Boeing Chief Executive Officer Harry Stonecipher says the second-biggest U.S. defense contractor may use its growing cash reserves to buy...

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Boeing Chief Executive Officer Harry Stonecipher says the second-biggest U.S. defense contractor may use its growing cash reserves to buy small military-intelligence businesses to benefit from a surge in demand. The company also may increase its dividend or buy back stock, he said.

We’ll “watch for acquisitions that add capability in the intelligence and data-mining area,” Stonecipher told investors at the SG Cowen & Co. Aerospace Technology Conference in New York yesterday.

“It’s an area we’ve had a lot of success in and it has a lot of interest.”

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Boeing’s cash and cash equivalents grew 32 percent last year to $6.1 billion, helped by military programs such as the Army’s Future Combat Systems battlefield-communications system. The company’s defense sales are expected to climb about 7 percent this year and next, after growth of 11 percent in 2004.

Boeing in 2003 bought military-intelligence software-maker Conquest to expand its intelligence, surveillance and reconnaissance systems. Boeing and defense companies such as Northrop Grumman are benefiting from demand for surveillance and computer systems as the U.S. military increases spending to improve intelligence gathering.

Stonecipher cited Boeing’s acquisition of Autometric for about $140 million as the type of acquisition he is interested in making. The purchase gave Boeing computer tools that take data from satellites or aircraft and turn them into three-dimensional images.

“Thus far we have had great success with buying small,” he said.

After increasing the company’s quarterly dividend twice last year, Stonecipher said he will also use cash holdings to continue boosting the Chicago-based company’s dividend and ask the company’s board of directors to authorize an additional stock-buyback program this year. The company’s cash balance at year-end totaled $3.2 billion.

Boeing’s current buyback program has authorization for about 30 million more shares, he said.

Boeing’s stock rose $1, or 1.9 percent, to $53.50 yesterday. The shares have gained about 20 percent in the past year.