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2002 Speeches
Phil Condit portrait

Phil Condit

Chairman and CEO

The Boeing Company

"Address to Shareholders"

Annual Meeting of The Boeing Company

Chicago, IL

April 29, 2002

Thank you, Jim, and let me add my welcome. This is our first annual meeting in Chicago, the new home of Boeing World Headquarters. It's great to be here.

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 to stand as called.

Over the past four years, Harry has been of great help to me in the transformation of the company to a stronger, more diverse global enterprise, focused on shareholder value. He is a leader, a visionary, and a strategist. Harry is also a coach, a teacher, devoted to his family, and, at least by his admission, a great golfer, too. Harry has a keen business acumen. This has been critical over the last four years and is a cornerstone of our change. Personally, Harry has been a terrific partner for me, and I will miss him. We share the same clear vision for Boeing and the same confidence in our talented people who will get us there. Harry remains on our Board of Directors, and I am delighted. Harry, thank you.

Now I'd like Boeing Director John Fery, Retired Chairman and CEO, Boise Cascade Corporation, to stand. John is retiring from our Board. He is an accomplished and highly respected business leader, and we have been extremely fortunate to have John serve on our Board for 13 years. He has helped guide us through difficult times and fundamental change in the aerospace industry. All of us in management and on the Board have been enriched by John's ability to sort through extremely complex issues and get to the substance of the matter, by his basic common sense, and by his great sense of humor that grew from his Idaho roots. I have learned a great deal from John, including, I am happy to say, something about fly fishing. John, we are grateful for your service, and we will miss you.

Finally, it is my pleasure to introduce, as a group, the members of our senior leadership team as shown in the Annual Report. This is a great team. Would you all please stand together.

Our next business is the Chairman's Report.

We continue to build the Boeing of the future and to transform the company into a broad-based, highly competitive, global enterprise. In 2001 we had solid performance across our aerospace and finance businesses, and our balance sheet remains strong.

The external events of 2001 tested and validated our vision and strategy and brought them into sharper focus. Our company and our people delivered against a well-defined strategy in spite of a major earthquake in Seattle, a global economic slowdown, and the terrorist attacks of September 11.

Our performance results in 2001 reflected:

Boeing people responded extremely well to the challenges and opportunities of last year, and I am very proud of them. If you exclude non-recurring items, we:

We also maintained strong liquidity with free cash flow of $2.7 billion; had contractual backlog of about $107 billion at year end; and repurchased nearly 41 million shares as authorized by the Board in December 2000. After September 11, we suspended this repurchase activity. We also continued to invest in the future with R&D of about $2 billion; we opened our World Headquarters in Chicago; expanded the Office of the Chairman to prepare for several planned retirements; and continued to grow new businesses, which position us well for the future.

Let me also address the financial performance for the first quarter of this year. Our most recent financials, excluding non-recurring items, were solid but were impacted by the adoption of the FAS 142 accounting standard related to goodwill, by higher stock-related compensation expenses, and by increased satellite production costs. Free cash flow was down in this year's first quarter. This was the result of timing and not of business performance. We expect to meet our guidance of $2.5 to $3 billion for this year. We also expect to meet our guidance of +/-8.25 percent operating margin and +/-$54 billion of revenue.

Now I want to review our businesses. The largest units are proving that they can run healthy core businesses in challenging times, and our growth businesses are making great progress to achieve their goals.

Our Commercial Airplanes unit is aggressively managing its business in a very altered marketplace. after the events of September 11. They:

Demand for single-aisle airplanes appears to be recovering, with the potential for upward pressure on planned production. However, the twin-aisle market may not return as quickly, and this market remains a near-term watch item for us. Commercial continues to shape the future with product development of both the 777-300ER and the Sonic Cruiser.

Commercial is on track to execute its plan and to achieve strong performance and solid profitability. I have great confidence in this team. They are very well positioned to deliver value in the future.

Our Military Aircraft & Missiles business unit continues to turn in excellent operating performance and again posted full-year double-digit margins. Despite the loss of the Joint Strike Fighter, this unit strengthened its portfolio and made key progress for future results.

In 2001 and the first quarter of this year, they:

In addition, this unit:

Military Aircraft & Missiles is delivering value. It has an outstanding mix of products, great technology, strong program management and expertise. It is well positioned to continue profitable growth and deliver significant value.

Space and Communications had solid, positive performance with higher operating margins in 2001 compared with 2000. This business unit performed very well last year and on the majority of its programs in the first quarter of this year.

Space and Communications:

This unit firmed up leadership positions in missile defense and battle space management They finished the preliminary design phase of the Future Imagery Architecture (FIA) program on cost and on schedule; completed the eighth integrated flight test to continue excellent performance as prime contractor on the Ground Based Midcourse Defense program; and they were selected for a key role in the transformation of the U.S. Army by capturing the Future Combat System Program.

Space and Communications put its 200th commercial communication satellite into operation. Separately, S&C is addressing performance issues at Boeing Satellite Systems that impacted first-quarter results. BSS is reorganizing, streamlining, and implementing proven lean manufacturing and quality processes to drive improvement by year end. BSS has, and will, play a key role in achieving profitable long-term growth.

Space and Communications is positioned as the leader in missile defense, battle space management, and space-based communications and will continue to be a key growth element in Boeing's strategy to deliver value.

We continue to position Boeing for new market requirements and to open new frontiers with new businesses: Boeing Capital Corporation, Connexion by Boeing, and Air Traffic Management.

Revenues from our customer and commercial financing segment -- primarily Boeing Capital Corp. -- were up 19 percent in 2001 and up in the first quarter of 2002, reflecting continuing growth. Last year, Boeing Capital expanded its portfolio nearly 30 percent to about $9 billion while prudently maintaining its credit and return standards. The portion of its portfolio that pertains to Boeing products and services is about 70 percent. Boeing Capital is delivering on growth and becoming a major contributor to the financial performance of Boeing.

Connexion by Boeing and Air Traffic Management were impacted by events of September 11, but both saw increased customer interest in air transport safety and security capabilities. As a result, Connexion by Boeing expanded its focus to include near-term applications for executive and government aircraft and recently signed a contract to equip four aircraft used by senior U.S. government officials. Last year, the FCC granted a license to Connexion by Boeing to transmit broadband data to and from aircraft. Connexion recently completed the first installation onboard a Lufthansa commercial airliner. Consumer service trials are slated later this year after technical tests are completed.

The Air Traffic Management unit continues to generate interest worldwide on its approach to developing the next-generation air traffic system. It has worked closely with U.S. stakeholders to jointly publish proposed performance requirements for a future air traffic management system. This unit also received a license from the FCC for mobile satellite service.

The market and growth potential for both Connexion by Boeing and Air Traffic Management is promising. Our long-term vision for both remains unchanged.

Phantom Works, our powerful technical arm, continues to push the boundaries of technology and leverage innovation across the enterprise. Our more than 6,000 patents reflect the strength of our technical capability.

Shared Services, our internal infrastructure and non-production activity group, likewise continues to provide value by consolidating activities and leveraging the buying power of Boeing. This group, which reaches across the enterprise, continues to lead efforts for electronic commerce and reduced transaction costs. This represents a great opportunity for cost reduction.

Looking ahead, we are in a challenging period for commercial aircraft, but all our business units are performing well, and our corporate strategy offers real opportunity. As you know, we created a strategy six years ago to develop a balanced, broadly based aerospace company to drive financial performance and deliver shareholder value.

Today we are a global company with weekly revenues of more than $1 billion. We have customers in 145 countries, 16,000 suppliers worldwide, and about 180,000 employees worldwide. We have a well-educated work force. Almost 100,000 of our people hold college degrees and about 23,000 have advanced educations. Last year, almost 30,000 Boeing people took advantage of our Learning Together Program. That program pays for employees to take classes at any accredited college or university, and if a degree is attained, employees earn stock in recognition for lifelong learning.

Our company is delivering against a well-defined strategy with a more balanced portfolio and a better organizational structure that we are leveraging for the advantage of our shareholders. We are guided by our Vision 2016, "People working together as a global enterprise for aerospace leadership."

We have well-defined large business units headed by CEOs who have full responsibility for strong, robust strategies and excellent execution. We have new growth businesses with responsibility to leverage our strengths into new products and new services. We have companywide units that can provide common services and technology across the enterprise. And we have a World Headquarters focused on strategy and resource allocation and an expanded Office of the Chairman that will help me execute our strategy with agility, speed, and decisiveness and to drive financial performance and deliver shareholder value.

So we will continue to run healthy core businesses and focus on performance, profitability, and delivering financial results. We will continue to develop products and services consistent with market needs and manage R&D and other investment activities accordingly. We will develop management talent and put the best people in positions to leverage their capability. And we will create shareholder value.