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If business is good, he loses his pants

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People – June 2005

If business is good, he loses his pants
By Kathy Brown

Bar-S-Ranch is not your average country club, but it has the bare essentials. Play the nine-hole golf course or pingpong, go for a swim, fish in the 7-acre stocked lake, roam the nature trails on its 400 acres 10 miles west of Reidsville. Then get dressed and go home. Owner and founder Ellis Stewart opened the doors of this “clothing-free country club and resort” in 1990.

Bar-S — it’s a play on words — has about 250 members who pay $250 to $600 a year. The $600 buys unlimited use of the club and amenities. Visitors pay $40 per couple for a day pass. There’s an RV park and campground, as well as about 30 cabins. Their owners lease the land from Stewart.

Bar-S grosses around $100,000 a year. That might be pocket change for those with pockets, but it’s not bad for a threadbare country club. In fact, Bar-S is one of a handful of nudist clubs in the state that owns land. It is a member of the Kissimmee, Fla.-based American Association for Nude Recreation, which has 270 club affiliates nationwide. Bar-S draws members and visitors from all over the East Coast. Stewart characterizes them as people “pretty well-educated, pretty intelligent, who tend to run 40 and older.” He says nudity does not equal sex. “Rules are stricter here than at most church campgrounds.” That means no funny business between single men and women. The ranch is fenced, and legal authorities have never questioned him about its operations.

Stewart, 64, grew up “a good Southern Baptist in Georgia. As a kid we always went down to the creek and went skinny-dipping.” He joined the Air Force in 1959 and was sent to Louisiana, Georgia and Greenland. “Didn’t go nude up there.” Discharged in 1962, he spent a few semesters at the University of Tennessee at Chattanooga before going to work as a specifications writer for Western Electric, now Lucent Technologies, in Atlanta. The company transferred him to Greensboro in 1978, and he retired in 1992 as an engineering manager. It was while in Atlanta that he first joined a nudist resort.

When the resort folded, Stewart and others he had met there formed a traveling nudist club that met at members’ homes for pool parties and such. In 1982, he and his wife, Wanda, bought what’s now Bar-S and started raising cattle. “I was uninvolved for years. I was still a nudist at heart, but there were no facilities around.”

That changed in the late 1980s, when he got wind of a Greensboro club. It didn’t have property, so members started hanging out at Stewart’s ranch. In 1990, he sold his cattle and turned Bar-S into a nudist club and resort.

In addition to running daily operations, he coordinates member activities such as the annual “Take Pride in Your Hide” 5K, a cross-country run and walk in the buff. The ranch has no employees, but volunteers and part-timers help out for events. His home sits next to the property, and Stewart plans to develop part of the ranch into a retirement village for nudists, a move that will require some out-side capital.

Why nudity? It is, after all, a human’s natural state, one in which people can relax and get relief from stress. “People tell me that when they come through the gate at Bar-S-Ranch they feel their stress just slip away.”

High-school confidential

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Up Front: June 2005

High-school confidential

Lots of people hang their college degrees on the walls of their offices. The publisher of The Pilot, the Southern Pines newspaper, also displays his high-school diploma. He wonders why I would think that odd. “It was a huge accomplishment, getting through four years there, rigorous as it was,” David Woronoff says. “It’s something I’m really proud of.”

The diploma is from Woodberry Forest, the Virginia boarding school that for generations has educated the sons of North Carolina’s most famous — in an earlier age, they’d be referred to as our ”finest” — families. David’s is one. His great-granddaddy Josephus Daniels bought The News & Observer in 1894 and was Woodrow Wilson’s secretary of the Navy and FDR’s ambassador to Mexico. The family owned the Raleigh paper for 101 years. His grandpa, then his uncle, was its publisher.

Growing up, I knew little about boarding schools — my father frequently threatened to send me off to one, but he was talking about Stonewall Jackson Manual Training and Industrial School, the state reformatory near Concord — but I was swaddled in Woodberry alumni when Business North Carolina was part of The News and Observer Publishing Co. I worked for Frank Daniels Jr. (still part-owner of the magazine), class of 1949. Frank III, class of ’74, preceded me as BNC publisher. David ’84 spent five years here before heading to the Sandhills after he, both Franks and two other partners bought The Pilot in 1996.

All three are extremely bright, thoroughly decent men. How much that has to do with where they went to high school, I can’t say. “I went to Woodberry for the sole purpose of going to Carolina,” explains David, whose parents were living in Michigan at the time. “I was told if I applied myself and worked hard there, I could probably get in. And Woodberry was a defining experience. I came out of there a pretty well-rounded person. Academically, I was much stronger.”

His memories echo those of many of the alumni Chris Richter talked to while reporting this month’s cover story, especially as to the impression the school’s honor code made, regardless of when they were there. “The honor code,” David says, “is the rock in the middle of the stream that does not move.”

He talks about how refreshing it was to live four years without locks on the doors at a place that was “all about honor and telling the truth.” He adds: “The downside is, I’m much more gullible. If somebody lies to me, I don’t understand it — how anyone would do something that was dishonest.”

Over the phone, he accuses me of rolling my eyes. After all, proud product of public education that I am, I sent my 10-year-old son — now the magazine’s publisher — to P.S. 125 in Harlem when I was in New York on a fellowship. That, of course, had more to do with means than morals: Working for a newspaper, which was what I was doing then, pays nothing like owning one.

One last question. David has two daughters. Would he send them to boarding school? With his answer, my friend the publisher sounds a lot like my daddy the plumber. “I threaten to.”

High ambition

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High ambition

Western leaders look for new ways to level the playing field.

Western North Carolina is a great place to live but a hard place to make a living. Its assets include rugged mountain beauty and a willing work force, but much of it is isolated, geographically and politically. New companies barely keep pace with plant closings. But initiatives such as the Education and Research Consortium, which bonds the region’s institutions of higher learning, are bringing a new economic force to bear: high-speed Internet service. Senior Editor Edward Martin recently discussed the region’s economy with Anthony Almeida, vice president for economic development of Duke Power Co.; William Cecil Jr., CEO of The Biltmore Co., which owns Biltmore Estate — one of the top tourist attractions in the state — near Asheville; Gordon Myers, chairman of AdvantageWest economic-development agency; Kenneth Peacock, chancellor of Appalachian State University in Boone; and U.S. Rep. Charles Taylor, a Brevard Republican who also is chairman of Asheville-based Blue Ridge Savings Bank.

How’s business up here?

Cecil: We had a lot of concern after two 100-year floods in September, but we came back strong. By December, we were within about 10,000 visitors a month of our projections. Then we had a record February, and that was on top of a record February a year ago. One reason is the state provided a lot of support to keep tourism going. Another thing I’ve been fascinated with in the past 10 or 15 years is the rebirth of downtown Asheville. It used to be a shell of its former self with no restaurants or galleries. Now there are probably 40 or 50 of these trendy, “great-idea” restaurants. It has come to life.

Almeida: We’ve had good growth in residential, commercial and institutional electricity sales, but we’ve clearly been impacted by the decline of the textile, apparel, furniture and tobacco industries. In 1993, 43% of our total sales were from industrial customers. In 2003, that was down to 33%. Western North Carolina still has some capability to support the manufacturing sector. In terms of our hydroelectric projects in the Nantahala area and Cherokee, Jackson and Graham counties, we’ve recently gone through the federal relicensing process. We’ve agreed to maintain some lake levels beyond what we’ve done in the past, which will be good for recreation and tourism, and that will help balance the economy. An interesting data point: 25% of the bills of our customers in the Nantahala area go to out-of-state addresses. That shows the impact out-of-state people have there.

Peacock: In the northwest, we’ve got pockets that are very strong, but when you come out of those, you find some real challenges. In Boone, Appalachian State is a real driving force of the economy. Fortunately, young people want and need higher education, so demand continues up and up. We’ve been having about 12,000 — almost 13,000 — applications a year for 2,500 openings.

Taylor: We’re beginning to redefine western North Carolina as the 30 counties west of I-77, and some of them do very well. When I take my congressional hat off and look at things from our bank’s perspective, I find that areas like Chancellor Peacock’s Appalachian State and Boone are prosperous. But you can go to parts of Mitchell, Caldwell and Alleghany counties, and we’ve lost a lot of jobs in textiles and furniture. That impacts our wood industry. Agriculture is not as strong as it might be, although wineries are a positive development. The price of land is high here. The next generation is going to be paying $20,000 an acre. Tourism is strong, but we are both blessed and cursed with government land.

What do you mean?

Taylor: We’ve got the Blue Ridge Parkway and the National Park Service, with 1.5 million acres in federal forest, plus the Tennessee Valley Authority and the Cherokee reservation. But with large percentages of our counties in federal hands, it’s not taxed. That makes it hard to pay for local functions such as schools, water and sewer and landfills.

What about industry?

Taylor: We’ve lost a lot of these 3,000- and 4,000-job plants like Ecusta, the paper mill in Pisgah Forest, which is down to about nothing, and DuPont, which is closed entirely. We’re not going to get them back. Our strengths are in tourism and areas such as that, but we’ve got to bolster it with technology and manufacturing to have a good economy across the population.

Peacock: We’ve got a strong educational system with three universities, community colleges and public schools, and yet we’re small enough to know each other and get things done. We can provide a seamless transition between high schools, community colleges and four-year schools. Our people have a tremendous work ethic and entrepreneurial spirit. But we need jobs — particularly moderate-paying ones. In Watauga County, 38.9% of the people have a job that pays $9 an hour or less. We have to address that.

Myers: A huge number of people move here because of the quality of life — the aesthetics — and they take whatever they can get. But they’re continually looking to improve their financial condition and get better jobs. A lot go back to school — community colleges and colleges and universities — but they’re willing to take a lesser job on the front end to find something down the road.

It has been said that broadband technology is as important to economic development today as roads were 50 years ago.

Peacock: We’ve been limited in what we could do because we didn’t have access to this. As Gordon said, people get to Boone and are willing to take lower-paying jobs because they don’t want to leave. Broadband would open up barriers to companies that now want to come in but don’t because we don’t have it.

Is the Internet really that important?

Taylor: It’s absolutely essential for education, health care and modern business. There’s no manufacturing company that doesn’t realize how important it is, either at the beginning of the business or certainly as they expand.

Almeida: We’re already supporting this trend with DukeNet, a subsidiary that maintains our fiber-optic network and leases the fiber we have in North and South Carolina. I’d like to underscore what the congressman said about the importance of manufacturing. It’s so complex today that you’ve got robotics with links back to data centers that might be hundreds of miles away. So it’s critical you have that information highway here.

Myers: Not only that, but the ability to provide broadband infrastructure is going to allow us to continue to expand small and midsize entrepreneurs. The venture capitalists are going to come in, and you can operate virtually anywhere as long as you have connectivity and the ability to communicate with the rest of the world. Growth of small businesses is going to be phenomenal in western North Carolina.

But didn’t a consulting report you commissioned several years ago criticize you for not supporting startups?

Myers: We’ve realized in the last few years that there are many facets of job creation. It’s not just going out and recruiting business and industry. It’s creating your own jobs. We made a specific, philosophical decision to go into entrepreneurship programs and support them with venture capital. We set up the Blue Ridge Entrepreneurial Council and Blue Ridge Angel Investors Network. We have the short-term objective of recruiting industry but the long-term objective of creating jobs by creating an environment where entrepreneurs can come in, find a place where they want to live, raise venture capital and settle here.

Congressman, you’ve said your goal is to obtain about $100 million for broadband.

Taylor: We’re working with DukeNet and putting in fiber ourselves. We stress that the Education and Research Consortium is not in a situation to compete with anybody. We’re somewhat like the airport, rail and highways. Someone has to put in the system. We’ve brought in about $30 million already. When we started the consortium in 1997, we thought it would take about 10 years. We’ve already got links to Asheville, Cullowhee, Greenville, Spartanburg and Charlotte, and we want to expand on up to Hickory and Boone. We expect in a few months to have more federal money available.

Does the Region’s isolation hamper you?

Taylor: It might be a plus. For example, in Washington the government now requires that its secondary source of information be stored at least 75 miles outside the capital. At Western Carolina University, they now have four tracks of engineering — optometrics, bioinformatics, computer science and, of course, mechanical. At UNC Asheville, they’re working in bioinformatics. And Chancellor Peacock’s university is focusing on science. With a broadband network, we can centralize information so you don’t have to have every piece of expensive equipment at every site, but everybody has access. With broadband, it’s not necessary to have universities as close as they did in the Research Triangle when it started in the 1960s.

Businesses with low barriers to entry draw competitors. Are you risking the same with broadband?

Cecil: No, I don’t think so. Let me tell you how we use it at Biltmore. It’s a huge information-delivery system for us, not just for broad information about Biltmore but real specific information — people want to know the blooming schedules for specific flowers, for example. When azaleas are in bloom, click on “blooming schedule,” and we’ll give you accurate info. We don’t count hits. We count users, and it used to be that we got excited if had 100,000 or 120,000 users a year. Now we’re averaging about 350,000 a month. We have a visit planner, so you can plan your whole visit. We’re getting into more sophisticated stuff, like a shopping cart. And we’d like to go to scannable tickets in the next three or four months. That way, we don’t have to mail the ticket and charge you $10 more for it.

It sounds as if broadband is necessary merely to survive.

Myers: We just worked to get Navigational Sciences Inc. to locate here from Charleston, S.C. They use global-positioning chips in containerized freight to track it, tell you where it is, the temperature in the container — everything. This company is moving to Asheville because we had a venture-capital program in place, we had the Blue Ridge angel network, and we had broadband. They’ll open an operations-and-engineering center with 12 people and a $2 million investment this year. Another thing is the Blue Ridge National Heritage Area that Congress created last year. It’s one of 23 heritage areas in the U.S., and it could revitalize our area of western North Carolina. We’re looking not just at industry recruitment but jobs creation.

Taylor: That’s right. The heritage area and the new $1 million Blue Ridge Parkway marketing center are examples of how to turn broadband technology into money. There are 15 million people on the parkway each year. Now they stop and spend about three-tenths of a day, maybe to come off the parkway, get gas and have lunch. If we can get them for eight-tenths of a day, it’ll bring in $1 billion a year in those 30 counties of western North Carolina. If I come out of the Visitor Center with all the information I need on the Biltmore Estate or whatever that I need, there’ll be a way for me to swipe my card, and a sale will be recorded then. If you’re just passing out brochures, you can’t do that.

You’ve described industrial and commercial growth, but tourists don’t come to look at suburbia. Can you have it both ways?

Cecil: I’ve lived here all my life, and I have mixed feelings when I see a beautiful area that used to be undeveloped. I can’t help but say, ‘Gosh, you know, I remember … ’ But I talk to people who live there, and they say it’s beautiful and they’re glad to be there. One thing is, we now have a good transportation system. In the last 18 months or two years, a lot more people are using the Asheville Regional Airport. That’s huge for the folks I work with, who need to be able to go to, say, New York, and they can fly out in the morning and back at night. We used to have to go to Greenville or Johnson City, and find our way to Cincinnati to do that.

What about this concept of expanding western North Carolina to Interstate 77?

Taylor: It’s up to the local counties. But we in western North Carolina want to have a market large enough, populous enough, to look past just the congressional district.

Myers: Collectively, we have a larger voice. And we have a certain amount of self-reliance in the west, so that we think we’re going to have to look out for ourselves.

You seem to feel like an orphan.

Peacock: Well, we are some-what forgotten. In Raleigh, when people think about North Carolina, they say, ‘It’s a great place — you’ve got Raleigh, Durham, Greensboro, Winston-Salem, Asheville.’ What about the rest of us? Up there in Boone, out of the way, I sometimes feel like we have to wave our hands and say, ‘Hey, look! We’re up here.’

Almeida: The marketplace just doesn’t recognize city lines, county lines or states any more. Workers are flowing over county lines. Air quality, water quality and other problems flow over state lines. The dollar flows anywhere it wants to. We need to understand that and market the region.

What’s the region’s future?

Almeida: I’m bullish. We’re developing a much more balanced economy — a strong tourism industry, strong small-business development and industry that’s moving toward high-tech manufacturing. The key ingredient at the end of the day is going to be the availability of the work force. We — Duke Power — are doing what we can in that regard. We just started a community-college grant program that commits $3 million a year, from 2004 through 2007, to retooling manufacturing and training employees — $12 million in all.

Peacock: Bullish is a good word. When you think about the quality of life, work ethic, leadership and the partnerships we have, you’ve got a tremendous future. But in many ways, we’ve just scratched the surface. Science is a tremendous need. The health industry is strong, but we can do even more. The viticulture industry is growing. Ride down U.S. 421, and you just pass one vineyard after another. But I’d like to see more testing facilities here, so we don’t have to send our products to California for testing. I’d like to see more high-end resort properties. Northwestern North Carolina, where we are, has a lot of nice moderate — but not upscale — things. People like to be pampered. Science, spas, the sports industry, scenery and the film industry — we have great potential.

Finding diamonds in the rough was his job

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People – June 2005

Finding diamonds in the rough was his job
By Edward Martin

Sometimes, Donald Haack says, he wonders who the young man with a crew cut in the yellowed photographs was. The one who nearly suffocated in a South American river when his diving helmet failed. The one who slid down a hotel bedsheet in the middle of the night while under house arrest in a remote Brazilian town and sneaked to his airplane, only to find his escape blocked by a bulldozer. He climbed back up to his makeshift cell and waited for diplomats to sort out the mess.

He was in his 20s then, a diamond hunter. Now Haack is 75, and he negotiates a different jungle. More than a dozen dealers, not counting jewelry stores, sell diamonds in Charlotte. Some consider Haack the king of the jungle.

He grew up in Milwaukee, got an economics degree at the University of Wisconsin in 1951, then served in the Marine Corps at Cherry Point. His brother, a diamond wholesaler, told him tales of Indians in Venezuela, Brazil and Guyana scooping diamonds from river bottoms. In 1954, Haack and his wife, Janet, moved to a hut in Guyana and formed Haack Mining Co., which dredged several carats of high-quality diamonds a day there and in other South American countries. In the early ’60s, he started Guyana Wings, a bush-pilot service for other diamond miners. Political unrest forced the Haacks to flee in 1965. By then, they had three children.

After operating excursion boats in Grenada, the Haacks, urged on by a brother-in-law in Charlotte, moved to the Queen City in 1982, just as Grenada began expelling foreign businesses. He founded Donald Haack Diamonds and Fine Gems in a downtown bank building. At first, he bought diamonds from estate sales and distributors for resale to jewelry stores. Then he decided to sell the stones retail. Early customers included a former Iranian royal who wanted 15-carat teardrop diamond earrings. Haack matched two perfect stones, together worth about $2.5 million.

Now, in a two-story building across from SouthPark mall, Donald Haack Diamonds includes a shop where jewelry is designed and made. His 18 employees include three goldsmiths and three gemologists. Customers have included Ed Crutchfield, former First Union CEO and chairman, who ordered an engagement ring, and model Christie Brinkley, who chose a 6.5-carat sapphire ring set in diamonds and platinum. Haack says his average sale is $6,000 to $10,000.

Haack, former chairman of Charlotte’s Foreign Trade Zone and World Trade Association, recently completed a book, Bush Pilot in Diamond Country, that chronicles his life as a miner, trader and broker. It leaves no doubt who the crew-cut young man was.

Cheap imports kill mills as wharf fare heats up

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Tar Heel Tattler – June 2005

Cheap imports kill mills as wharf fare heats up
By Edward Martin

During the past 10 years, Tar Heel textile makers have closed factories, laid off workers and moved a good portion of what production they have left offshore. The most-cited reason: a glut of cheap imports. But imports — combined with good timing on a channel-dredging project — have caused a boom for another segment of the state’s economy.

Traffic at the state ports in Wilmington and Morehead City was up about 25% for the first nine months of the fiscal year that ends in June. Much of the increase has come since January, when China’s admission to the World Trade Organization eliminated tariffs on its goods. Among the fastest-growing imports are textiles, furniture, apparel, electronic parts and bulk commodities such as metal and lumber. Most of the state’s container traffic goes to the Wilmington port, while Morehead City gets mostly bulk cargo.

Wilmington has seen the greater increase. Imports of textiles and apparel were up about 70% from the previous year. Volume is being fed by overflow from rival ports such as Charleston, S.C., Norfolk, Va., Savannah, Ga., and New York.

Some of that cargo is coming from the West Coast via the Panama Canal. That’s where timing comes in. The N.C. Ports Authority completed deepening the shipping channel to 42 feet in January 2004. Before then, many container ships couldn’t have reached the docks.

Economists expect the effect to ripple out. “Of all the economic activities a state can have, ports have the highest multiplier,” says Jim Smith, an economist at UNC Chapel Hill. “Every dollar spent importing or exporting through a port adds $12 to state income. People build warehouses. More trucks come, and you improve highways.”

The boom can backfire. Ernie Beauregard is president of Reefco Logistics of Raleigh, which exports about 200 containers of beef, poultry, sweet potatoes and other food through Wilmington each month. He says some shipping lines send empty containers back to China and other countries rather than wait for small shipments to fill them. Small shippers have seen rates rise as much as 30%. “We’re having to book space on ships two or three months out.”

Nor is the boom at the ports likely to lift the gloom in Tar Heel factories. Since 1994, the state has lost about 165,000 textile jobs. The pain won’t be confined to mills. China’s cheap wages for furniture manufacturing — 50 to 75 cents an hour — more than offset the $2,800 cost of shipping a container of furniture to the United States. A study by UNC’s business school doesn’t mince words: “The United States furniture industry is in trouble.”

Board doesn’t keep faith, so Belk bolts

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Tar Heel Tattler – June 2005

Board doesn’t keep faith, so Belk bolts
By Frank Maley

Andrew Jackson said that one man with courage makes a majority. If one man with currency could perform the same trick, you’d think it would be John Belk at Davidson College. The chairman emeritus of Belk department stores is the school’s most generous individual donor, though it won’t say how much he has given. Its men’s basketball team plays in John M. Belk Arena. He donated $28 million to a scholarship fund that bears his name.

Yet in February, Belk found himself on the short end of a vote to allow non-Christians to fill as many as nine of the 45 voting seats on Davidson’s board of trustees. He feels so strongly that only Christians should run the Presbyterian school that he quit the board and might withhold future financial support. Steve Smith, who is managing director of Bear Stearns in Dallas and has pledged $2 million to the football program, also resigned from the board.

In his gravelly voice, Belk says the board and school President Bobby Vagt caved in to faculty pressure. “You’ve always got the same thing in any institution. Faculty thinks they’re better than anything else.”

But Vagt says the change came not from faculty but from discussions among Belk’s fellow trustees at a three-day retreat in early 2004. As they analyzed the school’s religious underpinnings, questions arose about the board’s requirement that all members be Christians. Indeed, the school’s statement of purpose has long said, “The loyalty of the college thus extends beyond the Christian community to the whole of humanity and necessarily includes openness to and respect for the world’s various religious traditions.”

The notion of changing the rule was referred to committees and took about a year to work its way to a board vote. The change was made on principle, Vagt says, with no regard for economic effects. So far, reaction has been mixed. While some donors have vowed never to give again, others have pledged more money, he says. “Probably the largest group — just in terms of the numbers of individuals, not counting the dollars — has been a group that says, ‘I’m not going to give to the annual fund this year because I want to make a statement, but I intend to give in succeeding years.’”

Belk has left the door open to repairing ties to the college if the board reverses itself and rejects the controversial rule. Vagt says that probably won’t happen soon. It passed 31 to 5.

 

The hull truth

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The hull truth

Born of a mill owner’s frustration, Hatteras Yachts builds boats for those willing to pay millions for rugged luxury.

 

New Bern-based Hatteras Yachts began with a frustrated fisherman, an experimental powerboat and a dare. Forty-six years later, it employs about 1,000 people. The company won’t disclose annual sales, saying only that they exceed $100 million, but the 60 to 70 craft it builds each year carry prices that start at about $1 million and can reach as high as $8 million.

It started small. Foul weather in May 1959 beached Willis Slane, a High Point hosiery-mill owner who had come to Cape Hatteras for marlin fishing. Stuck on shore, he fantasized about a boat that could barrel through rough seas in rotten weather. On a recent trip to Florida, he had tested a small powerboat made of fiberglass. Its builder challenged him to try to break it by running at high speed through choppy waters. “I quickly learned that the boat could take far more than I or my passengers could take,” he dryly recalled some years later.

Slane gathered investors, many of them mill men like himself, hired a naval architect from Florida and set to work researching the boating business in a rented building that had once housed a Pontiac dealership. Less than a year after his thwarted fishing trip, the first Hatteras was completed in High Point. The company says no one had used fiberglass to build big boats until he handed his hastily assembled production team plans for a 41-foot sportfisherman with an extra-roomy cabin. He equipped it with a pair of 275-horsepower Lincoln V-8 engines.

The Knit Wits — a playful nod to the business whose profits bankrolled the venture — was completed in March 1960, then trucked and set to sea at Morehead City. Hatteras built its first motor yacht two years later. Slane died 40 years ago, but the Knit Wits, which the company reacquired, is still seaworthy. The business launched with that one custom boat is now part of Lake Forest, Ill.-based Brunswick Corp., a conglomerate once best known for pool tables and bowling alleys. Today, it is a monster in marine products, including boats — Boston Whaler, Bayliner and Sea Ray are among its many brands. In March, Brunswick bought Edenton-based Albemarle Boats.

All Hatteras craft, both motor yachts and sportfishing convertibles, are built in the 680,000-square-foot plant on 92 acres along the Neuse River in New Bern, where the company opened its second factory in 1967. Thirty years later, Hatteras consolidated manufacturing there and closed its High Point plant.

“We typically have 40 to 45 boats in process at any one time,” says Jay Fuller, vice president of manufacturing. Production time varies. “It will be as short as six months or as long as 14 or 15 months, depending on the size of the boat.” The motor yachts range up to 100 feet. “Convertibles are really our core product,” Fuller says. “We build those anywhere from 50 to 86 feet. It’s called a convertible because it’s a fishing boat, but the inside has very high-luxury accommodations and sleeping arrangements.” The boats’ model numbers also are their lengths.

“Right now, our most popular boat is the 68 convertible. If you wanted to buy a 68 right now, you’re probably looking at a delivery in ’07.”

The fixer

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The fixer

It’s a key job in all mills. How Joe Gorga does it in his could help save an industry.
By Chris Roush

When Joe Gorga was growing up in Paterson, N.J., his father managed a plant that supplied fabric to clothing makers in New York City’s garment district. The boy started work there at 13, sweeping floors. Later, he began delivering samples to customers and watched fickle buyers reject cloth that looked fine to his untrained eye. Back at the plant, his father often confirmed his judgment, but, even so, sent him back to the city with a new bolt and a different outlook.

“It was the customer’s perspective that counted,” he says. “It was that mindset: Do what you promised, make a quality product, and get it there on time. It’s kind of simple and corny, but it stays with you.”

As president and chief executive of Greensboro-based International Textile Group Inc., formed last July by the merger of Burlington Industries and Cone Mills, Gorga is trying to apply his father’s old-fashioned wisdom to a 21st-century problem: How can domestic textile makers survive as low-cost competitors in Asia and other foreign countries flood the United States with cheap imports? What can be done to save the textile industry, once the state’s largest employer, from slouching toward oblivion?

About 5,000 Tar Heel jobs — ITG employs more than 7,000 worldwide — depend on Gorga. What’s more, a thriving ITG would show the world that domestic companies can compete against manufacturers in places such as China, where wages are 5% of what they are in North Carolina. Not everyone believes it’s possible, at least not under the old model. “Are they going to survive here in the old form, or are they going to survive in a form where they have some mills here and some overseas?” asks Robert Connolly, a professor of finance and economics at UNC Chapel Hill’s Kenan-Flagler Business School. “I believe the latter is eminently possible. The former is extremely unlikely.”

Gorga, 52, has opened plants and created joint ventures abroad. Even so, he insists that at least a few North Carolina mills can remain part of ITG as the company develops new products and promotes its brands in a bid to recapture lost customers. It might even scoop up a few more U.S. factories.

“I think that Gorga is on the right track,” said Lanty L. Smith, a former Burlington Industries president and the chairman of Precision Fabrics Group, also based in Greensboro. “He’s looking to see where he has competitive advantage, and he’s looking to accomplish additional consolidation.”

Burlington Industries and Cone Mills have been storied names in North Carolina commerce. Burlington was founded in 1923 in the city whose name it bears after the local chamber agreed to underwrite a $250,000 stock sale. By 1961, now based in Greensboro, it was the 48th-largest corporation in the nation, with annual sales of $913 million and 62,000 employees. That made it the largest textile maker in the world. Cone, which began in 1891, was for decades the world’s largest denim maker. ITG has its headquarters in Cone’s offices. The old Burlington headquarters is being torn down.

Both companies had struggled, taking on debt in the face of increased foreign competition. Cone’s denim exports dropped 10% from 1996 to 2002. Worse still, sales slid from $910 million in 1995 to $445 million in 2002. It sought protection from creditors by filing for bankruptcy in 2003 after losing money four of the previous five years. Burlington had filed in 2001, after losing more than $500 million the year before. Sales, which topped $2 billion in 1998, sank to less than $1 billion by 2002. New York-based WL Ross & Co. bought Burlington at auction in July 2003 for $614 million. It added Cone Mills six months later for $90 million.

Bankruptcy reorganization allowed the companies to shed more than $1 billion of debt. “The interest alone on that debt was running at about $75 million a year,” says Wilbur Ross, chairman of ITG and WL Ross and Co. ITG carries only $75 million in borrowings on its balance sheet. Sales totaled about $900 million in 2004.

Still, Gorga faces a host of challenges. “There were customers lost, and there were issues that maybe were not responded to as well,” he says. Sometimes, Burlington and Cone failed to deliver fabric on time. Or they turned out second-rate goods. “We are not a company that’s going to be written up as being an excellent company today. Just having new ownership and a deleveraged balance sheet isn’t going to do it.”

Before tapping him to run ITG, Ross had considered bringing in an outsider, and he fired a clutch of other Burlington and Cone executives. Gorga had joined Burlington in 2002, almost a year after it filed for bankruptcy, as executive vice president of North American operations. “It was a leap of faith. We didn’t know that Wilbur Ross was going to win the bid for the company. But Burlington has a tremendous recognition within the industry, and we had an opportunity to wipe away a lot of the bad history.”

To Ross, Gorga’s short tenure meant he understood the business but wasn’t tarred by its failures. “He’s not a longtime Burlington person, but he has been there long enough,” Ross says.

If Gorga doesn’t embody his industry’s faults, he certainly knows its folkways. He has never strayed far from his apprenticeship with his dad. At Philadelphia College of Textile and Sciences, where he majored in textile engineering, he would return to Paterson during summers to operate dyeing machinery in his father’s plant. After graduating in 1975, he joined Spartanburg, S.C.-based Milliken & Co. as a management trainee. Soon he was running some Milliken plants. Later, he became the general manager of its automotive and elastic-fabrics businesses. “Roger Milliken had that unbelievable focus on operating excellence and customer service,” Gorga says. “A lot of his management techniques I use today.”

Milliken, for example, spent heavily on training and allowed teams of employees to schedule their own work flow and establish individual performance goals. Any Milliken worker could halt production if he found a quality or safety problem. Gorga aims to give ITG employees the same autonomy.

When Gorga ran the dyeing plant in Blacksburg, S.C., it almost always turned out top-quality fabric, Milliken says. “It was the ultimate test in manufacturing in our industry. When you’re putting color and chemicals on fabrics and not just dealing with white yarn, you have to be absolutely perfect. The human eye can see the difference between a thousand shades of color.”

Gorga left Milliken in 1991 to become president of Greensboro-based Elastic Fabrics of America, part of Clinton Mills, now CMI Industries. In 2001, a group of CMI note holders tried to force the company into bankruptcy. Gorga negotiated a deal in which CMI sold all of its plants except Elastic Fabrics to pay the notes. The other plants were losing money, unable to compete with Asian textile makers.

ITG is more likely to be a buyer, Gorga says. In December, it paid an undisclosed amount for Cleyn & Tinker, Canada’s largest worsted-wool manufacturer. “But if it makes sense [to sell], we would.” He already has, peddling the Lees Carpets division to Mohawk Industries for $352 million shortly after ITG was formed. Connolly, the UNC professor, believes that acquisitions could help ITG if they’re done smartly — which to him means abroad. “If 90% of the sewing is in Southeast Asia, it makes no sense to buy the fabric here, ship it over there, sew it and then ship it back.”

With or without acquisitions, Gorga needs results soon because the timeline for his turnaround is likely to be short. He won’t disclose the financial goals that he has set for his division heads nor those that Ross has set for him. But Ross’ company answers to unsentimental institutional investors such as pension funds, which expect prompt returns.

The deals that created ITG were typical of Ross, who spent much of his career as an investment banker for London-based Rothschild Group. He specialized in turnarounds, buying businesses in out-of-favor industries and cutting costs by closing plants, laying off people and restructuring debt. In March, he placed the top bid for another bankrupt textile maker, Georgia-based WestPoint Stevens. He hasn’t said what he plans to do with it when the deal closes at the end of July. His fans, typically investors enjoying double-digit returns, call him a whiz. Detractors, often the unemployed from companies he has bought, call him a vulture.

Ross developed the blueprint for ITG in the steel industry, where he cobbled together International Steel Group in 2002 and 2003 through acquisition of steel makers such as Bethlehem Steel and LTV. ISG went public in December 2003 and reported $421.4 million profit for the first nine months of 2004. Last October, the company announced that its board had agreed to sell it for $4.5 billion to Dutch-based Mittal Steel, the world’s largest steel company. Shareholders were to vote on the deal in April. Ross owns 33% of International Steel.

He typically buys debt in distressed companies and, when they file bankruptcy, purchases their assets cheaply. His maneuvers rankled some Cone investors, who noted that he was on both sides of the deal, as a bondholder and a bidder for the assets.

To show results quickly, Ross and Gorga are betting partly on the development of new products. One idea is premium denim for jeans that would sell for as much as $250 to $300 a pair. The idea is to turn Cone’s utilitarian denim into a fabric as desirable as cashmere or high-quality silk. If it seems far-fetched, remember that just two decades ago, Ralph Lauren and Calvin Klein turned jeans — originally utilitarian pants for cowboys, farmers and miners — into designer apparel.

Other fabrics are central to Gorga’s plans, too. “We call them smart fabrics,” says Ken Kunberger, president of Burlington Worldwide. One contains a chemical that kills bacteria that cause odors. ITG has begun using it in sports clothing. Another would absorb heat, from the wearer’s body and the sun, which in theory would improve blood circulation and reduce muscle fatigue. The company hopes to produce it commercially this year. ITG also owns a majority stake in Nano-Tex, a California-based company that develops improvements for fabric. Its Nano-Care stain repellent is used in clothing sold by Gap, Old Navy and others. Gorga and Ross believe that Nano-Tex can help ITG make new products.

But high-end products alone won’t enable ITG to compete with foreign producers. It also has to keep lowering costs. To that end, it has developed partnerships with about a dozen mills in Thailand, Taiwan, mainland China and Hong Kong. ITG is sharing its know-how, then selling the mills’ fabrics in the United States. In the case of the partnership with the China Ting Group, based in Hong Kong, ITG hopes to create a Burlington brand of home furnishings and other products to sell in China.

If those relationships work, ITG will invest in the plants. It already has joint ventures in India, Turkey and Mexico. Last year, ITG announced plans for a plant in Guatemala that would produce 30 million yards of denim annually.

“That’s a new business model,” Connolly says. “It’s no longer all going to be, ‘Made in the U.S.’ Why would we want that? Clothes would be so much more expensive.”

Regardless, the company hopes to continue expanding its foreign sales. Before the merger, Burlington had a Hong Kong office with about 20 employees. In the second half of 2003, the office began farming out work for foreign-owned mills. Sales reached $30 million in 2004 and could climb to $100 million by the end of 2006, Kunberger says.

The fear of Tar Heel employees, of course, is that ITG’s move to boost its international operations will lead to the shuttering of U.S. plants, including Cone’s White Oak plant in Greensboro, which has about 1,000 workers. After their bankruptcy filings, the companies cut 3,000 jobs, Gorga estimates. He says employment has been stable since ITG was formed.

The question is, can Gorga’s expertise in textiles keep the resurrected company viable? Connolly says it won’t be easy, given the continued foreign competition. “Unless you’ve got a business proposition that is better or unique, then you get yourself in tough territory. A product that is not unique — that’s where low labor costs start to rear its ugly head.”

Suits send hospitals down tobacco road

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Tar Heel Tattler – May 2005

Suits send hospitals down tobacco road
By Arthur O. Murray

Hospital administrators concede their billing system is sick. But they don’t think the way to treat it is by a trial lawyer administering the legal equivalent of an eyes-wide-open colonoscopy. Gary Jackson has sued Carolinas Medical Center in Charlotte, Duke University Medical Center in Durham, North Carolina Baptist Hospital in Winston-Salem, NorthEast Medical Center in Concord and Rowan Memorial Hospital in Salisbury on behalf of uninsured patients whom he contends were overcharged.

And the Charlotte lawyer says more lawsuits could be on the way. His cases follow a national attack on hospital billing launched by Mississippi lawyer Richard Scruggs, who initiated cases that led to the master tobacco settlement, in which cigarette makers agreed to reimburse states billions of dollars for years of Medicaid and Medicare costs associated with smoking. In the past year, he has filed about 40 hospital lawsuits in 20 states, contending that their billing systems are unfair.

Jackson, who is not affiliated with Scruggs, is filing similar actions, usually involving emergency care for uninsured patients. The suits contend patients are prevented from negotiating payments and denied pricing information. “If Blue Cross is getting charged $3,000 for an appendectomy, Medicare $4,000, and uninsured patients are being billed $20,000, that’s not reasonable.”

Don Dalton, spokesman for the North Carolina Hospital Association, agrees with the diagnosis but not the treatment. “The system is broken — it’s absolutely broken. But for uninsured people who came and got care in a hospital then to sue because they don’t like the reimbursement system is not a solution.”

Dalton blames Medicare and Medicaid, government programs for the elderly and the poor. Hospital administrators have long complained that the government pays less than the cost of treatment. That means, he says, that fees for other patients must be set high enough for hospitals to recoup those losses.

Critics claim that the main reason uninsured patients get hit with higher charges is that it helps hospitals offset discounts to managed-care plans. But Dalton defends discounts, comparing hospitals to auto dealerships that give them to volume buyers. “Negotiated rates are part of business.”

Furthermore, he says, most hospitals will negotiate with patients who have trouble paying. “But no good deed goes unpunished. Hospitals are trying to change the way they’re doing business, and what we get from the trial-lawyer community is a bunch of lawsuits.”

State gets good return on community colleges

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Economic Outlook – May 2005

State gets good return on community colleges

The community-college system paid CCbenefits Inc. $264,750 to study the economic impact community colleges have on their students and the state. The Moscow, Idaho-based consultant has done similar work for 17 other states and a national study for the Washington, D.C.-based Association of Community College Trustees. CCbenefits President Kjell Christophersen discusses the findings.

BNC: What does this study examine?

Christophersen: We’re basically measuring two things: the economic impact of the colleges — or their contributions to local jobs and income — and an investment analysis from the student and taxpayer perspectives.

What’s different about your economic-impact analysis?

First, we calculate the ripple effect associated with the college operations such as wages, salaries, operating and capital expenditures. In North Carolina, these earnings account for $1.4 billion in the economy. We’ve also added the impact associated with the past students. The community colleges have thousands of past students whose skills are still adding value every year in the work force. We’ve computed that for all the community colleges in North Carolina. We have about 120 million credit hours from those colleges still active in the local work force — and that’s going back 30 years and taking into account attrition factors such as outmigration, retirement, death. The accumulated contribution of those credit hours adds $13.3 billion in annual earnings to the state’s economy.

What did your investment analysis find?

We’re looking at three basic measures. First, does it make economic sense for the students to attend the college? A student invests money today against which he or she will receive higher earnings in the future. The answer to that question is a resounding yes — it makes eminent economic sense. They’re making an 18.6% annual rate of return on their investment of time and money for as long as they’re in the work force. The second measure is whether the community colleges are a good investment for the taxpayers. The year we studied, 2003, North Carolina taxpayers put up $807.4 million to fund the 58 community colleges. Taxpayers make a strong rate of return on that investment. We came up with a narrow rate of return of 16.8% on the taxpayer investment, a benefit-cost ratio of 2.74 and a payback period of only 7.7 years.

What is a narrow rate of return?

We measure only the extent to which tax collection increased as a result of the higher income. Whereas the difference in income might be $5,000, the difference in tax collection might be only $200. So if you can show for a public investment that the narrow taxpayer perspective is a positive one, it’s huge.

How do we compare with other states?

North Carolina schools have tended to be a little bit higher than the national average. The average student tends to be older than in other states. If you’re older and you have more experience under your belt, your rate of return for that incremental step in education is going to be higher.

What is the third measure?

Social factors such as smoking, alcohol abuse, health-related absenteeism, incarceration, welfare and unemployment. There’s a statistical correlation between folks who move from a lower level of education to a higher level of education and the lowering of the incidence of these behaviors. When aggregated across all exiting students, North Carolina will benefit from $184.1 million worth of avoided costs per year in improved health, reduced crime and reduced welfare and unemployment.

How does that translate as a return on investment?

We call this the broad perspective: the value of all future earnings and associated social savings compared with the year’s worth of tax support. Using our model, the benefit/cost ratio generated for the North Carolina system is 17.03 — every tax dollar invested returns a cumulative of $17.03 over the next 32 years.

How have community-college systems used your studies?

Wisconsin’s system used our numbers — after the legislative session had ended — to have $55 million reinstated into the budget. In Texas, the cuts that they got eventually for the year when we did the study were a lot shallower than they otherwise would have been.

So our legislators will see this study?

A study like this is not done just for the purpose of having it look nice and sit on somebody’s shelf.

It’s surprising that they’d take it seriously, since the community colleges paid for it.

ACCT, who paid us to develop the model, is an advocacy organization. We’ve severed our relationship with ACCT. We do the numbers, and wherever the numbers fall, that’s what we report. We’re not advocating for the colleges.

The model is applied to states uniformly?

Yes.

Have you studied CCbenefits’ economic impact on community-college budgets?

We’ve called around to a number of our clients to ask them, ‘What have you experienced since the numbers came out, and what have you done with the study results?’