Harris Corp. - Communications Equipment -  Category Main Page 

1025 West NASA Boulevard
Melbourne, Florida 32919
(321) 727-9100
www.harris.com

Sales

$2.5 billion

Business Description 
Harris Corporation, along with our subsidiaries, is an international communications equipment company focused on providing product, system and service solutions for commercial and government customers. Our five operating divisions serve markets for government communications and information processing, secure tactical radios, microwave, network support and broadcast.

We were incorporated in Delaware in 1926 as the successor to three companies founded in the 1890s. Our principal executive offices are located at 1025 West NASA Boulevard, Melbourne, Florida 32919 and our telephone number is (321) 727-9100. Our common stock is listed on the New York Stock Exchange under the symbol “HRS.” On August 22, 2003, we employed about 10,300 people. We sell products in more than 90 countries.

General

We structure our operations around the following five business segments: (1) Government Communications Systems, (2) RF Communications, (3) Microwave Communications, (4) Network Support, and (5) Broadcast Communications. Financial information with respect to all of our other activities, including corporate costs not allocated to the operating segments, is reported as part of Headquarters Expense or Non-Operating Income.

Each of our five business segments, which are also referred to by us as “divisions,” has been organized on the basis of specific communications markets. For the most part, each operating segment has its own marketing, engineering, manufacturing and product service and maintenance organization. We produce most of the products we sell.

Description of Business by Segment

Government Communications Systems

Our Government Communications Systems segment conducts advanced research studies, develops prototypes and designs, develops and produces state-of-the-art airborne, spaceborne and terrestrial communications and information processing equipment and systems for the U.S. Department of Defense, Federal Aviation Administration and other U.S. Government agencies and also for other large aerospace and defense companies serving the U.S. Government marketplace. This segment also develops and produces information processing and communications systems to collect, store, retrieve, process, analyze, display and distribute information for the U.S. Government, its agencies and its prime contractors. The Government Communications Systems segment specializes in aerospace communications, avionics and ground communications; optical solutions; image collection, storage, retrieval and processing; information and transportation technology systems and communications; and communications engineering and technical services. This segment’s state-of-the-art technologies, products, systems and services include:

Aerospace Communications Systems:

• communication and information management systems,

• advanced avionics systems,

• advanced aerospace and avionics products,

• controls and display processors for military aircraft,

• digital moving maps for enhanced situational awareness for military pilots,

• intelligence, surveillance and reconnaissance products, systems and services,

• high-speed fiber-optic networking and switches for military aircraft,

• datalinks and wireless area networks for deployed munitions,

• wideband datalinks that deliver intelligence, surveillance and reconnaissance to soldiers in the field via unmanned aerial vehicles and other aircraft,

• unfurlable mesh satellite antennas for regional mobile wireless communications and improved navigational capabilities,

• phased-array antennas for spacecraft that enable mobile and broadband communications,

• weapon datalinks, anti-jam GPS and telemetry electronics that ensure the accuracy of precision strike missiles,

• radiation-hardened processors for communications satellite payloads, and

• spaceborne switches, modems and cross-links.

Ground Communications Systems:

• tactical/mobile satellite terminals for communications at C-, X-, Ku-, Ka- and Q-1 bands, as well as multiband systems,

• command, control, communication, computer and intelligence systems, products and services,

• tactical communications terminals for ground and shipboard environments,

• fire control systems for mobile-fired artillery,

• large-aperture fixed satellite communications terminals,

• electronic threat and warfare simulation and training,

• communications-on-the-move systems that operate in the C through Q bands,

• wireless local area network products for battlespace networks and secure communications, and

• network security software.


Information, Technical Services and Communications Systems:

• custom data and image processing systems and software,

• laser image recorders,

• meteorological weather processing systems,

• high-reliability air traffic control communications,

• telecommunications system design and integration,

• government technical support and information technology,

• satellite network control and support, and

• ucing operating costs, enhancing network security and improving service,

• an award from the Air Force for its Mission Communications Operations and Maintenance (“MCOM”) program. The MCOM program, which was awarded to Harris during the first quarter of fiscal 2003 under a one-year contract with six one-year options, provides operations and maintenance services for the U.S. Air Force Satellite Control Network’s communications functions at Schriever AFB, Colorado and Onizuka AFS, California. During the fourth quarter, the Air Force awarded a $9.7 million addition to the program, bringing MCOM’s total potential value for Harris to $365 million by 2009,

• an award in late June of 2002 of an eight-year contract by the U.S. Census Bureau for the Master Address File/ Topologically Integrated Geographic Encoding and Referencing Accuracy Improvement Project (“MAF/TIGER”), currently anticipated to provide total revenue of $200 million over an eight-year period. This program will provide a computer database of all addresses and locations where people live or work, covering an estimated 115 million residences and 60 million businesses in the U.S.,

• a contract with The Boeing Company for an initial six-year, $90 million military satellite communications hardware design, development and integration project for the U.S. Air Force’s Family of Beyond Line of Sight Terminal (“FAB-T”) program. FAB-T will provide the warfighter with protected wideband satellite communications on strategic aircraft and at remote ground terminals. Harris is conducting terminal and antenna hardware integration and operator interface development for aircraft and ground terminals. An extensive production phase is expected to follow this design and development phase,

• an award of a three-year contract from the U.S. Air Force Space and Missile Systems Center and the National Reconnaissance Office to develop and demonstrate a prototype radar payload for Space-Based Radar (“SBR”), a critical national defense program. The initial value of this contract with options could be $88 million. The final payload design, development, production and support program for all SBR spacecraft could reach $1 billion by 2013 for the winning company, which is to be selected following the prototype phase,

• an award of a 20-month, $21 million development contract from the FAA for the Next Generation Air/ Ground Communications (“NEXCOM”) program. NEXCOM will enable the FAA to increase Air Traffic Control air-to-ground channels to meet the rapid growth requirements of the nation’s air traffic system. Harris is also leading one of three NEXCOM teams vying for the NEXCOM Full Scale Development program in 2005, which could generate revenues up to $400 million over nine years, and

• an award of an indefinite delivery/indefinite quantity (“IDIQ”) production contract from the National Imagery and Mapping Agency (“NIMA”) to supply geospatial and imagery-derived products for the Global Geospatial Intelligence (“GGI”) program. Under this contract, Harris will supply NIMA with foundation data products, mapping and charting production services, surveying services and production management in support of GGI. Harris is currently providing NIMA with similar products and services under a program called OMNIBUS. GGI is the next-generation, follow-on program to OMNIBUS and could be worth several hundred million dollars.

The awards and milestones in fiscal 2003 are in addition to significant awards and contracts awarded to the segment during fiscal 2002 which included:

• obtaining a major role in providing advanced avionics systems design, development and production work for the Lockheed Martin Joint Strike Fighter (“JSF”) aircraft. We currently expect to provide more than $2 billion in avionics infrastructure, image processing digital map software and fiber optics work over the anticipated 20-year life of the program,

• an award of a $222 million production contract by the U.S. Army Communications Command for 205 lightweight multiband satellite terminals (“LMST”), and

• an award of a six-year, $70 million contract by TRW Inc. for development of the In-Flight Interceptor Communications System for the Ground-based Midcourse Defense (“GMD”) program.

A significant portion of this segment’s business involves classified programs. While classified programs are not discussed in this Annual Report, the operating results relating to classified programs are included in our consolidated financial statements and the business risks associated with such programs do not differ materially from those of other programs for the U.S. Government. Under many of our programs, we are required to maintain facility and personnel security clearances complying with U.S. Department of Defense and other Federal agency requirements.

Revenue in fiscal 2003 for this business segment increased 23.0 percent to $1,137.4 million from $924.4 million in fiscal 2002. Segment operating income increased 22.7 percent to $104.9 million. This segment contributed 54 percent of our total revenues in fiscal 2003, 49 percent in fiscal 2002 and 43 percent in fiscal 2001.

Most of the sales of the Government Communications Systems segment are made directly or indirectly to the U.S. Government under contracts or subcontracts containing standard government contract clauses providing for redetermination of profits, if applicable, and for termination at the convenience of the U.S. Government or for default of the contractor. Some of our Government Communications Systems segment’s significant programs by revenue in fiscal 2003 included LMST, FTI, MCOM, GMD, JSF, F/A-22, and several classified programs. Our largest program represented less than five percent of the segment’s revenues for fiscal 2003. Our 10 largest programs by revenue in fiscal 2003 represented less than 30 percent of the segment’s revenues in fiscal 2003. This segment currently has a diverse portfolio of approximately 250 programs, each having a value over $1 million. In fiscal 2003, U.S. Government customers, whether directly or through prime contractors, accounted for approximately 94 percent of the segment’s total revenues.

The funded backlog of unfilled orders for this segment of our business was $389 million at July 25, 2003, compared with $426 million a year earlier.

The segment’s contracts include both cost-reimbursement and fixed-price contracts. Cost-reimbursement contracts provide for the reimbursement of allowable costs plus the payment of a fee. These contracts fall into three basic types: (i) cost-plus fixed-fee contracts, which provide for the payment of a fixed fee irrespective of the final cost of performance; (ii) cost-plus incentive-fee contracts, which provide for increases or decreases in the fee, within specified limits, based upon actual results compared to contractual targets relating to such factors as cost, performance and delivery schedule; and (iii) cost-plus award-fee contracts, which provide for the payment of an award fee determined at the discretion of the customer based upon the performance of the contractor against pre-established criteria. Under cost-reimbursement type contracts, we are reimbursed periodically for allowable costs and are paid a portion of the fee based on contract progress.

Our fixed-price contracts are either firm fixed-price contracts or fixed-price incentive contracts. Under firm fixed-price contracts, we agree to perform a specific scope of work for a fixed price and as a result, benefit from cost savings and carry the burden of cost overruns. Under fixed-price incentive contracts, we share with the U.S. Government savings accrued from contracts performed for less than target costs and costs incurred in excess of targets up to a negotiated ceiling price (which is higher than the target cost) and carry the entire burden of costs exceeding the negotiated ceiling price. Accordingly, under such incentive contracts, our profit may also be adjusted up or down depending upon whether specified performance objectives are met. Under firm fixed-price and fixed-price incentive contracts, we usually receive either milestone payments equaling 100 percent of the contract price or monthly progress payments from the U.S. Government in amounts equaling 75 percent of costs incurred under U.S. Government contracts. The remaining amounts, including profits or incentive fees, are billed upon delivery and final acceptance of end items and deliverables under the contract.

Cost-reimbursement contracts generally have lower profit margins than fixed-price contracts. Production contracts are mainly fixed-price contracts and development contracts are generally cost-reimbursement contracts. For fiscal 2003, 62 percent of the revenues of this segment were generated from cost-reimbursement contracts and 38 percent from fixed-price contracts.

For a discussion of certain risks affecting our government business, see “Principal Customers,” “Legal Proceedings” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

RF Communications

Our RF Communications segment is a leading supplier of secure wireless voice and data communications products, systems and networks to the U.S. Department of Defense and other Federal and state agencies and to foreign government defense agencies, of which a significant portion is sold through the U.S. Government’s foreign military sales program, as well as through system integrators. This segment supplies a comprehensive line of secure radio products and systems for man-portable, mobile, strategic fixed-site and shipboard applications. This segment develops and sells radio systems that are highly flexible, interoperable and capable of supporting the diverse mission requirements of our modern military.
Major products and services offered by our RF Communications segment include:

• the Falcon® II family of secure multiband, HF, VHF and UHF software-defined tactical radios, which support a variety of wireless communications protocols for high-data-rate applications,

• HF, VHF, UHF and multiband radio equipment and systems for man-transportable, mobile, strategic fixed-site and shipboard applications,

• information security products and systems including custom integrated circuits and encryption modules, including the Sierra™ cryptographic modules and the CITADEL® and Presidio™ modules,

• tactical networking systems, including network hubs and local/wide area networks,

• systems integration,

• a wireless electronic mail system that delivers data across multiple transmission media, and

• antennas for short-, intermediate- and long-range communications for use in manpack, transportable, vehicular and fixed applications.

The segment’s Falcon® II family of HF, VHF and UHF radios share common operation, logistics and accessories and are built on a software-defined radio platform which is reprogrammable to add features or software upgrades. Software-defined radio technology offers significantly increased flexibility in supporting a variety of wireless communications protocols without the need to change hardware. The Falcon® II family covers the frequency range of 1.6 to 512 MHz. These radios also have military-strength embedded encryption and can be linked to computers, providing network capabilities on the battlefield.

The segment’s Sierra™II cryptographic subsystem is a miniaturized programmable module that can be integrated into radios and other voice and data communications devices to encrypt classified information prior to transmission and storage. The segment’s encryption modules currently meet or exceed the highest security standards established by the U.S. Government.

Applications for the segment’s products include:

• tactical and strategic command and control,

• battlefield communications,

• lightweight tactical manpacks and systems for U.S. and Allied Special Operations forces,

• HF radio communications systems for naval surface ships, and

• secure turnkey systems and products for embassy radio communications networks.

Harris is a leader in the development of the next-generation tactical radio programs. During the third quarter of fiscal 2003, the RF Communications segment was awarded a $10 million contract for cryptographic software development in support of the U.S. Department of Defense Joint Tactical Radio System program, and in the fourth quarter Harris was selected to incorporate the Sierra™-based Cryptographic Subsystems into all radios to be manufactured under the first cluster of the Joint Tactical Radio System program. Under the Joint Tactical Radio System program, the U.S. Department of Defense is seeking to develop a family of software programmable radios that share a common digital architecture that can be applied to multiple platforms and support multiple radio waveforms. The segment won a key position on the Joint Tactical Radio System program during fiscal 2002. We were selected as part of a team to provide system design, development and production work for the first “cluster” of a five-cluster development program that will provide advanced radio communications for all U.S. military forces. The anticipated revenue from this program could be as much as $500 million through full production over 15 years.

In fiscal 2003, the segment shipped the first low-rate initial-production units for the U.K. Ministry of Defence’s Bowman Radio Programme and also shipped the first of its radio systems for the Bowman Radio Programme manufactured at the Harris operation located in Basingstoke, United Kingdom. In fiscal 2002 the segment signed a contract, now valued at approximately $220 million, to supply the high-frequency subsystems for the Bowman Radio Programme. Under the terms of this contract with General Dynamics United Kingdom Limited, we expect to provide upwards of 10,000 radio units over the course of the five-year program.

The War on Terrorism, as well as Homeland Defense operations, continue to drive positive results for the segment. In fiscal 2003, the business responded to urgent requirements for its industry-leading Falcon® II radios from a broad base of government customers, including the U.S. Special Operations Command, the U.S. Army Communications – Electronics Command and the U.K. Ministry of Defence. The segment’s radios are also becoming the standard of NATO and Partnership for Peace countries. Sales in fiscal 2003 were made to Romania, Macedonia, Uzbekistan, Tunisia, Turkey, Oman, Algeria, United Arab Emirates, Venezuela, Chile and Estonia. Contracts also included a $10 million order from the Defense Early Response Fund, which provides funding for the U.S. National Guard and other agencies that provide quick response in times of national emergencies.

Revenues in fiscal 2003 for the RF Communications segment increased 26.1 percent over fiscal 2002 to $325.7 million. Segment operating income was $84.3 million in fiscal 2003 compared to $51.6 million in fiscal 2002. The RF Communications segment contributed 16 percent of our total revenues in fiscal 2003, 14 percent in fiscal 2002 and 12 percent in fiscal 2001. Approximately 52 percent of the sales of this segment were made outside of the United States in fiscal 2003. A significant portion of these sales were made to NATO and Partnership for Peace forces.

In general, the segment’s domestic products are sold and serviced directly to customers through its sales organizations and through established distribution channels. Internationally, the segment markets and sells its products and services through regional sales offices and established distribution channels, including through the U.S. Government’s Foreign Military Sales program. See “International Business.”

The backlog of unfilled orders for this segment of our business was $346 million at July 25, 2003 compared with $320 million a year earlier. Approximately $158 million of the backlog of unfilled orders at July 25, 2003 is expected to be filled during fiscal 2004.

Microwave Communications

Our Microwave Communications segment designs, manufactures and sells a broad range of digital microwave and millimeter-wave radios for use in worldwide wireless communication networks. The segment offers a wide range of transport and access products to serve the needs of companies ranging from mobile service providers to state, local and Federal users, private network users and Internet service providers. The segment’s business demands are driven primarily by the worldwide demand for high-performance and high-capacity broadband access, mobile voice telephony, high-speed data communications and the increasing use of cellular telephone and other wireless services and devices. In general, wireless networks are constructed using microwave radios and other equipment to connect all sites, fixed-access facilities, switching systems and other similar systems. For many applications, microwave and millimeter systems offer a lower-cost alternative to competing transmission technologies such as fiber or “wired” systems. This segment focuses on three primary applications for microwave radio: (1) links to interconnect mobile base station and controller sites, (2) transport and access links to support both private networks and public networks, and (3) “last mile” broadband access links which bring voice, data and video to small and medium enterprises.

Private network users include utilities, pipelines, railroads, industrial companies, state, local and Federal governments and emergency service operations where the public telephone network is not reliable, does not exist or is not sufficiently secure. This segment also focuses on high-frequency communications and provides broadband wireless access to the latest Internet, voice, data and video applications, including millimeter-wave technology. The segment’s point to multi-point products have dynamic bandwidth-on-demand allocation capabilities that allow a single wireless system to serve many subscribers. The segment’s product line spans 2-38 GHz.

Major products offered by our Microwave Communications segment include:

• the Constellation™ medium to high-capacity family of point-to-point digital radios operating in the 6, 7/8 and 10/11 GHz frequencies, which are designed for network applications, which supports both PDH and SONET platforms,

• the MicroStar® family of PDH digital point-to-point radios ranging from low-frequency/ low capacity products to high-frequency/medium-capacity systems in the 6-38 GHz frequency bands,

• the Galaxy™ family of digital point-to-point SONET/ SDH radios,

• the MegaStar® high-capacity, carrier-class digital point-to-point radio operating in the 5, 6, 7/8 and 11 GHz frequencies with features designed to eliminate test equipment requirements and reduce network installation and operation costs and which conform to PDH, SONET and SDH standards,

• the Aurora™ family of spread-spectrum digital point-to-point radios designed to meet customer needs while operating in unlicensed frequency bands, and which are well-suited for LAN/WAN, mobile, private network and Internet access systems,

• the ClearBurst™ MB point-to-multipoint digital radio system which operates in the 3.5 and 10.5 GHz frequency bands and is suited for high-speed data and voice applications for the small and medium enterprise and small office/home office customers, private network operators and Internet service providers seeking wireless “last mile” broadband access, and

• the Starview™ element management solution for networks.

In addition to the above products, the segment also is an industry leader in turnkey microwave systems and service capabilities. The segment designs and implements total network solutions to include integration, site surveys, and RF planning and training.

Applications of the segment’s products include: mobile network backhaul and backbone applications; access and transport solutions for urban, rural and inter-city communication networks; point-to-point access solutions for wireless and wireline operators, competitive service providers and Internet service providers; and communications and network control solutions for industrial, public safety, utility and transportation network applications.

Principal customers for the segment’s products and services include domestic and international mobile service providers, original equipment manufacturers and base station suppliers, as well as private network users. The segment is the largest supplier of microwave radio systems in North America and one of the largest suppliers of fixed wireless solutions worldwide. Approximately 42 percent of the sales of the segment were made outside of North America in fiscal 2003.

Revenues in fiscal 2003 for our Microwave Communications segment decreased 2.5 percent from $288.9 million in fiscal 2002 to $281.6 million in fiscal 2003. The segment’s operating loss was $26.9 million in fiscal 2003, compared to an operating loss of $17.4 million in fiscal 2002. The Microwave Communications segment contributed 13 percent of our total revenues in fiscal 2003, 15 percent in fiscal 2002 and 22 percent in fiscal 2001.

In general, the segment’s domestic products and services are sold directly to customers or original equipment manufacturers through its sales organizations and through established distribution channels. Internationally, the segment markets and sells its products and services through regional sales offices and established distribution channels. See “International Business.”

The backlog of unfilled orders for this segment of our business was $69 million at July 25, 2003, substantially all of which is expected to be filled during the 2004 fiscal year, compared with $45 million a year earlier.

Network Support

Our Network Support segment provides a complete range of products and systems to support network infrastructures. The segment’s products enable service providers to test, manage and enhance communications network infrastructures. The segment supplies telecommunication products and systems, including technician handheld tools and test sets, ranging from industry standard impact tools, crimpers, wire and cable strippers, to butt-in style test sets for installation, maintenance and troubleshooting, and global network management solutions and operational support systems to optimize multivendor, multiprotocol networks.

The segment’s broad product offerings enable it to service the entire communications network from a network operations center to the field technicians. Principal customers for the segment’s products and services include international telephone companies, Regional Bell Operating Companies, independent and competitive local exchange voice and data carriers, utilities and government agencies.

Major products, systems and services offered by our Network Support segment include:

• handheld ADSL and ISDN test sets for qualification and testing for both telephone and digital subscriber lines (“DSL”),

• international testing products for EuroISDN and E1 circuit and voice testing,

• industry-standard structured cabling tools to simplify digital line installation and maintenance, as well as tool kits to meet the needs of service technicians, and

• the NetBoss™ integrated communications network management platform that supports wireless, wireline and Internet services and helps service providers manage, streamline and automate associated business functions such as billing.

In fiscal 2003, the segment introduced a new real-time workflow management and loop test solution designed to assist managers of telecom central offices to more effectively coordinate field technicians. This product, called the EXP™, is designed to significantly reduce operating costs for service providers by reducing repeat visits required to diagnose and repair service problems or initiate new services. In the fourth quarter of fiscal 2003 we received a $5 million purchase order for this new product. Field trials of this new solution with additional telecom customers also continued through fiscal 2003.

Revenues in fiscal 2003 for the Network Support segment decreased 13.1 percent to $49.7 million compared to $57.2 million in fiscal 2002. Segment operating loss was $15.5 million in fiscal 2003, compared to an operating loss of $10.3 million in fiscal 2002. The Network Support segment contributed 2 percent of our total revenues in fiscal 2003, 3 percent in fiscal 2002 and 6 percent in fiscal 2001.

In general, the segment’s domestic products are sold and serviced directly to customers through its sales organizations and through established distribution channels. Internationally, the segment markets and sells its products and services through regional sales offices and established distribution channels. See “International Business.” Approximately 21 percent of the sales of the segment were made outside of the United States in fiscal 2003.

The backlog of unfilled orders for this segment of our business was $15 million at July 25, 2003, substantially all of which is expected to be filled during the 2004 fiscal year, compared with $9 million a year earlier.

Broadcast Communications

Our Broadcast Communications segment serves the digital and analog television and radio infrastructure markets, providing transmission, studio, automation and network management equipment and systems to over-the-air broadcasters.

Our Broadcast Communications segment is a leading developer, manufacturer and supplier of:


• digital and analog radio and television broadcast encoding and transmission equipment, systems and services,

• radio and television studio equipment, systems and services, and

• automation and network management equipment and systems enabling television stations, groups and networks to monitor and control hardware, software and related elements from a central location and to otherwise automate systems for television, over-the-air broadcast and cable and industrial applications.

Our Broadcast Communications segment provided the nation’s first advanced digital television transmitter as well as the first commercial digital television application and is the market leader with the U.S. digital standard known as “ATSC.” This segment is the industry’s leader in providing digital equipment to over-the-air broadcasters. The segment is also expanding its efforts in the digital radio area and is developing the next wave of radio broadcasting equipment, including In-Band/ On Channel digital radio as well as Digital Audio Broadcast and Digital Radio Mondiale international standards.

The Broadcast Communications segment has expanded its presence in international digital broadcast markets. At the start of fiscal 2002, we acquired the Hirschmann Multimedia Communications Network business, a leader in European-standard digital video television, digital audio broadcast radio transmitters and digital cable systems.

Principal customers for the segment’s products and services include domestic and international television and radio broadcasters. Major products, systems and services offered by our Broadcast Communications segment include:

• digital solid-state AM, FM, VHF and UHF transmission systems,

• ATSC digital television, encoding, master control and monitoring systems,

• high-definition digital radio-compatible transmitters,

• analog radio and television transmission systems,

• digital audio broadcast radio systems, including encoders, data interfaces, multiplexers, modulators, transmitters and operating software,

• cable head-end systems,

• datacasting systems,

• automation systems, including device control hardware and software, wide-area automation solutions, newsroom automation to control content in real-time and media asset management systems,

• analog and digital audio consoles and radio studio products,

• mobile broadcast and news gathering units and production vehicles, and

• comprehensive television and radio studio integration services and products.

This segment has provided digital television transmitters to many U.S. broadcasters as they comply with the U.S. Government-mandated transition from analog to digital transmission. In connection with the transition of broadcasting from analog to digital technologies and the trend toward centralized operations, broadcasters have more opportunities to expand channel and service offerings and for automation of many processes. Following the acquisition of Louth Automation in fiscal 2000, we have become a leading supplier of automation solutions for broadcasters. Our automation product offerings include master control-play-out systems for single- and multi-channel applications, wide-area automation solutions, media asset management systems, program management services and related support and training.

Our Broadcast Communications segment is North America’s largest supplier of radio and television broadcast equipment. Approximately 35 percent of the revenues of the segment were made outside of the United States in fiscal 2003.

Revenues in fiscal 2003 for the Broadcast Communications segment decreased 11.2 percent from fiscal 2002 to $315.2 million. Segment operating income was $8.0 million in fiscal 2003 compared to $37.2 million in fiscal 2002. The Broadcast Communications segment contributed 15 percent of our total revenues in fiscal 2003, 19 percent in fiscal 2002 and 17 percent in fiscal 2001.

In general, the segment’s domestic products are sold and serviced directly to customers through its sales organizations and through established distribution channels. Internationally, the segment markets and sells its products and services through regional sales offices and established distribution channels. See “International Business.”

The backlog of unfilled orders for this segment of our business was $93 million at July 25, 2003, substantially all of which is expected to be filled during the 2004 fiscal year, compared with $88 million a year earlier.

International Business

Revenues in fiscal 2003 from products exported from the United States (including foreign military sales) or manufactured abroad were $427.4 million or 20 percent of our total revenues, compared with $416.7 million or 22 percent of our total revenues in fiscal 2002 and $572.8 million or 29 percent of our total revenues in fiscal 2001. Our international sales include both direct exports from the United States and sales from foreign subsidiaries. Most of the international sales are derived from the Microwave Communications, RF Communications and Broadcast Communications segments. Direct export sales are primarily denominated in U.S. dollars, whereas sales from foreign subsidiaries are generally denominated in the local currency of the subsidiary. Exports from the United States, principally to Europe and Asia, totaled $227.3 million or 53 percent of our international sales in fiscal 2003, $185.1 million or 44 percent of our international sales in fiscal 2002 and $227.1 million or 40 percent of our international sales in fiscal 2001.

Foreign operations represented 10 percent of revenues in fiscal 2003, 12 percent of revenues in fiscal 2002 and 18 percent in fiscal 2001; and 15 percent of long-lived assets as of June 27, 2003 and 12 percent of long-lived assets as of June 28, 2002. Government Communication Systems segment systems are produced principally in the United States. International revenues are derived primarily from exports.

Principal international manufacturing facilities are located in Canada, China and the United Kingdom. International marketing activities are conducted through subsidiaries which operate in Canada, Europe, Central and South America and Asia. We have also established international marketing organizations and several regional sales offices. Reference is made to Exhibit 21 “Subsidiaries of the Registrant” for further information regarding our foreign subsidiaries.

We utilize indirect sales channels, including dealers, distributors and sales representatives, in the marketing and sale of some lines of products and equipment, both domestically and internationally. These independent representatives may buy for resale or, in some cases, solicit orders from commercial or governmental customers for direct sales by us. Prices to the ultimate customer in many instances may be recommended or established by the independent representative and may be on a basis which is above or below our list prices. These independent representatives generally receive a discount from our list prices and may mark-up those prices in setting the final sales prices paid by the customer. During the 2003 fiscal year, revenues from indirect sales channels represented 8 percent of our total revenues and 35 percent of our international revenues compared to revenues from indirect sales channels in fiscal year 2002 representing 8 percent of our total revenues and 34 percent of our international revenues.

Fiscal year 2003 revenues came from a large number of foreign countries, no one of which accounted for 5 percent or more of our total revenues. Certain of our exports are paid for by letters of credit, with the balance carried either on an open account or installment note basis. Advance payments, progress payments or other similar payments received prior to or upon shipment often cover most of the related costs incurred. Performance guarantees by us are generally required on significant foreign government contracts. In order to stay competitive in international markets, we also enter into recourse and vendor financing to facilitate sales to certain customers.

The particular economic, social and political conditions for business conducted outside the United States differ from those encountered by domestic businesses. Our management believes that the overall business risk for the international business as a whole is somewhat greater than that faced by its domestic operations as a whole. A description of the types of risks to which we are subject in international business is contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. Nevertheless, in the opinion of our management, these risks are offset by the diversification of the international business and the protection provided by letters of credit and advance payments.
 

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