Philip M. Condit
Chairman and CEO
The Boeing Company
"Address to Shareholders"
April 30, 2001
Thank you, Jim. Let me add my welcome.
As your Chairman, I officially call the annual meeting of The Boeing Company to order. First, I want to introduce our Board of Directors and ask each person to stand when called.
- John Biggs, chairman, president, and CEO of TIAA-CREF, the national teachers' pension fund, who is up for re-election.
- John Bryson, chairman, president and CEO, Edison International, who is also up for re-election.
- Ken Duberstein, chairman and CEO, The Duberstein Group.
- John Fery, retired chairman and CEO, Boise Cascade Corporation.
- Dr. Paul Gray, president emeritus and professor of electrical engineering, MIT
- John McDonnell, retired chairman, McDonnell Douglas Corporation
- Lew Platt, CEO and director of Kendall-Jackson Wine Estates Limited, and retired chairman, president, and CEO of Hewlett-Packard Company
- Roz Ridgway, former assistant secretary of state for Europe and Canada, who also is up for re-election
- John Shalikashvili, retired chairman of the Joint Chiefs of Staff, U.S. Department of Defense
- Harry Stonecipher, president and chief operating officer, The Boeing Company.
Now I'd like Boeing director, Chuck Pigott, chairman emeritus of PACCAR, to stand. Chuck is retiring from our board at age 72, as required by board policy. We have been extremely fortunate to have him serve on our board since 1972. When Chuck joined the board, the split-adjusted Boeing stock price was 72 cents. He has played an instrumental role in guiding this company in difficult times and in successful times. His broad experience has been invaluable in all aspects of the business-from local to national to global. Management and his fellow directors have been enriched by his wisdom, his knowledge and experience, and his wonderful dry sense of humor. He is a person with an incredible ability to absorb information, a person who quickly understands the essence of complex issues, and a person who has contributed greatly to the company. Thank you, Chuck.
Our next business is the Chairman's Report.
We are building the Boeing of the future. We continue to transform Boeing into a broad-based, competitive, global enterprise. That very fundamental transformation began almost five years ago with the strategic acquisition of Rockwell Aerospace. It took major form with the merger with McDonnell Douglas, which established a company with greater strength and breadth. We added to that with the acquisitions of The Preston Group, Jeppesen, Continental Graphics, Hughes Space and Communications, and, more recently, Hawker de Havilland in Australia. Last year, we introduced new business units as one more step in positioning the company for greater performance and future growth. The result is a company with enormous capability and enormous opportunity.
Every January, I bring the leadership team of the company together to go over my expectations for performance. In January 2000, I put forward a simple, straightforward strategic plan.
It is, and continues to be:
- First, run healthy core businesses.
- Second, leverage strengths into new products and services.
- Third, open new frontiers.
In January 2000, I challenged the team "to equal" 1999 profit levels. In spite of the decline of revenues in 2000, they exceeded that expectation! As a result, last year Boeing had a tremendous year. We improved operating performance every quarter. We delivered more than a 60 percent total shareholder return. We produced free cash flow of 4.9 billion dollars. We grew backlog to $121 billion. We wrapped up the 146-million-share repurchase program and authorized another 85-million-share repurchase program. We raised the annual dividend by 21 percent. And, we ended the year as the second-best-performing company of the Dow Industrials.
Our first goal-to run healthy core businesses-is taking deep root. Our largest core units are turning in the results to prove it.
Commercial Airplanes is positioned as the leader of commercial aviation solutions. They achieved higher productivity, drove stable production processes, grew backlog 23 percent-to $90 billion dollars, added nearly 600 new airplane orders, and sold out virtually all production for 2001 and 2002. They also recently announced a vision for a new "sonic cruiser" that can fly point-to-point at speeds of Mach .95 and be built with breakthroughs demonstrated on the 777, 737NG, JSF, and the UCAV. In Q1, they reached double-digit operating margins one year ahead of plan. Commercial is delivering value.
Military Airplanes and Missiles is positioned as the premiere provider of military aviation products and services. They continue a strong, steady performance, turning in full-year operating margins in the low double digits last year and succeeding not only operationally, but technically. They won a $9-billion, multiyear U.S. Navy contract for 222 F/A 18E/F Super Hornets; won a multibillion-dollar U.S. Army contract for the Apache Longbow; landed the first international order for the C-17 with a lease of four to the Royal Air Force; and completed flight tests on the Joint Strike Fighter X-32A and the first flight of the STOVL X-32B. A&M continues to deliver value.
Space and Communications is positioned as the leader in missile defense, battle space management, and space-based communications. S&C reached new heights, literally and figuratively, as they continued to grow this business for the future. They completed the acquisition of Hughes Space and Communications (now Boeing Satellite Systems), which dramatically strengthens their space-based communications portfolio. They firmed up leadership in missile defense and battle space management with key wins, including a National Missile Defense contract option for $6 billion and a billion-dollar contract for the Australian Wedgetail Airborne Early Warning and Control System. They had successful launches on the Delta II, Sea Launch, and Space Shuttle. And they completed a simulated full flight test of the RS-68 rocket engine on the Delta IV Common Booster Core. S&C is focused on building this great leadership position and delivering even more value.
Phantom Works is the powerful technical arm of the corporation. They push the boundaries of technology, looking for new products and value and creating design and production methods. They prototype new products and test new methodologies. They are the technical glue that holds the corporation together.
Our internal group, Shared Services, focuses on infrastructure and non-production activities. They provide value by consolidating activities and leveraging the buying power of Boeing. They are leading efforts to leverage e-commerce across the corporation, which presents great opportunities for cost reduction.
Today, we have a strong core team running healthy core businesses-a team focused on solid performance and driven by economic profit targets that are directly aligned with shareholder interests.
That leads me to our second strategy: leveraging strengths into new products and services. If we are going to create long-term growth, we have to do some new things to grow our business. Our core businesses have solid, steady, fundamental growth of about 5 percent. We want to do far better than that by leveraging what we know best-our strengths-into new products and new services to help our customers in a rapidly changing global market. We are pushing the boundaries of aerospace and expanding our service offerings: Aerospace Support in A&M, Commercial Aviation Services in BCA, and Boeing Capital Corporation are examples. BCC has a great opportunity to build a strong finance business, leveraging the company's strong balance sheet and its great access to strong markets. These steps will continue to reduce our exposure to economic downturns and increase our opportunity in economic upturns. Leveraging our core strengths will provide real, solid growth.
This leads me to the third strategy: open new frontiers. We are a company that has always turned dreams into business reality-from the DC-3 to the 777. We are a company that has built every manned spacecraft in U.S. history, from Mercury to the International Space Station. We are a company of people who have been willing to dream. To imagine what could be. To do the impossible.
Today, we have a great pool of talent-198,000 people, who work in 62 countries and hold nearly 100,000 college degrees. We have a vision for what Boeing will be in 2016 when we turn 100 years old. That vision is: "People Working Together as a Global Enterprise for Aerospace Leadership."
So we continue to transform ourselves. We formed a new ventures group and established two brand-new business units, Connexion by BoeingSM and Air Traffic Management. Our new ventures group seeks to tap innovative business ideas from inside and outside the company. Connexion by Boeing can change air travel by providing high-speed Internet and entertainment services to commercial airplanes for their passengers. Air Traffic Management can lead in developing new approaches to solve air traffic congestion in the world.
Last month, we took another step down that path of transformation when we introduced a fundamental change to our corporate architecture.
- First, we organized a leaner, flatter, more nimble corporate center that will focus on corporate growth strategies, and the allocation of financial and human resources-a center focused on creating value for shareholders.
- Second, we promoted our three largest operating unit leaders to CEOs so that they can focus on operational improvements and seize growth opportunities in their businesses.
- Third, we clearly separated the role of the corporate center from the roles of the growing number of Boeing business units. As a result, we have chosen to move corporate headquarters.
All of the changes I have talked about today are aimed at creating value and building a company that will be strong 20 years from now. As we go forward this year, we will continue to follow our three guideposts:
- Our Vision 2016-People Working Together as A Global Enterprise for Aerospace Leadership.
- Our three core competencies-detailed customer knowledge and focus, large-scale systems integration, and a lean enterprise.
- Our three strategies-run healthy core businesses, leverage strengths into new products and new services, and open new frontiers.
We will get there with a world-class team that knows how to work together, how to innovate, how to achieve goals, how to grow, and how to create value for shareholders!
Boeing continues to transform itself. We have a great team that gets stronger every day. We also have great focus, great energy, and a great plan. We are ready to deliver even more shareholder value. I look forward to the years ahead.