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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (Fee Required)
For the fiscal year ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from ______________ to ________________
Commission File Number 1-1000
SPARTON CORPORATION
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(Exact name of registrant as specified in its charter)
OHIO 38-1054690
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(State of Incorporation) (IRS Employer Identification No.)
2400 East Ganson Street, Jackson, Michigan 49202
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (517) 787-8600
Commom Stock, $1.25 Par Value NEW YORK STOCK EXCHANGE
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(Title of each class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in Part III of this Form 10-K or any amendment
to this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of August 31, 2000 was $20,169,000.
The number of shares of common stock outstanding as of August 31, 2000 were
7,828,090.
Documents incorporated in part by reference:
Parts II and IV - Portions of the 2000 Annual Report to
Shareowners of Sparton Corporation ("Annual Report")
are filed as Exhibit 13 herewith.
Part III - Proxy Statement for October 25, 2000 Meeting
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PART I
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Item l. Business
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Except as otherwise indicated, the term "Company" refers to Sparton Corporation,
and the term "Sparton" refers to Sparton Corporation and its consolidated
subsidiaries.
The Company has been in continuous existence since 1900. It was last reorganized
in 1919 as an Ohio corporation. Sparton operates in one line of business,
electronic manufacturing services (EMS). A description of the major products and
sales are included in the Annual Report in Note 1, Statement of Significant
Accounting Policies, and in Note 11, Business Segment and Concentration of
Sales, of the Notes to Consolidated Financial Statements on Pages 23 and 29,
respectively, and are filed as part of Exhibit 13.
Electronic Manufacturing Services
---------------------------------
Historically, the Company's principal electronics product has been sonobuoys,
which are anti-submarine warfare (ASW) devices used by the U.S. Navy and other
free-world military organizations. It competes with a very limited number of
qualified manufacturers for sonobuoy procurements by the U.S. and selected
foreign governments. Contracts are obtained through competitive bid or
directed procurement. Sales of sonobuoys have declined substantially from the
levels of the 1980s and early 1990s, but have stabilized in recent years. While
diminished, the U.S. Navy is still the Corporation's largest single customer.
The Company has focused in recent years on substantially expanding sales in the
commercial EMS markets. This is where the Company expects substantially all
future revenue growth to occur with emphasis on telecommunications, avionics,
medical and industrial controls and scientific instrumentation. Many of the
physical and technical attributes used in the production of electronics for
sonobuoys are also required in the production of commercial electronics
products. The Company's commercial EMS business includes design and/or
manufacture of a variety of electronic and electromechanical products and
assemblies. Sales are generally obtained on a competitive basis. Competitive
factors include technical ability, customer service, product quality, timely
delivery and price.
The Corporation also has several propriety products. A majority of the
proprietary products, principally transducers and condition monitoring systems,
are sold to the telecommunications industry worldwide. Commercial electronics
products are sold through a direct sales force and through a small group of
manufacturers' representatives. In the commercial EMS business, Sparton must
compete with a number of domestic and foreign manufacturers, some of which are
much larger in terms of size and financial resources. The Company generally
contracts with its customers to manufacture products based on the customer's
design, specifications and shipping schedules. Normally, EMS programs do not
require the Company's direct involvement in product marketing. Material cost and
availability and product quality, delivery and reliability are all very
important factors in the commercial EMS business. In general, margins within the
commercial EMS markets are lower than those obtained in the governmental EMS
markets of ASW or proprietary electronics. The lower margins are
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primarily due to intense competition and the higher number of purchased parts
contained in the products shipped.
At June 30, 2000 and June 30, 1999, the government backlog was approximately $67
million and $70 million, respectively. A majority of the 2000 backlog is
expected to be realized in 2001. Commercial EMS sales are not included in the
backlog. The Company does not believe the amount of backlog of commercial sales
covered by firm purchase orders is a meaningful measure of future sales, as
such orders may be rescheduled or cancelled without significant penalty.
Other Information
-----------------
Sparton's largest customer is the U.S. Navy. While the loss of U.S. government
sonobuoy sales would have a material adverse financial effect, the loss of any
one of several other customers could also have a significant but less dramatic
financial impact. The Company continues to grow its commercial EMS sales with
the objective to expand the customer base, thus reducing this concentration.
Materials for the electronics operations are obtained from a variety of
worldwide sources, except for selected components. Access to competitively
priced materials is critical to success in the EMS business. In certain markets,
the volume purchasing power of the larger competitors creates a substantial cost
advantage for them. During the second half of the year, the company began to
encounter shortages on certain key electronics components. This has led to
higher prices. The material shortages on some critical electronic components are
expected to impact the electronics industry in general, and Sparton
specifically, for some time. Although the commercial electronics industry is
experiencing spot shortages, resulting in price increases and/or delivery delays
of key components, the Company has not encountered and does not expect to
encounter significant long-term problems in obtaining sufficient raw materials.
The risk of material obsolescence in the EMS business is less than it is in many
other markets because raw materials and component parts are generally only
purchased upon receipt of a customer's order. While Sparton holds several
patents relating to its products and processes, none are considered of material
importance. While overall sales fluctuate during the year, such fluctuations do
not reflect a definitive seasonal pattern or tendency.
Research and development expenditures amounted to approximately $13,484,000 in
2000, $8,779,000 in 1999 and $10,512,000 in 1998 (approximately $8,778,000,
$6,700,000 and $9,462,000 of these expenditures, respectively, were customer
funded). There are approximately 82 employees involved in research and
development activities. Few, if any, devote all of their time to such efforts.
Sparton employed approximately 1,400 people at June 30, 2000. The Company has
one operating division and three wholly owned active operating subsidiaries. In
addition, it has a foreign sales corporation (FSC).
Item 2. Properties
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The table that follows lists the principal properties owned by Sparton. There
are manufacturing and/or office facilities at each location. Sparton believes
these facilities are suitable for its operations.
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Jackson, Michigan
DeLeon Springs, Florida (2 plants)
Brooksville, Florida
London, Ontario, Canada
Rio Rancho, New Mexico
Deming, New Mexico
The Company's Coors Road, Albuquerque, New Mexico, idled facility is under a
long term lease to another company, with an option to buy.
Item 3. Legal Proceedings
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Various litigation is pending against the Company, in many cases involving
ordinary and routine claims incidental to the business of the Company and in
others presenting allegations that are non-routine. The Company and its
subsidiaries are also involved in certain compliance issues with the United
States Environmental Protection Agency (EPA) and various state agencies,
including being named as a potentially responsible party at several sites.
Potentially responsible parties (PRPs) can be held jointly and severally liable
for the cleanup costs at any specific site. The Company's past experience,
however, has indicated that when it has contributed only relatively small
amounts of materials or waste to a specific site relative to other PRPs, its
ultimate share of any cleanup costs has been minor. Based upon available
information, the Company believes it has contributed only small amounts to those
sites in which it is currently viewed a potentially responsible party.
In February 1997, three lawsuits were filed against Sparton's wholly owned
subsidiary, Sparton Technology, Inc., in Federal District Court in Albuquerque,
one by the United States on behalf of the EPA, the second by the State of New
Mexico and the third by the City of Albuquerque and the County of Bernalillo.
All three actions alleged that the impacts to soil and groundwater associated
with Sparton Technology's Coors Road facility presented an imminent and
substantial threat to human health or the environment.
On March 3, 2000, a Consent Decree was entered, settling the lawsuits as well as
a related administrative enforcement action. The Consent Decree represents a
judicially enforceable settlement agreement under which Sparton Technology has
paid $1,000,000 to resolve claims for damages to natural resources, $475,000 to
resolve claims for civil penalties for alleged violations of state law and an
order entered in the related administrative enforcement action, and $200,000 for
reimbursement of the litigation costs of certain plaintiffs. The Consent Decree
also contains work plans describing remedial activity Sparton Technology agreed
to undertake. In exchange for the monetary payment and an agreement to implement
the work plans, Sparton Technology is receiving covenants not to sue that,
except in fairly extraordinary circumstances, prevent any further
administrative or judicial action by state and federal entities in connection
with the impacts to the environment associated with past activities at the Coors
Road facility that was the subject of the existing legal
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proceedings.
The work plans provide for the installation of an off-site containment well
(already completed and operating), enhancement to an on-site soil vapor
extraction system (in operation) and an on-site containment well. It is
anticipated that these remediation activities will operate for a period of time
during which Sparton Technology and the regulatory agencies will analyze their
effectiveness. The Company believes that it will take at least three to five
years before the effectiveness of the groundwater extraction wells can be
established.
Upon entering into the Consent Decree, the Company reviewed its estimates of the
future costs expected to be incurred in connection with its remediation of the
environmental issues associated with its Coors Road Plant over the next 30
years. The Company increased its accrual for the cost of addressing
environmental impacts associated with its Coors Road Plant by $10,000,000,
pre-tax, in December 1999. At June 30, 2000, the remaining undiscounted minimum
accrual for EPA remediation approximates $9,162,000. This balance is after
payment of the $1,675,000 in costs and damages, described above, payable to the
various plaintiff parties, which amount was paid in March 2000. The Company's
estimate is based upon existing technology and current costs which have not been
discounted. The estimate includes equipment and operating and maintenance costs
for the on-site and off-site pump and treat containment systems, a soil vapor
extraction program and continued on-site and off-site monitoring. It also
includes the required periodic reporting requirements. This estimate does not
include legal and related consulting costs which are expensed as incurred. The
estimate does not reflect any offset or reduction for monies recovered from
various parties which the Company is currently pursuing as described below.
In 1995 Sparton Corporation and Sparton Technology, Inc. filed a Complaint in
the Circuit Court of Cook County, Illinois, against Lumbermens Mutual Casualty
Company and American Manufacturers Mutual Insurance Company demanding
reimbursement of expenses incurred in connection with its remediation efforts at
the Coors Road facility based on various primary and excess comprehensive
general liability policies in effect between 1959 and 1975. In 1999 the
Complaint was amended to add various other excess insurers, including certain
London market insurers and Fireman's Fund Insurance Company. The case is
currently in the discovery stage.
On February 11, 1998, Sparton Technology, Inc. commenced litigation in the
United States Court of Federal Claims alleging that the Department of Energy
(DOE), acting through its contractors, Sandia Corporation and Allied Signal,
Inc., is liable for reimbursement of Sparton's costs incurred in defending
against and complying with federal and state regulatory requirements. The DOE
prescribed certain mandatory performance requirements that were then imposed
upon Sparton Technology through its agreements with Sandia Corporation and
Allied Signal, Inc. On February 9, 1999, the Court of Federal Claims dismissed
Sparton Technology's complaint on the basis of a lack of jurisdiction concluding
that an agency relationship did not exist between Sandia Corporation and Allied
Signal, Inc. and the United States for purposes of reimbursing costs incurred
during litigation. Sparton Technology believed that the court erred in its
decision and filed its notice of appeal on April 9, 1999. On April 18, 2000, the
Federal Circuit reversed the lower court's decision and reinstated Sparton
Technology's claim for purposes of examining whether the Court of Federal Claims
does indeed have jurisdic-
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tion. Sparton Technology is now proceeding with discovery on the jurisdiction
related issues.
Sparton Technology, Inc. filed a complaint on September 21, 1998, against Allied
Signal, Inc. in U.S. District Court in Kansas City seeking to recover costs
incurred to investigate and remediate impacts to the environment at its Coors
Road facility. In July 1999, the Court allowed Sparton Technology to amend its
complaint to add Sandia Corporation and the DOE as defendants. In March 2000,
the case was transferred to the United States District Court in Albuquerque, New
Mexico. Written discovery has commenced, but all further discovery has been
stayed as of July 13, 2000, pursuant to an Order of the Court. The Company and
the three defendants are now engaged in a Court ordered mediation to determine
whether the case can be settled. No time deadline on the mediation and no trial
date have been set for the case, in the event the case cannot be settled.
At this time, the Company is unable to predict the amount or timing of recovery,
if any, that may result from the pursuit of these before-mentioned three claims.
Item 4. Submission of Matters to a Vote of Security Holders
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No matters were submitted to a vote of the security holders during the last
quarter of the period covered by this report.
OFFICERS OF THE REGISTRANT
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Information with respect to executive officers of the Registrant is set forth
below. The positions noted have been held for at least five years, except where
noted.
<TABLE>
<CAPTION>
Age
---
<S> <C>
JOHN J. SMITH, Chairman of the Board, Chief Executive Officer and Director 88
DAVID W. HOCKENBROCHT, President, Chief Operating Officer and Director 65
RICHARD L. LANGLEY, Vice President-Treasurer 55
R. JAN APPEL, Vice President, Secretary and General Counsel 54
RICHARD D. MICO, Vice President and General Manager of Sparton Technology, Inc. 70
DOUGLAS E. JOHNSON, Vice President and General Manager of Sparton Electronics 52
MICHAEL G. WOODS, Vice President since August 1999, and General Manager of 41
Sparton of Canada, Ltd. since November 1998. Prior to that date,
Mr. Woods held varying positions including Controller and Director of
Electronics Manufacturing Services for Sparton of Canada.
</TABLE>
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<TABLE>
<S> <C>
DEBORAH G. BROWN, Chief Information Officer since February 2000. Prior to coming 46
to Sparton, Ms. Brown held varying positions including Software
Engineer/Project Manager for Unigraphics Solutions from December 1999 to
February 2000, Consultant for Herold Information Systems from March 1999
to December 1999 and Project Manager for Northrop Grumman from February
1985 to September 1998.
ALAN J. HOUGHTALING, Vice President-Director Business Development since May 43
2000. Prior to that date, Mr. Houghtaling held varying positions
including Director of Business Development ECM, Division Director of
Business Development and Director of ECM Business for Sparton.
STEPHANIE A. MARTIN, Vice President Corporate Materials, Acquisitions and 44
Logistics since May 2000. Prior to that date, Ms. Martin held varying
positions including Director Corporate Materials Acquisition and
Logistics for Sparton Electronics since October 1996, and Director of
Materials for Power Guard, a division of Antec, a Telecommunications
Manufacturer, from May 1994 to October 1996.
</TABLE>
There are no family relationships among the persons named above. All officers
are elected annually and serve at the discretion of the Board of Directors.
PART II
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Item 5. Market for the Registrant's Common Equity and Related Stockholder
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Matters
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Information with respect to the market for the Company's stock, including stock
prices, stock exchange and number of shareowners, and quarterly dividends for
the two-year period ended June 30, 2000, is included under "Financial
Highlights" on page 1 of the Annual Report and is included in Exhibit 13 filed
herewith.
Item 6. Selected Financial Data
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The "Selected Financial Data" on page 30 of Exhibit 13 filed hereunder is
incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
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of Operations
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"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on page 31 of Exhibit 13 filed hereunder is incorporated herein by
reference.
Item 7.(a) Qualitative and Quantitative Disclosures About Market Risk
---------- ----------------------------------------------------------
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Market Risk Exposure" on page 33 of Exhibit 13 filed hereunder is
incorporated herein by reference.
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Item 8. Financial Statements and Supplementary Data
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The consolidated financial statements of Sparton Corporation and Subsidiaries
and "Report of Independent Auditors" are included on pages 18-29 and 22,
respectfully, in Exhibit 13 filed hereunder and are incorporated herein by
reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
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Financial Disclosure
--------------------
None.
PART III
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Item 10. Directors and Executive Officers of the Registrant
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Information with respect to directors is included in the Proxy Statement under
"Election of Directors" and is incorporated herein by reference. Information
concerning the executive officers is included in Part I on page 6.
Item 11. Executive Compensation
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Information concerning executive compensation is included under "Compensation of
Executive Officers" in the Proxy Statement and is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
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Information on management and certain other beneficial ownership of the
Company's common stock is included under "Outstanding Stock and Voting Rights"
in the Proxy Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
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Information as to certain relationships and related transactions is included
under "Certain Relationships and Transactions" in the Proxy Statement and is
incorporated herein by reference.
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PART IV
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Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
-------- ---------------------------------------------------------------
(a) The following financial statements are filed as part of this report on Form
10-K:
The following Consolidated Financial Statements of Sparton Corporation and
Subsidiaries and Report of Independent Auditors, included on Pages 18-29 and 22,
respectfully, of Exhibit 13 filed hereunder are incorporated by reference in
Item 8.
<TABLE>
<CAPTION>
Page Reference
Annual Report
to Shareowners
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<S> <C>
Data from the 2000 Annual Report to Shareowners of Sparton Corporation:
Consolidated balance sheets at June 30, 2000 and 1999 18 - 19
For the years ended June 30, 2000, 1999 and 1998:
Consolidated statements of operations 20
Consolidated statements of cash flows 21
Consolidated statements of shareowners' equity 22
Notes to consolidated financial statements 23 - 29
Report of Independent Auditors 22
Financial Statement Schedules
All prescribed schedules have been omitted since the required
information is not present or is not present in amounts sufficient
to require submission of the schedule, or because the information
required is included in the consolidated financial statements or
the notes thereto.
(b) Reports on Form 8-K
No reports on Form 8-K were required to be filed for the three months
ended June 30, 2000.
(c) Exhibits
See Exhibit Index on page 12.
</TABLE>
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SPARTON CORPORATION
Date: September 22, 2000 By: /s/ Richard L. Langley
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Richard L. Langley, Vice President-Treasurer
(Principal Accounting and Financial Officer)
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature and Title Date
By /s/ John J. Smith August 25, 2000
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John J. Smith, Chairman of the Board
of Directors and Chief Executive Officer
By /s/ David W. Hockenbrocht August 25, 2000
----------------------------------------------------- ---------------
David W. Hockenbrocht, President,
Chief Operating Officer and Director
By /s/ James N. DeBoer August 25, 2000
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James N. DeBoer, Director
By /s/ Robert J. Kirk August 25, 2000
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Robert J. Kirk, Director
By /s/ William I. Noecker August 25, 2000
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William I. Noecker, Director
By /s/ Rory B. Riggs August 25, 2000
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Rory B. Riggs, Director
By /s/ W. Peter Slusser August 25, 2000
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W. Peter Slusser, Director
By /s/ Bradley O. Smith August 25, 2000
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Bradley O. Smith, Director
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Exhibit Index
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3 and 4 Articles of Incorporation of the Registrant were filed with Form
10-K for the year ended June 30, 1981, and an amendment thereto
was filed with Form 10-Q for the three-month period ended
September 30, 1983, and are incorporated herein by reference.
Bylaws of the Registrant were filed with Form 10-K for the year
ended June 30, 1981, and are incorporated herein by reference.
Code of Regulations of the Registrant were filed with Form 10-K
for the year ended June 30, 1981, and an amendment thereto was
filed with Form 10-Q for the three-month period ended September
30, 1982, and are incorporated herein by reference.
10 The employment agreement with John J. Smith was filed with Form
10-Q for the quarter ended September 30, 1994, and an amendment
and extension of the employment agreement thereto was filed with
Form 10-K for the year ended June 30, 1998, and are incorporated
herein by reference.
13 Portions of the 2000 Annual Report to Shareowners (filed herewith
and attached).
22 Subsidiaries (filed herewith and attached).
23 Consent of independent auditors (filed herewith and attached).
27 Financial data schedule, submitted to the Securities and Exchange
Commission for its information.
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