill, as CEO of CDI Contractors.

Now, from a small office suite on Highway 10 in west Little Rock, Clark and a handful of former CDI colleagues are pursuing construction jobs in competition with the company his father founded with Dillard’s Inc. in 1987.

“Ironically, yes,” Clark said, “being CEO of a company that competes with CDI feels very strange. But I’m afraid this is the new normal.”

Everything about the past two years has seemed strange to William Clark, who recently had his 40th birthday. Although it was his goal to be CEO of CDI, “I didn’t think it would happen for another 10 years.” Instead, 63-year-old Bill Clark died of cancer in May 2007, setting off a chain reaction of business, legal and personal maneuvering that Clark doubts his father could ever have imagined.

“I think if he knew everything that happened in 2008, he would bless this decision,” Clark said.

When 2008 started, William Clark expected that some of his family’s half-interest in CDI would be sold to longtime managers. A deal to that effect was in the works — including a hot dispute over how Dillard’s should have accounted for its share of the profits — when one of those managers, longtime chief financial officer John Glasgow, mysteriously vanished on the last Monday of January 2008.

The plan to sell shares to managers screeched to a halt. In March 2008, Dillard’s restated a few million dollars worth of profit over several years and blamed it on an “error” by CDI.

The next month, Dillard’s announced that it had retained Stephens Inc. of Little Rock to “assist it in evaluating its options” for its 50 percent of CDI. (Warren Stephens, owner of Stephens Inc., is a member of the Dillard’s board of directors, part of a two-thirds majority elected directly by members of the Dillard family.)

Dillard’s had a contractual right to buy Clark’s half of the business upon his death, and it exercised that option in August. The purchase price paid to Clark family trusts, according to Dillard’s filings with the Securities & Exchange Commission, was $9.8 million.

Clark and 11 other CDI managers — including Danny Bennett, Shannon Earls and John Johnson — made an offer to buy CDI. But they did not advance to a second round of negotiations in September, Clark said.

Two other prospective buyers did. But their bids were “I guess lower than Dillard’s wanted,” he said. Dillard’s Inc. — led by Bill Clark’s best friend, William Dillard II — sent word through Stephens’ representatives that it would entertain one more offer from the CDI managers.

On Friday, Dec. 19, Clark said, “We put in an offer we could finance and service. And they said no.” The call came from Stephens’ COO Curt Bradbury.

“At that time, I knew they were going to begin integrating CDI into Dillard’s,” Clark said, and it wasn’t just an accounting change. The days when “Bill Dillard allowed Bill Clark to run CDI as he saw fit” were clearly over.

Decisions that were once left to CDI were being made by the parent company, including severing some longtime business relationships that Clark feared would cost the company future building contracts. Clark had become, in his words, “CEO in name only.”

“They started implementing their management philosophy, and that was different from what I felt was the best course for CDI. I decided to strike out on my own and start my own firm,” he said.

New Old Company
Clark resigned as CEO on Jan. 6. The next day, Dillard’s promoted Lloyd Garrison, president of CDI and one of the first employees Bill Clark hired in 1987, as his successor.

On Feb. 10, Clark and minority partners Earls and Bennett announced the creation of Clark Contractors LLC. Clark wouldn’t reveal the ownership split, but he said Earls’ and Bennett’s shares were “more than nominal.”

Clark and Earls had started working for CDI on the same day in June 1991. Bennett, 52, had joined the company two months earlier after working at Pickens-Bond Construction Co. of Little Rock and its successor, Hensel Phelps.

They also brought John Johnson with them from CDI as chief financial officer, as well as Christy Clark — William’s wife, whom he met when she joined the accounting staff of CDI. Rounding out the Clark Contractors staff is Carrie Dailey, a human resources and payroll staffer who was laid off from CDI as its accounting was integrated with that of Dillard’s Inc.

It’s a new company operating out of rented offices in the Highway 10 Office Park at 16603 Cantrell Rd., but it doesn’t feel that way.

“We’re going to do business just like we did at CDI,” Clark said. That means signing up with some of the old vendors, and it also means going after negotiated contracts rather than trying to be the low bidder, since that’s the way CDI did most of its work.

“We’ll work wherever we can get a job,” Clark said. “Our roots are in Arkansas, so the majority of the work will be in state. But we’ll pursue work out of state as the opportunity arises.”

Advantages, Disadvantages
As of last week, Clark Contractors had no signed contracts in hand, but William Clark didn’t seem concerned. He said several clients, including some former clients of CDI, had committed to giving projects to the fledging enterprise.

“If the economy was going gangbusters, we still wouldn’t have any revenue,” Clark said. “We’re two months old, and it takes awhile to go from contract to construction.”

 

CDI Adds to Dillard’s Bottom Line
CDI Contractors reported record 2007 revenue of $575 million when surveyed for Arkansas Business’ 2008 list of the state’s largest private companies.

Publicly traded Dillard’s Inc. bought the half of CDI it didn’t already own on Aug. 29 and now operates it as a wholly owned subsidiary, so CDI will no longer be eligible for the list of private companies. But Dillard’s reports to the Securities & Exchange Commission should make it possible to determine whether CDI remains as busy under its new ownership and management structure. And it will be the only construction company in Arkansas whose profitability is a matter of public record.

The annual report that Dillard’s filed with the SEC on April 1 breaks down corporate revenue into two business segments: retail operations and construction. Here are pertinent details the “Form 10-K” reveals about the construction segment:

• After paying $9.8 million in cash for the 50 percent of CDI owned by the heirs of founder Bill Clark, the corporation acquired assets of $92 million, including cash of $14.1 million and accounts receivable of $72.9 million, and liabilities (accounts payable) of $82.2 million. Five months later, at Dillard’s fiscal year-end on Jan. 31, the CDI assets were $84.91 million.

• CDI had net sales of almost $88 million to external customers in the five months it was owned by Dillard’s in fiscal 2008. It also had “intersegment” revenue — that is, revenue for work done on Dillard’s retail properties — of $19.1 million during that period. (It was a dispute over how to account for CDI profits from work for Dillard’s that led to a restatement of earnings last year.)

• Dillard’s slashed capital expenditures in 2008 by more than half — from $396.3 million in 2007 to $189.6 million in 2008 — “mainly as a result of the construction of fewer stores,” the report says. Since CDI does virtually all of the store construction and remodeling for Dillard’s, that decrease in capital expenditures presumably had a dramatic impact on CDI’s 2008 revenue and on any comparison between 2007 and 2008.

• The construction segment’s net profit during the partial year was $4.15 million — that is, 4.7 percent. At the bottom line, however, CDI after-tax profit offset the company’s $241 million net loss only by about 1 percent.