For the Washington region's biggest businesses, 1981 was a turbulent year and the outlook for 1982 is little, if any, better.
Though many local companies earned record profits last year and several are projecting another banner year, an unmistakable message of concern comes through in the annual reports from corporate chief executives.
From Baltimore to Richmond, the word from the board rooms of the region's Top 100 companies is, as Chairman Thomas K. Malone Jr. of First Virginia Banks puts it, "1982 will be a difficult year."
"The economic problems we face in the coming year appear to be at least as formidable as those in the last," say top executives of Marriott Corp., which, like many businesses, has learned to prosper in spite of the economy rather than because of it.
"We anticipate some hard sailing," warns David P. Reynolds, chairman of the Richmond aluminum maker that has been among the most hard hit victims of the recession.
"The near-term outlook is not good, due to economic conditions in most markets of the world, particularly in the United States where recession has taken hold," Black & Decker's management team notes.
Phrases like "sluggish economy," "increasing uncertainty" and "sensitive economic times" have replaced the "cautious optimism" that was last year's cliche comment.
A year ago, executives were predicting the second half of the year would produce an improvement in the economy, and several companies are telling their shareholders the same thing this year. More prevalent, however, is the view of Martin Marietta Chairman J. Donald Rauth: "The time of an economic upturn is difficult to predict."
Adding to the uncertainty facing local executives are the Reagan administration's initiatives on regulation and taxes. Lower taxes and less regulation are obviously welcomed by business, but they do not make management any easier.
The Chessie System and the soon-to-be-combined Southern and Norfolk and Western railroads are struggling with the Staggers Rail Act's return to competition. Virtually every major bank in the region has organized itself into a holding company in anticipation of the century's most significant changes in regulation of financial institutions.
The recession and deregulation of the money markets also are battering the housing finance industry. Last year, 10 of the Top 100 companies lost money, and five of them were in housing finance.
The biggest loser in Washington business last year was the Federal National Mortgage Association, popularly known as Fannie Mae, which lost $190 million in 1981.
"We are living in a genuinely revolutionary time for the American economy," said FNMA Chairman David O. Maxwell. "Equally revolutionary is the upheaval in housing finance." our local savings and loan associations lost a total of $36 million in the past year and are still in the red, because they are collecting less interest on their long-term mortgage loans than they must pay for their short-term deposits.
Housing lenders won't wait for a decline in interest rates to cure their ills, says Maxwell. "No longer will lenders be willing to commit themselves to finance long-term, fixed-rate mortgages with short-term liabilities."
But interest-rate trends are critical to the area's financial institutions, said Robert Tardio, chairman, and G. J. Manderfield, president of Suburban Bancorp. "Suburban's future is, in large part, linked to the economic condition of the nation," they told shareholders.
The Suburban executives are among the local business people who insist that despite the recession, Reaganomics will be good for their businesses.
"The Economic Recovery Act of 1981 should, over time, stimulate the American economy to undertake business expansion," said Tardio and Manderfield. "After a period of adjustment, bankers can look forward to increased opportunities to accommodate sound credit needs. But it will require patience to reach this point."
Another endorsement of the Reagan economic policies comes from Bernard C. Trueschler, chairman of Baltimore Gas and Electric. He cited "a new mood in the country . . . fostered by strong national leadership. Especially promising is the long-awaited recognition that the industrial spirit of this country is being smothered by excessive regulation."
The Reagan tax cut, Trueschler added, "demonstrates a strong shift away from a tax structure designed to further the social redistribution of income to one that creates incentives for savings and investment."
Washington area firms are benefiting from the tax law changes in two different ways. Many are reducing their own tax bills as a result of tax cuts that benefit them directly. Others expect new business because tax cuts will spur customers to buy their products or services.
Among the direct beneficiaries is Martin Marietta Corp., the $3.3 billion Bethesda firm that is Washington's largest industrial firm. In the past two years, Martin Marietta's overall tax rate has plunged from 40.6 percent to 29.4 percent, apparently as the result of heavy capital spending encouraged by increases in investment tax credits and accelerated depreciation.
"National policies to set a foundation for an enduring economic recovery deserve support for their efforts to control inflation, reform taxes, and strengthen corporate and personal incentives to save and invest," said Martin Marietta Chairman J. Donald Rauth and President Thomas G. Pownall.
Similar views were expressed in a shareholders message from Chairman Jorge Carnicero and President C. G. Gulledge of Dynalectron Corp. of McLean, the third-largest electrical contractor in North America and a major industrial engineering firm.
"New tax incentives are designed to encourage industry and business to invest in new plants and equipment, which should create new projects requiring industrial/commercial electrical installations, engineering design of petroleum or chemical plant installations, process control systems, industrial insulation and other industrial construction," they noted optimistically.
Even companies too tiny to make the Top 100 list see big benefits from increased business investment, including Data Measurement Corp. of Gaithersburg, which went public last September. Sales of its electronic equipment for steel and other metal makers were $1.9 million last year, but at current rates could hit $3.5 million in 1982, said President Dominique Gignoux.
"One might wonder why our company reports an increasing backlog, when the industries that provide its market are those bearing the brunt of the recession," Gignoux noted. "The answer is that advanced technologies, such as ours, that serve at minor cost to improve productivity and enhance quality are in greater demand when profits are down."
But Scope Inc., another electronic equipment maker, said its sales "were influenced by sluggish conditions in capital equipment markets throughout the year."
Another factor spurring business for local firms is the Reagan administration's dedication to boosting the Pentagon budget.
"The current reemphasis on national defense and the associated spending increases bodes well for the general health of the defense industry and for ARC," said Atlantic Research Corp.'s top executives, Chairman Coleman Raphael and President William Borten.
Atlantic Research makes rocket motors used mostly in small conventional weapons and "is expanding its facilities significantly," they added.
"The government's reemphasis on defense preparedness should present more opportunities for the company's government services activities," noted Dynalectron executives, but other Reagan administration policies may not be so good for local business, they warned:
"There is a note of uncertainty, however, as to the extent and effect of U.S. government budget cuts, which may curtail federally supported construction projects." espite President Reagan's vow to reduce the size of the federal government, some local businesses expect government to be the major plus for the local economy.
"The relatively stable character of Washington employment and the relatively high levels of personal income prevailing here should assuredly help the Washington region rebound quickly when the forecasted processes of recession recovery begin," notes the annual report of Riggs National Corp.
The level of government spending is vital to the future of Washington's major retailers, because in many cases cutting the budget means cutting the staff. With unemployment in the area at its highest level in some 30 years, sales could suffer at Woodward & Lothrop, W. Bell & Co., Best Products and Hechinger. The retailers are already being cautious about expanding.
Citing "the mediocre retailing environment, high inflation and increasing uncertainty," Best Chairman Sydney Lewis noted that "a faster rate of profitable expansion of facilities must await more moderate interest rates and stronger customer spending."
Such an ability to adapt to changing market conditions is one of the essentials of success in such a volatile era, in which tactical and strategic flexibility will be essential.
"Our strategy was to remove the company from unpromising or unprofitable areas and concentrate on improving our major business activities," said Chairman Henry A. Rosenberg Jr. in his message to stockholders of Crown Central Petroleum of Baltimore.
As petroleum prices plummeted last year, Crown Central dropped its plans to build a new refinery, sold its interest in a Nigerian oil exploration subsidiary, stopped producing crude oil in Nigeria and decided to sell its coal operations.
Completing a similar strategy, UNC Resources--once called United Nuclear Corp.--continued to diversify away from the atomic energy business.
McCormick & Co. also stressed its ability to respond to what Chairman Harry K. Wells called "the changing scenarios in the marketplace.
"If inflationary pressures cause people to cook more from 'scratch' at home, we offer the seasonings and flavors which can help lower priced foods have the good taste they like."