When Intersouth Partners sought investors early last year, the Durham venture-capital firm didn’t have to look hard. Intersouth closed its fund in May with $275 million, the most it has ever raised. "Venture fundraising has been on a tear," spokeswoman Suzanne Cantando says. Much of the cash is coming from institutional investors flush with money they need to put to work.

That means there should be more money for North Carolina life-sciences startups to grow, and they’ve just wrapped up two big years, according to the North Carolina Biotechnology Center. Preliminary figures show venture funding statewide slipped about 7% in 2006 – to $310 million – but was at least 16% more than it had been in the four years prior to 2005.

The life-sciences industry is growing by other measures, too. Tar Heel organizations received 154 biotech-related patents in 2006, up from 117 the year before. Employment in drug manufacturing, research and development grew 3.2% to 34,308 in 2005, according to the state Employment Security Commission. And more jobs have come or are on the way. In January 2006, August C. Stiefel Research Institute of Coral Gables, Fla., said it would spend $50 million to move research on skin-care products to Research Triangle Park, creating up to 200 jobs. In March, United Therapeutics of Silver Springs, Md., said it would build a $54.3 million research and manufacturing complex in RTP, creating up to 160 jobs. Then in July, Novartis Vaccines & Diagnostics, part of Swiss drug maker Novartis, said it would build a $267 million flu-vaccine plant that will employ up to 350 in Holly Springs. Tokyo-based Arysta LifeScience moved its North American headquarters from San Francisco to Cary, adding 65 jobs.

Major expansions last year included a $92 million project by British drug maker GlaxoSmithKline that will add 200 jobs to its Zebulon factory and a $100 million expansion of New Jersey-based Merck’s vaccine plant in Durham that will add as many as 60 jobs to the 200 it had planned to fill when the plant starts production in 2008.

One of the biggest developments is taking shape in Kannapolis, where billionaire David Murdock, owner of Westlake Village, Calif.-based Dole Food, has begun work on a $1 billion biotechnology research center. In 2005, Murdock demolished 5.8 million square feet of textile plants closed when Pillowtex went out of business. In its place, he plans to build a 350-acre campus that he hopes will attract 100 companies that will employ about 35,000. Murdock says he will invest about $700 million in the center and set up a $100 million fund to help biotech entrepreneurs. He also wants $160 million in public improvements from the city and Cabarrus County. The University of North Carolina system has pledged $16 million to the project and plans to ask the legislature for $25 million a year to conduct research at the campus.

To make sure the state has enough workers to meet the growing demand, N.C. State University is building the $33.5 million Biomanufacturing Training and Education Center in Raleigh. It will be able to handle 2,000 students a year when it is finished early this year.

In 2006, two of the state’s biggest contract drug researchers competed not just for business but for employees. After emerging from bankruptcy in March, Wilmington-based AAIPharma began rebuilding its operation, partly by hiring former executives of Durham-based Quintiles Transnational and recruiting current ones. Quintiles, which says it is the world’s largest clinical-research organization, sued one of them, contending the move violated a noncompete agreement.

Quintiles doesn’t want to lose many employees because it has ambitious expansion plans. In August, it said it would open a data-processing center in Martin County, creating 60 jobs within three years. In November, it announced plans to create 1,000 jobs in its hometown within six years. Increased demand for contract research also is reflected in the recent performance of Wilmington-based Pharmaceutical Product Development. It expects revenue to grow 10% to $1.1 billion in 2006 and 17% to $1.3 billion in 2007.

Quintiles and PPD aren’t the only contract researchers expecting good things in 2007. INC Research, which moved from San Diego to Raleigh five years ago, added about 100 jobs in 2006 and began shopping for additional space near its Raleigh operations to accommodate growth.

Foreign trade is making waves at state ports in Wilmington and Morehead City. In fiscal 2006, it helped boost the N.C. State Ports Authority to record revenue of $46.9 million, up 32% from the year before and the authority’s biggest profit in 15 years. International trade is expected to double by 2020, mainly driven by China and India. "That bodes well for us because we have capacity," CEO Tom Eagar says.

Wilmington had a 24% increase in container shipments last year, and the authority will spend $140 million over four years to double its capacity to handle them. Four new electric container cranes, which are more efficient than older diesel-powered models, will bring total cranes to 11 early this year. In Morehead City, a 178,000-square-foot warehouse is under construction, and plans are moving ahead for another port terminal. It’s expected to open in six to eight years. The authority is seeking a private partner to help operate it. In early 2006, the authority bought 600 acres near Southport for a deep-water port. After it opens – possibly in 2016 – it could generate nearly 50,000 jobs statewide.

There is a cloud on the horizon. Housing starts are down, which could curb lumber imports, one of Wilmington’s main commodities. But Eagar projects more growth in cargo and revenue this year. "It’s really quite a phenomenon, developing as a result of the growth in international trade, and that’s all because of China." In 2006, China was Wilmington’s top trading partner and Morehead City’s No. 3.

Truckers also are benefiting from trade with China, says Charlie Diehl, president of the 500-member North Carolina Trucking Association. Diehl cites Longistics, a trucking and logistics company. It saw so much potential business coming from China that it helped form the North Carolina China Center to promote stronger economic and trade ties with the mainland, Hong Kong and Taiwan. Duane Long, CEO of Longistics and chairman of the center, set up the center at his company headquarters, near Raleigh-Durham International Airport.

The trucking industry still has some problems, including a shortage of drivers and federal rules that mandate low-sulfur diesel fuel and less-polluting engines, which raises costs. Fortunately for truckers, the price of diesel fuel began to fall in late 2006. North Carolina’s largest trucking company, Thomasville-based Old Dominion Freight Line, thrived last year despite those obstacles. Through three quarters, revenue was up 24% to $960 million from the period in 2005, and net income was up 40% to $55 million. "The fuel cost increase has not affected Old Dominion significantly because we have been successful in passing that cost to shippers in the form of a fuel surcharge," says Wes Frye, chief financial officer.

The average drop in fares at Charlotte/Douglas International Airport last year was the third-largest in the country, Aviation Director Jerry Orr says, because of the restructuring of Tempe, Ariz.-based US Airways, the airport’s busiest carrier, as a low-cost carrier and the entry of JetBlue and AirTran into the market. Passenger boardings were up 5% through November, but cargo traffic was down 6%. US Airways made an $8 billion bid in mid-November for Atlanta-based Delta Air Lines, which is in Chapter 11 bankruptcy, then raised it to $10.2 billion in January. If the merger happens, the resulting company is expected to reduce its flights out of Charlotte.

Raleigh-Durham International Airport also added JetBlue. Passenger boardings through November were up 1%, but cargo traffic was down 2%. Things are different at Piedmont Triad International Airport in Greensboro. For the first 11 months of 2006, cargo traffic was up 4%, but passenger boardings were down 17%. Airport officials say many passengers drive to Charlotte and Raleigh for lower fares.

Barry Matherly lives in the future. As executive director of the Lincoln Economic Development Association, he scouts the globe for prospects. The result of his efforts is a mosaic of what manufacturing might become in North Carolina.

An Australian licorice maker moved into Lincoln County. So did a Brazilian producer of automotive gaskets and a Japanese company that makes the guts of catalytic converters. Also arriving: a drug plant, a tortilla factory, a plate-glass manufacturer and kitchen-cabinet builder. "The last three years have been record years for us in new investment in manufacturing and distribution," Matherly says. "Last year was double our best year ever, which was the year before."

What economists have been saying for years – that North Carolina manufacturing needs to move beyond its traditional mainstays of textiles, tobacco and furniture – is happening here and in other parts of the state. There’s a catch: Many of the new manufacturers use technology that requires higher-paid workers – but fewer of them – than industries of old. "You are not going to see the thousand-person textile mills coming back anytime soon," Matherly says. "What we are seeing is higher-tech manufacturing, more sophisticated machinery and equipment. You might have 50 to 100 people in a large facility."

Other parts of the state have been able to lure new plants or expansions in fields such as drugs, auto parts, electronics and food processing. But despite hefty investments, the manufacturing work force has not rebounded from the job drain that shuttered many of the state’s largest factories. "Most of the layoffs are behind us," Wachovia economist Mark Vitner says. "But there is not likely to be much of a recovery in jobs."

In fact, the state is still bleeding factory jobs. The losses began in 1995 and peaked in 2001, when it lost more than 80,000 – 11% – of its factory jobs. In 2005, manufacturing employment shrank 1.7%, shedding about 10,000 jobs. More were to follow. In November, manufacturing employment was down to 550,700, a decrease of 14,700 – 2.6% – from the end of 2005.

The biggest loser last year was textiles. By November, Tar Heel mills had eliminated 11.6% of their jobs, employing only about 46,000. Maiden-based Carolina Mills, which had 2,600 workers six years ago, announced in May that it was getting out of domestic yarn manufacturing by closing plants in its hometown, Lincolnton and Statesville – its last three – and eliminating 311 jobs.

Apparel employment fell 11.2% to about 20,600, and furniture jobs fell 7% to 50,600. In the first half of 2006, Chicago-based food and clothing maker Sara Lee said it would cut about 175 jobs at a factory in Eden and close one in Statesville, eliminating about 140 jobs. Then in September, it spun off its branded-apparel division as Winston-Salem-based Hanesbrands. Two weeks later, Hanesbrands said it would shutter a 260-employee plant in Lumberton. Lenoir-based Broyhill Furniture Industries, part of St. Louis-based Furniture Brands International, planned to close its last U.S. wood-furniture factory this month, laying off 390. Thomasville Furniture Industries shut a 278-job factory in its namesake.

The news for old-line industries wasn’t all bad. Linwood Furniture, formed to make a popular line designed by artist Bob Timberlake, announced in March it was taking over a shuttered furniture plant in Lexington and hiring 200.

Not all manufacturing sectors lost jobs. Transportation equipment grew 4.9% to 38,800 through November, the highest percentage growth in the state, and it appears poised for more expansion. Though it’s far from the sea, Kings Mountain became home to a Chris-Craft yacht factory that is expected to grow to 655 workers in five years. Chris-Craft is based in Sarasota, Fla. Indian Motorcycle, which had shut down in California, was revived by new owners who planned to move its headquarters and production to Kings Mountain, bringing 167 jobs.

One issue that continues to frustrate Tar Heel manufacturers is low-cost foreign competition, particularly from Asia. China is a big worry, but so is Vietnam, which is seeking normal trade relations with the U.S. Some Tar Heel textile and apparel companies seeking protections from Chinese manufacturers spent much of 2006 lobbying Congress to block Vietnam’s bid. But North Carolina companies don’t uniformly oppose Asian competition. Greensboro-based VF and Hanesbrands, for example, say they have benefited by moving production to low-wage countries.

The state’s biggest power companies spent the last few years tightening focus on electricity generation and distribution. Now they need to figure out how to keep the juice flowing to a growing population. "A lot of the companies like us are having the same experience," says Bill Johnson, chief operating officer of Raleigh-based Progress Energy. "If you look out 15 or 20 years, the infrastructure we need to build to serve customers is staggeringly large. We really have not built much for the last 20 years."

The state population is expected to grow 21% to 10.7 million by 2020. Progress and Charlotte-based Duke Energy have been selling assets to pay down debt and to build more plants to handle everyday demand, not just provide power when usage peaks. "We put the balance sheet back in good shape, so when we go out to raise capital, we do it on favorable terms." Johnson says. "We have a long-term plan here, and we will begin the execution of it in 2007."

Progress and Duke Energy are considering building nuclear reactors, which no U.S. utility has done in decades. Though construction costs are higher than for plants that run on carbon-based fuels such as coal, operating costs are much lower. Because it takes so long to get a plant approved and built, neither plans to open one before 2015. Executives expect Congress to enact stricter limits on carbon dioxide emissions, and Duke has been pushing to get the rules set. "We’re making many billions of dollars of investments that are 30- to 50-year investments, and it would be helpful to know the regulatory regime as we make those investments," spokesman Tom Williams says.

Progress sold its natural-gas-production business to Dallas-based EXCO Resources in October for $1.2 billion. Duke bought Cincinnati-based Cinergy in April, adding about 1.5 million electricity customers, a 68% increase. Within three months, it announced that it would spin off most of the natural-gas business it acquired in a merger a decade ago. Houston-based Spectra Energy started trading publicly in January. Stockholders received half a share of Spectra for each Duke share. "Wall Street wasn’t giving us the valuation we thought we deserved, so we split the company, " Williams says. In the six months after the announcement, Duke shares rose 17%.

Duke and Progress aren’t the only power providers worried about future generating capacity. Raleigh-based North Carolina Electric Membership Corp., the nation’s second-largest electric cooperative, has seen demand grow 2% to 3% annually the past five years. "We’re going to have to look at generation sources in this state," says Nelle Hotchkiss, senior vice president of corporate relations. "We’re having to look at how we’re going to get that power to everybody in the state. A lot of folks are concerned that we’re going to build more power lines and transmission substations."

The co-op’s rate increases leveled off in 2006, aided by fuel costs that dropped steadily through the year. Much of its energy is produced by Progress, but it also generates its own. It expects to finish two peak-demand plants in Anson and Richmond counties this year.

Piedmont Natural Gas, the largest gas distributor in the state, struggled with volatile wholesale prices. Net income for the fiscal year ended in October slipped 4% to $97.2 million. As the calendar year ended, prices fell, and Piedmont dropped its rates. The company expects demand to increase earnings per share from $1.28 to at least $1.35 in fiscal ’07.

San Antonio, Texas-based AT&T bought Atlanta-based BellSouth, the state’s largest provider of local telephone service, for $67 billion in December. Change came swiftly for BellSouth’s former North Carolina operations. President Krista Tillman retired five days after the deal closed. Cynthia Marshall, former senior vice president for regulatory and constituency affairs for AT&T California, succeeded her.

Even in good times, life in the construction industry can seem like a nerve-racking creep along an I-beam several stories high. When work is easy to find, prices for building supplies go up and labor gets harder to find and keep. But having too much business is better than the alternative.

With commercial construction continuing its rebound and North Carolina’s housing market holding up better than just about anywhere else, builders had plenty of reasons to be happy in 2006. Tony Plath, an associate professor of finance at UNC Charlotte who follows the industry for Carolinas Associated General Contractors, forecasts inflation-adjusted growth of 6.9% in construction spending statewide. Residential construction was flat, but commercial construction was up. High-quality office space lagged, but many big projects were under way and on the drawing board.

Raleigh-based RBC Centura Banks, the U.S. banking arm of Toronto-based Royal Bank of Canada, broke ground in September on a $100 million, 33-story headquarters. In December, Charlotte-based Wachovia unveiled plans for a 48-story tower to be surrounded by two art museums and a theater in its hometown. Charlotte-based Bank of America announced plans in late 2006 for a $450 million, 32-story office tower near its headquarters.

For much of the year, builders strug-gled with high costs. In August, the price of construction materials in the U.S. Department of Labor’s Producer Price Index was 8.8% above the same month in 2005. But by November, the percentage had dropped to 5%. Plath says prices for steel and other materials used in commercial construction could rise in 2007, but prices for lumber and other home-building materials should stabilize.

Contractors also worry about labor costs. Legal and illegal immigrants provide cheap construction labor, and politicians have talked about curbing illegal immigration from Mexico. "Our biggest fear is that we are seeing all of this work and wonder if the labor infrastructure is in place," says Scott MacLeod, executive vice president for the Carolinas and Virginia operations of Swedish builder Skanska.

Still, with oil prices down and corporate profits and stock prices up, some observers expect construction this year to match or exceed 2006. Commercial builders should be aided by pent-up demand from businesses that avoided expansion during the first half of the decade. "We’ll do 10% better in sales next year, and we improved by 10% this year," MacLeod says. Plath expects overall growth to slow to 5.6%, with nearly double-digit growth in commercial construction and virtually none in residential. Builders he’s talked to are pessimistic, expecting growth to slow in the second half. The Triangle has six major projects under way, each costing more than $100 million. In the Triad, FedEx continues work on its $300 million air-cargo sorting hub, scheduled to open in 2009. In Charlotte, four high-rise condo towers are under construction, including EpiCenter, a 53-story, $275 million mixed-use project.

What’s missing from many developers’ plans is speculative office space, says Brian Reece, managing partner of Karnes Research in Raleigh. Office rental markets are healthy – rates are rising and unleased space is being absorbed – but developers and their bankers aren’t yet bullish enough to launch many speculative projects.

Though home building statewide leveled off, Tar Heel builders have avoided the problems plaguing the Northeast and other regions. And there was at least one bright spot: Charlotte. Through November, Mecklenburg County had issued more home building permits, 11,780, than in all of 2005. On the coast, the market has begun to soften. New-home closings in New Hanover County were down 33% in the third quarter, according to Rocky Mount-based Market Opportunity Research Enterprises.

Good weather meant good times for Tar Heel tourist attractions last year. From the coast to the mountains, a winter that was cold but not too cold, a summer that was hot but not too hot and a hurricane season that brought little wind or rain allowed crowds to flock to beaches, golf courses and other spots.

Carolyn McCormick, executive director of the Outer Banks Visitors Bureau, says occupancy-tax revenue through October was $36.1 million – up about 9% from 2005, which also was a strong year. Innkeepers were helped by a weak dollar that kept many vacationers from going overseas. "We’re not inexpensive," McCormick says. "Some oceanfront rentals in summer are going for $10,000 a week. That attracts the same person that’s going to look at a trip to Paris or check out the Great Wall of China." Demand for lodging should remain high this year. "One company says it is 73% up in advance bookings." Rates, however, are stable so far.

Carol Lohr, executive director of the Crystal Coast Tourism Development Authority in Carteret County, says occupancy-tax collections were up about 14% through October. One reason was the reopening last May of the North Carolina Aquarium at Pine Knoll Shores. It had been closed nearly three years for a $25 million renovation, which expanded it from 29,000 to 93,000 square feet. Lohr says 2007 will be another good year. The authority is promoting Morehead City’s 150th anniversary in May. She thinks it will attract adults nostalgic about childhood summers at the beach.

Pinehurst hopes to lure more visitors by offering more tee times on its most popular course, says Tom Pashley, executive vice president of sales and marketing. Pinehurst No. 2 was closed five weeks in 2005 because of the U.S. Open golf tournament. Last year, it started allowing players to begin rounds on the 10th hole rather than starting everyone on the first. "It allowed us to get more people on the course at the times they wanted to play." The number of rounds played at Pinehurst’s eight courses was up 10% from 2005.

The resort did well in 2006, particularly with groups and business travelers, Pashley says, though he declined to provide revenue. He expects another good year. The second phase of an $8 million renovation of The Carolina hotel is scheduled to be finished in mid-March. He also expects the resort to benefit from the U.S. Women’s Open in late June at Pine Needles Lodge & Golf Club in nearby Southern Pines and from the 2007 Jimmy V Celebrity Golf Classic, which is moving in August to Pinehurst from Prestonwood Golf Club in Cary.

In Asheboro, the North Carolina Zoo’s projected attendance was more than 700,000, up 8% from 2005. Many came to see a special Australian exhibit, spokesman Rod Hackney says, adding that attendance should increase again this year. The zoo is bringing back Tort and Retort, two Galapagos tortoises that were the zoo’s first animals when it opened in 1973. They’ve been at an alligator farm in St. Augustine, Fla., since 1983.

Business was brisk in the mountains. In Asheville, Biltmore Estate had its best year, according to Julie Morris, director of marketing. Ticket sales through early December were up 15% from 2005 to more than 930,000. She attributed the increase to new discounts for off-season months such as January and February. Morris also expects a boost from extending the Festival of Flowers, held in April, to May 20.

Sugar Mountain ski resort had one of its best years, says Kim Jochl, marketing and events director. "It was cold, which made for good snow-making weather, even though it didn’t snow much." Revenue through November was up 12%.

Statewide, occupancy at Tar Heel hotels and motels was up 3.4% through October compared with the same period in 2005. "North Carolina has been one of the few states to see growth in demand," says Jim Hobbs, executive director of the Raleigh-based Lodging Association of North Carolina. Business travel fueled much of the increase. "That’s obvious in Mecklenburg and Wake counties. When you have strong demand increases in those markets, it’s attributed to the business travelers."

As for 2007, "the industry is in for another very good year. It won’t be the strong growth we’ve seen in 2005 and 2006." He expects occupancy to grow 2%, while rates could increase 4%. "No one is projecting a down year in demand and rates."

BNC:How has the state economy evolved since you became commerce secretary?

Fain: It has continued to shift from manufacturing to service jobs. In the process, it has turned in a remarkable performance — replacing a net loss of 194,000 jobs in manufacturing. Since January 2001, our economy has added a net 28,000 jobs.

How do the wages of the new jobs compare with those lost?

In the segments where we’re adding many of our jobs — financial services, business and professional services, and health and education services — wages are as attractive or more attractive than manufacturing.

Not all of those jobs gained were in higher-paying sectors.

Right. But more of the new jobs are in those areas I mentioned.

What other changes have you noticed?

We’ve seen job gains and substantial investment in sectors of manufacturing that are sustainable in today’s highly competitive global marketplace — manufacturing that is capital- and technology-intensive. Because of the fundamental soundness and diversification of our economy, we’ve been able to overcome the simultaneous effects of the dot-com bust, September 11, a manufacturing-led recession and changes in trade policy that disproportionately impacted our industrial state. Other states similarly impacted have not recovered as successfully as North Carolina.

“Make sure you meet the needs of folks in transition or coming into the education system.”

How was North Carolina able to do it?

In 2001, Gov. Mike Easley asked the General Assembly to continue to invest in education and work-force development in the face of a large budget shortfall so we’d be prepared to grow when the economy improved. It worked out that way.

How has it paid off?

It does two things. No. 1, you make sure you meet the needs of folks who are in transition or who are coming into the education system. The other piece of it is, our value proposition is that this state for 200-plus years has realized the importance of education and has consistently invested in education. If you took the path we took back in 2001, then it’s easy to point to that choice and say, ‘We really walk the talk.’

Given the rapid shrinkage of industries that had sustained North Carolina for a long time, how long can we expect ‘sustainable’ manufacturing jobs to last?

I don’t think you can put a time frame on something like that. This is a dynamic process, and so continuing to have the best and the brightest workers and thinkers is important. So is a commitment to innovation, because you’ve got to continually innovate to extend product life or to create products or services that make sense in our economy. Because it’s a dynamic process, it’s kind of hard to say, well, our industries will last for 17.3 years before they’re stale or eaten up by another geography.

What kinds of jobs make sense here?

They’re higher-skill jobs where we have some differentiation. For example, strategic military manufacturing is not going overseas. There have been additions to our work force that make high-end kitchen cabinets. And you’d say, ‘Well, shoot. That sounds like the kind of thing you could make in Asia.’ But because of the bulk and the shipping implications of that and the need to preserve quality and, in many cases, the need to get those things to clients quickly, that’s something that does make sense.

Any other examples?

Jobs that need to be close to research universities — biomanufacturing is an example. Companies that make automotive components, and there are a lot of them. We have a strong automotive-component presence.

Compare North Carolina with its rivals.

We’ve enjoyed three years of strong recruiting and expansion. In addition to the location of a number of major projects in the state, we have seen many businesses electing to expand in North Carolina. In 2004 and 2005, we announced Commerce-assisted projects that created about 20,000 jobs and $3 billion in investment in each of those years, and we’ll top that job mark this year. This level of activity seems to affirm Site Selection magazine’s ranking of North Carolina as the state with the nation’s best business climate in five of the last six years. And Southern Business and Development has named North Carolina ‘State of the Year’ in economic development in the South for the past two years.

What about rivals?

Our counterpart agencies in the Southeastern states are strong, competent competitors. And we regularly compete with Ireland, Singapore and Eastern Europe, not to mention China and India. Gov. Easley’s focus on continuing investment in education, work-force development, infrastructure and innovation has been valuable and essential in differentiating our state from our competitors. The governor has also supported our development of performance-based incentives.

Where do recent company expansions fit into the larger scheme of things?

Companies such as Fidelity, Quintiles, Credit Suisse, Volvo Construction Equipment and Maersk all have global options for expansion. Their decisions to expand here are affirmations that we are doing the right things to encourage their growth. The heart of the governor’s economic-development strategy is to differentiate our state based on the quality of our work force. When companies like these announce an expansion, they regularly talk about the quality of our work force and ease of doing business in North Carolina as factors in their decisions.

“The heart of the strategy is to differentiate our state based onthe quality of our work force.”

Every state says it has a strong work force. How do you prove it?

For people who are thinking about locating an installation here, we find it very valu-able to have them talk with people who are in business here. And they want to do that. They want to find out the breadth and the depth of the labor force. Are workers trained to do what they need to do? What kind of support is available from our workplace training programs? People find that to be a good experience historically.

What has changed in the state’s rural areas since you became secretary?

Our rural areas have felt the impact of changes in agriculture and the loss of employment in traditional manufacturing. Many counties have small or declining populations, which exacerbates the challenges of running schools, providing public services and investing in economic-development programs. It is harder to provide amenities that are more affordable in larger urban areas. There are substantial scale-related challenges.

What should we do?

Ideas we need to consider are providing the financial resources for a good education in every part of the state, providing a financing mechanism for shell buildings and greenfield-site preparation, wiring all parts of our state, developing industrial parks jointly owned by several counties, maintaining regional road connectivity to facilitate commuting to jobs and using place-based economic-development strategies.

Are you concerned about being involved with China, a communist country?

There are 1.3 billion consumers there. One hears that maybe 10% of them are affluent. That’s the size of Japan, 130 million. There’s a vast market there that’s available to this country and its producers of goods and services. Plus there’s a strong movement to globalism, to reduction of trade barriers and so forth. So as we are opening our markets to others, we also need to have the opportunity for fair trade and to sell into offshore markets. That’s one important reason why you have to pay attention to China.

Any others?

A number of U.S. and North Carolina companies realize that the best way to sustain employment in North Carolina is for certain parts of their operations to take advantage of labor rates in other economies offshore.

There has been some talk about changing the state’s tax structure. Are there problems with the corporate-income tax?

There are various assessments of the business tax. Often we’re in the middle of the pack or slightly better than the middle of the pack, in terms of the overall tax burden. There’s also a study underwritten by the Council on State Taxation, which I think is largely a group of corporate entities. It shows that we have the lowest tax burden on a normalized basis.

What does that mean?

They take all those taxes paid in a state by businesses, and then they normalize those numbers by looking at that as a percentage of the private gross state product. And in that kind of a normalized measure, it shows that our taxes paid as a percentage of the gross state product is among the lowest, if not the lowest, in the country.

So everything is fine?

I’d like it if our nominal rates were lower, but we’ve also got to make sure we can pay for things that really differentiate our state.

How can the state stop companies leaving Charlotte and moving over the South Carolina line?

A study done by Ticknor & Associates noted that it is inevitable that some firms may move to more-suburban locations in the Charlotte area as the central city becomes built up. Our job is to make sure they choose other locations in Mecklenburg or in surrounding North Carolina counties. We do that by being attentive to our companies’ business needs and by making the investments that make this a great place to do business?

Global rip currents are taking low-skill factory jobs. “We’regoing to lose most of those.”

What about using incentives?

I don’t believe it’s appropriate for North Carolina to use incentive programs to induce companies not to move existing jobs several miles away and over the border.

How will recent changes in state incentives affect businesses?

New legislation, passed in the 2006 session, replaces the William S. Lee Act with what we now refer to as Article 3J credits for the creation of jobs, investment in business property and for large investments in real property in Tier I counties.

What’s the main goal?

To make more of our counties eligible for the higher level of credits available to Tier I, or least economically prosperous, counties. The new law reduces the number of tiers from five to three and raises the number of Tier I counties to 41, thereby better leveling the playing field to encourage investment and job creation in all parts of the state. It also promotes the concept that counties in similar economic situations should be treated similarly. Businesses are motivated to consider locations with potentially lower land and operating costs and available, hardworking labor.

What else does the new law do?

It expands the types of industry eligible to take the credits, reflecting changes in our economy. For example, it adds research-and-development companies, aircraft-maintenance and -repair operations and motor-sports organizations, and it broadens eligibility within the information-technology sector.

What about the state’s infrastructure is attractive to businesses?

We have the second-largest state-maintained highway system, and Gov. Easley’s Moving Ahead program modernized a number of roads important to commerce. The Ecosystem Enhancement Program is a creative way to preserve our environment and to expedite road construction. Our international airports offer economically important flights to Europe and nonstop service to many points in the U.S., and we’ve invested in our secondary airports, supporting the business activities of North Carolina companies.

What else?

We’ve continued to invest in our ports, which have seen a significant increase in volume in the past two years and are planning and evaluating the construction of a new, large container facility. Perhaps most importantly, the state has invested in our electronic infrastructure. Examples would include NC-REN, an advanced network supporting education, research and economic development. Through the activities of e-NC, we’ve made high-speed Internet access available to 82% of our households.

What needs to change?

We need to explore mass transit. Air service is essential in today’s global operating environment, and we must be alert to opportunities and creative ways to expand oversees flights and domestic service.

Secondary airports have struggled to attract and keep scheduled passenger service. What, if anything, can be done?

We need to work hard to make sure we have service in all parts of the state and in the less populous parts of the state. And I have suggested on occasion that thinking regionally about that is a wise thing, because you want to make sure you have the volume necessary so that flights make sense.

Do we have too many airports?

When I say we need to think regionally about air service, that’s sort of what I mean. It’s sort of a diplomatic way of saying we need to think practically about air service and work together on it.

Are gains in imports and the other benefits of globalization worth the loss of manufacturing jobs?

We can’t swim against the economics that are driving our loss of low-skill, labor-intensive manufacturing jobs. We are going to lose most of those. The key is to understand the changes in our global economy and identify opportunities for North Carolina. Positioning ourselves, for example, to attract logistics and distribution employment and investment is a logical response to the shift of labor-intensive manufacturing to low-cost geographies. As Gov. Easley has said, we can’t compete with cheap labor — we can compete with smart labor.

There’s a reason many CEOs don’t like to talk about mergers until they’re done: Tongues wag, and people get nervous about what might happen. Take John Allison’s recent statement that Winston-Salem-based BB&T Corp. is interested in a merger of equals during the next five to 10 years. He has said it before, but repeating it started another round of speculation.

Part of the reason might be the phrase “merger of equals.” To many, it’s a euphemism that lets a company save face. “He’s talking about being willing to negotiate being acquired,” says Tony Plath, associate professor of finance at UNC Charlotte. After all, mergers of equals often end up with winners and losers. The last big Winston-Salem bank that took that route — Wachovia — was swallowed by Charlotte-based First Union, which also took its name.

To Plath, Allison’s comments suggest he’s willing to discuss just about any issue, including who will sit on the board of the surviving company, who will be the top managers and where they will be based. “What is the probability that they stay in Winston-Salem? 50-50.”

With $118.5 billion in assets, BB&T is the third-largest bank in North Carolina and the 14th-largest in the nation. Its footprint stretches from Maryland to Florida, yet it’s not in the same league with behemoths such as Charlotte-based Bank of America, the nation’s second-largest bank with $1.5 trillion in assets, or Wachovia, fourth with $559.9 billion in assets.

Allison had tried to hook up with Birmingham, Ala.-based Regions Financial — $87 billion in assets — but couldn’t agree on a price. Spokesman Bob Denham dismisses talk of BB&T being on the block. The reason for a merger would be to bulk it up, so it will be big enough to survive.

Some domestic banks — including Minneapolis-based U.S. Bancorp of Minneapolis, Cleveland-based National City or Cleveland-based KeyCorp — would add geographical diversity. If no banks want to deal with BB&T, Allison would consider a match with a securities or insurance company.

Renewed talk of a merger had little effect on BB&T stock. But it could scare away the bank’s rising talent, says Christopher Marinac, an analyst with FIG Partners in Atlanta. Smaller community banks hungry for seasoned banking executives probably are circling already, he says. “This sends a message that there is an air of uncertainty at that bank and a question about long-term job security.”

A picture, so goes the Chinese proverb, is worth more than a thousand words. As part of our annual Legal Elite package, we had always written short profiles of the lawyers that received the most votes in each category, but this year decided to let photographs do most of the talking. In a nod to the new category for best young lawyers, we assigned Steve Exum to shoot the other winners in settings evoking early jobs that had influenced their later legal careers.

We sent each of the top vote getters a questionnaire, asking them to elaborate on that topic and other subjects, one of which was: What would you be if you weren’t a lawyer? A lot of what they had to say got boiled down to fit into the boxes accompanying the pictures. But I thought I’d share in toto the answer of Doug Kenyon, the Hunton & Williams partner who heads this year’s list of best antitrust lawyers. Whether just daydreaming or not, the man definitely has given the matter some thought.

“I’d own and manage the best music club in NYC, and I’d expand it to Raleigh. The clubs would be open Tuesday-Saturday night and would attract the best upcoming singer/songwriter talent in the country. Once a week, I’d have a ‘songwriters in the round’ session, kind of like the Bluebird Café in Nashville, where established songwriters would get together ‘in the round’ and play in turn. And one night a week I’d have a ‘struggling artists’ night, where artists who needed a break could give it a go. Once in a while, I’d sing a few tunes myself, with passion and connection, about America, working men’s dreams, lost loves and the abject loneliness of Edward Hopper’s painting Nighthawks.

“Some of the tourists would be bored, as they often are in such venues, but somewhere in the audience my eyes would meet the eyes of someone taking it all in — probably the woman in the white dress sitting alone at the table under the red neon sign flashing OPEN. After the last song, she would smile softly and, before walking out into the rain, would whisper, ‘Thank you, I kind of know what you mean.’”

H. O. Woltz III was on top of the world — or about as high as he could get in Charlotte. A gaggle of bankers was feting him in a private dining room on a top floor of Bank of America’s 60-story downtown skyscraper. As CEO of Mount Airy-based Insteel Industries Inc., he had just inked a career-making purchase of a Florida competitor and — here was the reason for the bankers’ glee — borrowed $140 million to finance it. Even BofA boss Ken Lewis showed up to shake his hand that April afternoon in 2000.

The deal dwarfed all others in Insteel’s history. Woltz imagined that it would propel his company to the top of its industry — specialized steel parts for concrete construction — and let him step out of the shadow of his father, who had run the company for more than three decades before him.

But if that day belonged to Woltz, choices that would shape his company’s future now belonged to the bankers. By taking on so much debt, he had given them the right to comb through his books and second-guess his decisions. When times got tight, they could even tell him how to spend money. During the next three years, they would show Woltz that bankers are buddies only if your payments arrive on time.

Within months of that all-smiles gathering in Charlotte, the construction boom on which Woltz had bet went bust, and the backslappers were threatening to force Insteel into bankruptcy. Woltz scrambled to save the company, ditching divisions and laying off workers. Then, just as suddenly as commercial construction had collapsed, it rebounded. Insteel’s profits soared, enabling the company to refinance the loan that had nearly killed it.

“We had a dysfunctional bank group,” Woltz says. “We found ourselves with a lender group incapable of distinguishing between a downturn in business and a bad company.” The construction industry routinely endures booms and busts, and his company’s plight was never as woeful as the lenders believed, he insists. Yet while Insteel was waiting out the slowdown, the bankers’ relentless nitpicking and extra interest and fees nearly wrecked the company, he contends.

Insteel’s clash with BofA is a cautionary tale of how some lenders handle — and occasionally manhandle — borrowers during economic downturns. When Insteel stumbled, its bankers tried to claw back as much of their money as possible in case the company crashed. They did nothing illegal or immoral. They just did their jobs, protecting their shareholders and, because of federal deposit insurance, even taxpayers. The hand they offered, they could argue, was steadying. But for this company struggling to stay afloat, it felt like one pushing a drowning man’s head under water.

Bank of America executives, of course, would tell this tale differently. But they aren’t talking. A spokesman for the Charlotte-based giant, the leader in Insteel’s group of lenders, declined comment, saying that the bank staff cannot discuss clients or individual loans.

If its staff members were willing to talk, they might say the dysfunctional partner in the relationship wasn’t BofA. Sure, Woltz and his managers deserve credit for reviving their company, but they also steered it into trouble, perhaps letting their enthusiasm for the deal cloud their judgment. The ink on the loan documents was barely dry before Insteel began to falter. Its financial performance fell so far so fast that the company ended up violating terms of its loan agreement, which was, after all, a legal contract. Loan agreements stipulate financial-performance minimums that big borrowers must meet.

BofA, like any bank, had to adhere to regulations. Banks must report problem loans and, sometimes, make costly adjustments to their books by setting aside funds to cover potential losses. What’s more, they face criticism when they fail to rein in the spending of sputtering companies. Several lenders — BofA among them — have settled lawsuits contending that they were too lax with Enron before its failure. And while Woltz still bristles over the demands made by the bankers, they could’ve been harsher. In fact, they could have pushed his company into bankruptcy.

“We leveraged our balance sheet up a good bit. Things needed to work without much of a hitch.”

Tony Plath, an associate professor of finance at UNC Charlotte, says that banks’ approaches vary when confronted with troubled borrowers. Insteel’s mistake, he says, was hooking up with BofA, which he says doesn’t have a reputation for being among the most patient. “The real art to this business is knowing when to cut your borrower off,” he notes. “Bank of America is just tough.”

Rick Rayburn, a Charlotte lawyer who represented Insteel in negotiations with the bank, concedes that Insteel’s status as a victim depends on your perspective. “I’m sure if you interviewed the bankers, their position was that they were protecting their own interests,” he says. But his perspective is clear: “From the company’s standpoint, all the banks ever had to do was continue to monitor the situation because none of the actions that the banks took had any effect on the ultimate outcome. The same management group that was there at the beginning is there today. So every additional dollar they had to spend, every demand they had to deal with, was totally unnecessary.”

Insteel board member W. Allen Rogers II, a Charlotte-based senior vice president in Allen C. Ewing & Co. investment bank, says the lenders “kind of went over the top.” But he also points out that no one forced Insteel to do such a big deal or to borrow money from BofA. “I have seen some banks that seem to be a little more willing to work with you, cut you a little more slack. But I can’t criticize. This was of our own making.”

Insteel’s wrangle with its bankers may have been aggravated by a culture clash. Increasingly, BofA, which has grown into the nation’s second-largest bank holding company, is leaving behind its Southern roots. Insteel, in contrast, remains a business with some of the low-key folkways of the sleepy town where it’s based — the boyhood home of actor Andy Griffith and the model for Mayberry in his famed TV show.

Often mistaken for a steel maker because of its name, Insteel began, under a different name, in 1953 as a producer of concrete and concrete blocks. Howard O. Woltz Jr., a lawyer by training, became president and chairman of the then-private business in 1958. In the ’60s, he added the manufacture of precast concrete items and, in the ’70s, the production of the welded-wire fabric that reinforces precast concrete.

His son — friends call him “H” to distinguish him from his dad — grew up around the business, doing odd jobs at the plant while in high school in the early ’70s and in the summers when home from college at UNC Chapel Hill. After graduating in 1978 with a bachelor’s in business administration, he went to work there full time. Early on, he understood that a path to the top was open. “It was clear to me that I would be considered for increasing responsibilities as opportunities developed, provided that I performed my prior assignments.”

In 1981, Insteel built a second wire-mesh plant in Virginia, and the younger Woltz moved there to manage it. It opened a third one in Texas in 1984. Insteel also bought small steel-products makers while selling its concrete operations. The elder Woltz decided that longtime investors, both family members and outsiders, needed to be able to cash out, so he took the company public in 1985. His son, meanwhile, continued to advance, becoming president in 1988 and chief operating officer in 1989. He replaced his father as CEO in 1991, though the elder Woltz remains nonexecutive chairman. One of his first big projects as boss was the launch of another product line, steel-wire strand, in 1994. Both mesh and strand are used to reinforce concrete, but they function differently. Mesh — sold in sheets, rolls and custom orders — strengthens such structures as highway median barriers and floor slabs. Strand is braided cable that supports precast concrete components such as bridge girders.

Strand turned out to be a winner, and Insteel expanded production. Then, in 1999, the largest producer of strand for concrete construction put itself up for sale. Jacksonville, Fla.-based Florida Wire and Cable made 50,000 tons of strand a year at two plants. It had $105 million in sales. Woltz knew Insteel would have to stretch to buy Florida Wire but figured it was worth the risk: The combined company would be the largest strand maker in North America. Insteel had $270 million in annual sales and nine factories: one in Mount Airy, two in South Carolina, two in Tennessee and one each in Texas, Virginia, Delaware and Kentucky.

As big deals often do, the bid entailed a measure of overconfidence. Insteel had size, but it wasn’t a standout performer; margins were decent but not remarkable. In fiscal 1999, its gross margin hit 13.2%, up from 5% the previous year. Nucor, the Charlotte-based steel maker long considered one of America’s most efficient heavy manufacturers, had a gross margin of about 21%.

Woltz decided to gamble, buying Florida Wire for $66 million. In the multibillion-dollar world of corporate finance, the deal was Mount Airy-sized. But for Insteel, it was a big gulp — “far larger than any acquisition we had done,” Woltz says. Insteel didn’t have that kind of cash on hand, so it had to shop for a loan. The best offer came from BofA, which, in typical fashion, brought in a group of banks to share the risk, including Winston-Salem-based BB&T, Charlotte-based First Union (now Wachovia) and Montreal-based National Bank of Canada. In January 2000, the month the deal closed, they agreed to lend Insteel $140 million: $80 million to finance the Florida Wire deal and related costs and a $60 million line of credit. The debt-to-capital ratio spiked from 38% to 58%. Compare that to Nucor, which then had a debt-to-capital ratio of 8% and a policy of keeping it below 30%. “We leveraged our balance sheet up a good bit,” Rogers says. “Things needed to work without much of a hitch.”

Signs of trouble had begun to bubble up even as Insteel was eyeing the acquisition. Had executives paid attention to the American Institute of Architects index of commercial and industrial construction, they would have seen their market softening. A rating above 50 indicates a healthy economy; one below 50 points to a slowdown. The index didn’t dip below 50 from 1995 to ’98. In 1999, it began to bob around 50, the first sign of weakness. In December 2000, it fell well below 50 and would remain there 33 of the next 34 months.

Insteel’s timing could hardly have been worse. In early 2000, the Internet bubble burst and both the Dow and Nasdaq peaked. The subsequent downturn deepened after terrorist attacks on Sept. 11, 2001. “We almost immediately hit a downdraft in our market,” Woltz recalls. “It was real clear to us that we had an unfortunate situation developing. We found ourselves in a position where we really weren’t going to comply with our loan covenants. And we had no solid relationship with the lender group. In the first year, we had either four or five different relationship managers with the lead lender.”

Asian imports of steel and construction supplies aggravated the pinch, undercutting the sales of Insteel’s domestic suppliers. Some went bankrupt, disrupting the flow of metal Insteel needed to make wire. Low-cost Asian alternatives to its wares further slackened demand from customers. Insteel filed anti-dumping complaints with trade regulators, which would result in sanctions against Asian producers. Meantime, the company struggled to survive.

Insteel refused to follow some of the recommendations. “Those actions would have benefited only the banker group.”

This sort of meltdown makes bankers edgy. A downturn lasting less than a year might call for patience. One that looks like it could stretch three or four years, as this one did, prompts a tough response, with bankers trying to salvage their money before a borrower sinks too far. In that climate, Plath says, few banks would have been very lenient with Insteel.

Under the terms of its loan, Insteel had to hit financial-performance targets. It began missing them. Though the company reported net earnings of $2.1 million for fiscal 2000, income had plummeted from the previous year, when it was almost $10 million. Then in fiscal 2001, Insteel reported a loss of $23.7 million, followed by an even bigger one — $25.7 million — in fiscal ’02.

Even before the losses, the bankers were insisting that Insteel hire turnaround consultants. To the lenders, they were a team of EMTs; to Insteel’s managers, vultures. The consultants recommended a raft of actions, including selling key assets. Woltz hated having to pay their fees and heed their recommendations, but he realized that he had to act quickly to save his company. If that meant ditching some of Insteel’s businesses to husband cash, so be it.

In September 2000, Insteel had 1,270 employees and six product lines. Its largest — wire for concrete reinforcement — accounted for nearly two-thirds of sales. It also made wire for bedding and furniture springs, nails, communication-tower supports and tire beads. In the scramble to survive, Woltz jettisoned everything except wire for concrete reinforcement.

By 2003, he had cut employment nearly 50%, to about 700 people. He resisted pressure to sell the rest of the business, insisting that Insteel would rebound when the cyclical construction sector sprang back. “We drew the line and refused to pursue the consultants’ recommendations that would compromise the future competitiveness and growth opportunities of the company. Those actions would have benefited only the bank group.” In fairness to the bankers, he adds, they allowed him to keep his remaining plants when he pushed back.

The banks also forced Insteel to accept changes in the loan agreement, which resulted in even more fees and a higher interest rate. Though they appear opportunistic, these charges recoup more of the original loan proceeds before a borrower ends up in a drawn-out bankruptcy proceeding and prevent desperate managers from squandering precious cash. Insteel’s life became so chaotic that it failed to meet U.S. Securities and Exchange Commission deadlines for filing its 2001 financial reports. Its market capitalization fell below requirements for listing on the New York Stock Exchange, and in February 2002, the NYSE dropped the stock. Even Woltz began to worry whether the company could hold on until a construction rebound arrived.

The bankers had started prodding him to find new lenders in 2001. But credit, he says, had dried up for companies in steel and affiliated businesses. Plus, Insteel’s SEC filings had laid bare its woes: No one wanted to hand money to a company that seemed headed for bankruptcy. For two more years, Insteel arm-wrestled BofA and its consultants.

Business finally began to revive in late 2003. The AIA index broke through 50 that October. Demand for Insteel’s products climbed with it. After two years of losses, the company reported net income of $6.7 million for fiscal 2003. Earnings would surge to $31.5 million the next year. “I don’t know whether we could have survived if the downturn had lasted a year or two longer,” Woltz says. “We were lucky when the pendulum finally swung in the company’s favor.”

Along the way, Insteel had gotten listed on Nasdaq, and its shares, which had traded as low as 27 cents, roared back, passing $50 last March. Jim Cramer, host of CNBC’s Mad Money, touted the stock, saying it was “in its own personal bull market.” It jumped $4 the next day and reached a record high of $60 in early April. An investor with the foresight — and guts — to have bought $10,000 worth at the bottom and sold at the peak would have made well over $2 million. The reversal of fortune came so quickly it surprised even Woltz and board members such as Rogers. “It was just incredible,” Rogers says. “Cash was just being pumped into the company.”

The recovery enabled Insteel to refinance the loan that shackled it to bankers whom management had come to despise. The company lined up a better deal last summer with GE Commercial Finance, but a last-minute snag delayed the closing. When Woltz asked BofA for a 30-day extension, he received one last blow. The bank would grant it but charge a fee: $1 million. “When we asked for justification for this outrageous amount, they implied that they knew we had the resources to pay, and nothing else mattered. We won’t forget this disgusting gouge.”

With no choice, Insteel ponied up. A month later, with GE’s money in hand, it repaid most of its prior debt. Now, with no long-term debt, it can better weather another downturn. “They have been through the wringer,” says analyst Jeremy Hellman of Thompson, Davis & Co. in Richmond, Va. “I don’t think they will get caught unawares again.”

To Woltz, his company’s resurgence, based in a large part on strand production, vindicates the Florida Wire deal, which strained Insteel but then let it ride the recovery to even greater profitability. With his company healthy, he’s pondering expansion again, including acquisitions. “We certainly have restored our balance sheet. We have a lot of options now.”

As for his smackdown with the banks, Woltz chalks it up to the gyrations of the always jittery free market. “You may have heard the old saying, ‘Markets make asses out of geniuses and geniuses out of asses.’ We have never harbored the illusion that we are geniuses, but neither were we the asses that our bankers thought we were.”