<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2000 Commission File No. 000-24134
---------
INTEGRITY INCORPORATED
----------------------
(Exact name of registrant as specified in its charter)
Delaware 63-0952549
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1000 Cody Road
Mobile, Alabama 36695
(Address of principal executive offices, zip code)
(334) 633-9000
(Registrant's telephone number, including area code)
Indicate by check mark 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at August 10, 2000
----- ------------------------------
<S> <C>
Class A Common Stock, $0.01 par value 2,179,000
Class B Common Stock, $0.01 par value 3,435,000
</TABLE>
<PAGE> 2
FINANCIAL INFORMATION
Item 1. Financial Statements
INTEGRITY INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Jun 30, 2000 Dec 31, 1999
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash $ 1,295 $ 1,067
Trade receivables, less allowance for returns and doubtful accounts of $902
and $1,108 4,912 6,329
Other receivables 1,027 1,681
Inventories 4,509 4,754
Other current assets 1,929 2,456
---------- ----------
Total current assets 13,672 16,287
Property and equipment, net of accumulated depreciation of $4,204 and $3,956 3,860 3,664
Product masters, net of accumulated amortization of $14,397 and $11,649 6,157 6,941
Other assets 2,847 3,156
---------- ----------
Total assets $ 26,536 $ 30,048
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 2,064 $ 1,937
Accounts payable and accrued expenses 1,628 3,108
Royalties payable 1,501 774
Other current liabilities 1,000 1,493
---------- ----------
Total current liabilities 6,193 7,312
Long-term debt 3,767 6,768
Other long-term liabilities 26 52
---------- ----------
Total liabilities 9,986 14,132
---------- ----------
Commitments and contingencies 0 0
---------- ----------
Minority interest 1,270 1,166
---------- ----------
Stockholders' Equity
Preferred stock, $.01 par value; 500,000 shares authorized, none issued and
Outstanding 0 0
Class A common stock, $.01 par value; 7,500,000 shares authorized;
2,179,000 shares issued and outstanding 22 22
Class B common stock, $.01 par value, 10,500,000 shares authorized;
3,435,000 shares issued and outstanding 34 34
Additional paid-in capital 13,847 13,847
Unearned compensation (299) (327)
Retained earnings 1,844 1,215
Equity adjustments from foreign currency translation (168) (41)
---------- ----------
Total stockholders' equity 15,280 14,750
---------- ----------
Total liabilities and stockholders' equity $ 26,536 $ 30,048
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
1
<PAGE> 3
INTEGRITY INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 12,629 $ 10,513 $ 26,767 $ 21,558
Cost of sales 6,929 4,664 14,063 9,887
-------- -------- -------- --------
Gross profit 5,700 5,849 12,704 11,671
Marketing and fulfillment expenses 2,433 2,892 5,796 5,554
General and administrative expenses 2,565 2,365 5,232 4,695
-------- -------- -------- --------
Income from operations 702 592 1,676 1,422
Other expenses
Interest expense, net 252 304 514 679
Other expenses 42 (24) 57 (6)
-------- -------- -------- --------
Income before minority interest and taxes 408 312 1,105 749
Provision for income taxes 151 104 410 260
Minority interest, less applicable taxes 45 52 66 110
-------- -------- -------- --------
Net income $ 212 $ 156 $ 629 $ 379
======== ======== ======== ========
Adjustments to determine comprehensive income
Foreign currency translation adjustments (130) (5) (126) 20
-------- -------- -------- --------
Comprehensive income $ 82 $ 151 $ 503 $ 399
======== ======== ======== ========
NET INCOME PER SHARE
Basic $ 0.04 $ 0.03 $ .11 $ 0.07
======== ======== ======== ========
Diluted $ 0.04 $ 0.03 $ .10 $ 0.06
======== ======== ======== ========
Weighted average number of shares outstanding
Basic 5,614 5,580 5,614 5,543
Diluted 6,034 6,004 6,044 6,041
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
2
<PAGE> 4
INTEGRITY INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six months Ended June 30
-------- --------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net income $ 629 $ 379
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization 517 558
Amortization of product masters 2,762 1,336
Minority interest 66 110
Stock compensation 28 23
Changes in operating assets and liabilities
Trade receivables 1,417 (1,008)
Other receivables 154 (1)
Inventories 245 414
Other assets 689 1,588
Accounts payable, royalties payable and
Accrued expenses (753) 63
Other current and non current liabilities (481) 203
Other (127) 20
-------- --------
Net cash provided by operating activities 5,146 3,685
-------- --------
Cash flows from investing activities
Payments received on notes receivable 500 0
Purchases of property and equipment (444) (232)
Payments for product masters (1,978) (1,349)
-------- --------
Net cash used in investing activities (1,922) (1,581)
-------- --------
Cash flows from financing activities
Net (repayments) borrowings under line of credit (1,746) (317)
Distributions to joint venture partner 0 (510)
Principal payments of long-term debt (1,250) (1,165)
-------- --------
Net cash used in financing activities (2,996) (1,992)
-------- --------
Net increase in cash 228 112
Cash, beginning of year 1,067 989
-------- --------
Cash, end of period $ 1,295 $ 1,101
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE> 5
INTEGRITY INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND JUNE 30, 1999
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Integrity Incorporated (the "Company") is engaged in the production,
creative content, distribution and publishing of music cassette tapes and
compact discs, print music and related products, sold to the public primarily
through retail sales outlets and direct to consumer marketing. A principal
direct to consumer marketing method of distribution is continuity programs
whereby subscribers receive products at regular intervals.
Integrity Music Europe Ltd. was formed in 1988; Integrity Music Pty.
Ltd. was formed in 1991; and Integrity Media Asia Pte. Ltd. was formed in 1995.
These wholly-owned subsidiaries of the Company serve to expand the Company's
presence in Western Europe, Australia and New Zealand; and Singapore,
respectively. Celebration Hymnal LLC was formed in 1997 with Word Entertainment,
for the purpose of producing and promoting The Celebration Hymnal. Word
Entertainment's interest in the venture is presented as a minority interest in
these financial statements, as the venture is controlled by the Company.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements and should be read in conjunction with the
financial statements contained in the Company's Annual Report, dated December
31, 1999. The unaudited condensed financial information has been prepared in
accordance with the Company's customary accounting policies and practices. In
the opinion of management, all adjustments, consisting of normal recurring
adjustments considered necessary for a fair presentation of results for the
interim period, have been included.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses. Actual results could differ from those estimates.
Operating results for the quarter ended June 30, 2000 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000. Certain amounts in the prior years' financial statements have
been reclassified to conform with the current year presentation.
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of the
Company, its wholly-owned subsidiaries, which include Integrity Music Pty. Ltd.,
Integrity Music Europe, Ltd., Integrity Media Asia Pte. Ltd., and of the
Celebration Hymnal LLC. All significant intercompany accounts and transactions
have been eliminated in consolidation.
REVENUE RECOGNITION
Revenue is recognized at the time of shipment. The provision for
returns is based on historical unit data for sales returns. The allowance
represents the sales price, net of related royalties, and is recorded in the
period in which the related products are shipped. The full amount of the
provision for returns is shown, along with the allowance for doubtful accounts,
as a reduction of accounts receivable in the accompanying financial statements.
Generally, revenue derived from licensing the use of songs in the Company's song
catalogs is recognized as payments are received from licensees.
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<PAGE> 6
MARKETING COSTS
The Company incurs marketing costs utilizing various media to generate
direct, retail and e-commerce sales to customers. Marketing expenditures
associated with direct mail campaigns that benefit future periods are
capitalized and charged to operations using the straight-line method over a
period of three months, which approximates the period during which the related
sales are expected to be realized. Other marketing costs are expensed the first
time advertising takes place. Marketing expenses for the six months ended June
30, 2000 and 1999 approximated $2.7 million and $2.9 million, respectively.
FULFILLMENT COSTS
Fulfillment expenses are primarily comprised of distribution fees paid
to third party distributors based on a percentage of sales. The services
provided by the third party distributor include sales, fulfillment and storage
of the Company's product for the retail segment. Distribution fees represented
approximately 50% of total fulfillment expense for the six months ended June 30,
2000. Also included in fulfillment expenses are fees paid to a third party
service provider on a transaction basis for data entry, generation of invoices
and cash processing.
Additionally, in the Direct to Consumer segment, the Company completes
the distribution and shipping function internally and includes a separate
surcharge to customers related to this service. These costs, which approximated
$546,000 for the six months ended June 30, 2000, are recorded as a component of
Cost of Sales and the related customer fee is recorded as a component of Net
Sales.
IMPAIRMENT OF LONG-LIVED ASSETS
The company evaluates impairment of long-lived assets whenever events
or changes in circumstances indicate that the carrying amount of such assets may
not be recoverable. If the sum of the expected future undiscounted cash flows is
less that the carrying amount of the asset, an impairment loss would be
recognized. Measurement of an impairment loss for long-lived assets would be
based on the fair value of the asset.
RECORD MASTERS
Product masters, which include sound recordings and print masters, are
amortized over their future estimated useful lives using a method that
reasonably relates to the amount of net revenue expected to be realized.
Management regularly reviews the product masters amortization rates and adjusts
the rate based on management's estimates for future sales. In conjunction with
such analysis, any amounts that do not appear to be fully recoverable are
charged to expense during the period the loss becomes estimatable. The costs of
producing a product master include the cost of the musical talent, the cost of
the technical talent for engineering, directing and mixing, the cost of the
equipment used to record and produce the master and the cost of the studio
facility used.
EARNINGS PER SHARE OF COMMON STOCK
Basic earnings per share is computed by dividing income available to
common stockholders by the weighted average of common shares outstanding for the
period. Diluted earnings per share is calculated by dividing income available to
common stockholders by the weighted average of common shares outstanding
assuming issuance of potential dilutive common shares related to options and
warrants.
FOREIGN CURRENCIES
Assets and liabilities at foreign subsidiaries are recorded based on
their functional currencies. Amounts in foreign currencies are translated at the
applicable exchange rate at the balance sheet date using the rate in effect as
of the period end. Revenues and expenses of foreign subsidiaries are
5
<PAGE> 7
translated using the average rates applicable during the reporting period. The
effects of foreign currency translation adjustments are included as a component
of stockholders' equity and Comprehensive income.
NOTE 2 - LONG TERM DEBT
The Company's financing agreement includes a revolving credit facility
and a term loan that are payable through August 2002. There was $1.4 million and
$3.1 million outstanding under the credit facility and $5.0 and $6.25 million
outstanding under the term loan at June 30, 2000 and December 31, 1999,
respectively. At the Company's option, the loan carries an interest rate of the
bank's base rate plus 1 1/2%, or LIBOR plus 3%.
NOTE 3 - SEGMENT INFORMATION
Summarized financial information concerning the Company's reportable
segments is shown in the following table, in thousands:
<TABLE>
<CAPTION>
Six months ended June 30
-------------------------
2000 1999
-------- --------
<S> <C> <C>
Net Sales
Retail $ 14,075 $ 10,196
Direct to consumer 7,044 6,874
International 3,892 3,512
Other 3,979 2,785
Eliminations (2,223) (1,809)
-------- --------
$ 26,767 $ 21,558
======== ========
Operating profit (before minority interest)
Retail $ 2,557 $ 2,106
Direct to consumer 1,041 1,007
International 672 801
Other 159 47
-------- --------
Consolidated 4,429 3,961
General corporate expense 2,809 2,533
Interest expense, net 514 679
-------- --------
Income before income taxes and minority interest $ 1,105 $ 749
======== ========
<CAPTION>
Three months ended June 30
-------------------------
2000 1999
-------- --------
<S> <C> <C>
Net Sales
Retail 6,462 $ 5,674
Direct to consumer 3,364 3,404
International 1,912 1,883
Other 1,522 734
Eliminations (631) (1,182)
-------- --------
$ 12,629 $ 10,513
======== ========
Operating profit (before minority interest)
Retail $ 1,035 $ 1,058
Direct to consumer 486 473
International 410 512
Other 140 (176)
-------- --------
Consolidated 2,071 1,867
General corporate expense 1,411 1,251
Interest expense, net 252 304
-------- --------
Income before income taxes and minority interest $ 408 $ 312
======== ========
</TABLE>
6
<PAGE> 8
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Net sales increased $5.2 million or 24.2% to $26.8 million for the six
months ended June 30, 2000, as compared to $21.6 million during the six months
ended June 30, 1999. For the quarter ended June 30, 2000, net sales increased
$2.1 or 20.1% to $12.6 million, from $10.5 million in the same period in 1999.
New product sales in all segments amounted to $7.2 million or 26.9% of net
revenue for the six months ended June 30, 2000, as compared to $5.9 million or
27.4% of net revenue for the same period in 1999. New product sales are defined
as new product releases in the current year. The release of WoW Worship (Orange)
late in the first quarter of 2000 accounted for $2.0 million of the increase in
revenue for the three month period and $4.7 million for the six month period.
During the six month period ended June 30, 2000, sales in the retail segment
increased $3.9 million or 38.0% to $14.1 million, compared to $10.2 million in
the same period in 1999. For the quarter ended June 30, 2000, sales in the
retail segment increased 13.9% to $6.5 million, compared to $5.7 million during
the same period in 1999. The increase in the three month and six months periods
were both due to new product sales and the continued strong sales of the WoW
Worship albums during the first six months of 2000. International sales for the
six month period grew by 10.8% to $3.9 million, as compared to $3.5 million in
the same period in 1999, while international sales for the three month period
remained flat with $1.9 million in 2000 and in the same period in 1999. The
increase in International sales is mainly attributable to increased sales in the
Latin America division, as we continue to focus on this market with specialized
marketing and a dedicated sales division. Direct to consumer sales were flat or
slightly lower for the six month and three month periods in 2000 as compared to
the same periods in 1999. Sales in this segment continue to trend lower,
however, management is implementing programs to improve its performance. For
example, sales in the direct to consumer division in 2000 have included revenues
from test for new direct consumers through television marketing. Direct to
consumer sales in the prior year's quarter and six month periods were negatively
impacted by approximately $200,000 due to adjustments to correct an inadvertent
overstatement of shipping and handling revenue related to system modifications.
Gross profit increased to $12.7 million or 47.5% of sales, as compared
to $11.7 million or 54.1% of sales, for the six month periods ended June 30,
2000 and 1999, respectively. During the first six months, the overall sales mix
included a high proportion of distributed and artist products, which have lower
gross margin percentages than concept products. Sales of products with artist
royalties and distributed products with additional royalties represented 65.2%
and 51.6% of sales for the six months ended June 30, 2000 and 1999,
respectively. Furthermore, the gross margin percentages in the retail segment
were negatively impacted with the sales of WoW Worship (Orange) and WoW Worship
(Blue). Although the releases have generated $4.7 million in revenues for the
six months ended June 30, 2000 the Company's gross margin is significantly lower
due to higher royalties. Gross profit for the quarter ended June 30, 2000 was
$5.7 million or 45.1% of sales, as compared to $5.8 million or 55.6% of sales
for the same period in 1999.
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<PAGE> 9
The following table shows the gross margin by operating segment:
<TABLE>
<CAPTION>
Six months ended June 30
------------------------
2000 1999
------ ------
<S> <C> <C>
Gross margin
Retail 44.3% 50.8%
Direct to consumer 53.7% 59.4%
International 54.2% 58.0%
Other 33.0% 37.9%
------ ------
Consolidated 47.5% 54.1%
<CAPTION>
Three months ended June 30
---------------------------
2000 1999
------ --------
<S> <C> <C>
Gross margin
Retail 38.1% 49.6%
Direct to consumer 55.6% 59.3%
International 52.2% 60.3%
Other 41.5% (26.3)%
------ ------
Consolidated 45.1% 55.6%
</TABLE>
Management expects the trend of lower gross margin to continue. The
Company's gross margins are higher in the direct to consumer segment where sales
are generally at retail value. Gross profit in the direct to consumer segment
for the prior year was negatively impacted by approximately $200,000 as a result
of the billing adjustments discussed above.
Marketing and fulfillment expenses increased 4.4% to $5.8 million or
21.7% of net sales for the six months ended June 30, 2000, as compared with $5.6
million or 25.8% of net sales for the same period in 1999. For the quarter ended
June 30, 2000, marketing and fulfillment expenses were $2.4 million or 19.3% of
net sales, compared to $2.9 million or 27.5% of net sales for the same period in
1999. The increases in marketing and fulfillment expenses as a percent of sales
are primarily attributable to increase in fulfillment expense. Fulfillment
expenses primarily include distribution fees associated with our third party
distributor in the retail segment. These distribution fees are a variable cost
based on a percentage of sales, and as retail sales continue to grow the
corresponding fulfillment expense will continue to increase. The increase in
sales resulted in additional fulfillment costs of $505,000 and $178,000 for the
six and three months ended June 30, 2000, respectively. Marketing expenses
decreased $200,000 for the six months ended June 30, 2000 mainly due to fewer
direct mail campaigns in the direct to consumer segment.
General and administrative expenses increased by $537,000 or 11.4% to
$5.2 million for the six months ended June 30, 2000, as compared to $4.7 million
for the same period in 1999. For the quarter ended June 30, 2000, general and
administrative expenses were $2.6 million, compared to $2.4 million for the same
period in 1999. The increase in general and administrative cost is attributable
to additional management personnel in the finance and operations areas. These
additions were made with anticipation of the continued growth of the Company.
Operating profit in the retail segment was $2.6 million and $1.0
million for the six and three months ended June 30, 2000, respectively, compared
to $2.1 million and $1.1 million for the comparable periods in 1999. Although
sales for the retail segment increased 38% for the six months, operating profit
only increased 21.4% due to the reduction in gross margin as explained above due
to changes in the product mix. Operating profit from the direct to consumer
segment was $1.0 million or 14.8% of sales and $486,000 or 14.4% of sales for
the six and three months ended June 30, 2000, respectively, compared to $1.0
million or 14.6% of sales and $473,000 or 13.9 % of sales for the comparable
periods in 1999. Operating profit from the international segment was $672,000
and $410,000 for the six and three months ended June 30, 2000, respectively,
compared to $801,000 and $512,000 for the comparable periods in 1999. The
decreases in operating profit for the International segment were primarily the
result of lower
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<PAGE> 10
margins at the Company's U.K. subsidiary. Operating profit from the other
segments increased to $159,000 and $140,000 for the six and three months ended
June 30, 2000 respectively compared to $47,000 and ($176,000) for the comparable
periods in 1999. Operating profit in the other segment is affected by amounts
charged to expense for record masters that do not appear to be fully
recoverable.
Interest expense decreased to $514,000 and $252,000 for the six and
three months ended June 30, 2000 as compared with $679,000 and $304,000 for the
same periods in 1999. The decrease was the result of lower average debt levels
in the first six months of 2000. The average interest rate for the six months
ended June 30, 2000 and 1999 was 9.8% and 10.3%, respectively.
The Company recorded an income tax provision of $410,000 and $260,000
for the six months ended June 30, 2000 and 1999, respectively. The Company's
effective tax rate for the first six months of 2000 was 37.1%. The period's
income tax provision is the product of applying the Company's annual expected
tax rate against the year-to-date income of the Company.
Net income for the six months ended June 30, 2000 increased by $250,000
to $629,000 as compared to $379,000 for the same period in 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically and will continue to finance its
operations primarily through cash generated from operations and from borrowings
under a line of credit and term notes as needed. The Company's principal uses of
cash historically have been the production and recording of product masters to
build the Company's product master library and debt service. The Company
believes that funds generated from operations, together with existing cash and
available borrowings under its Credit Agreement will be sufficient to finance
its current operations and planned capital expenditure requirements and internal
growth for the foreseeable future. For the periods ended June 30, 2000 and 1999,
the Company had average daily borrowings under the credit agreement of $7.9
million and $13.1 million at average rates of 9.8% and 10.3%, respectively.
Interest expense includes $122,000 of non-cash amortization of debt discount for
the period ended June 30, 2000 as compared to $116,000 for the comparable period
in 1999. At June 30, 2000, the Company had $4.6 million available to borrow
under this agreement.
Cash generated from operations totaled $5.1 million and $3.7 million
for the six months ended June 30, 2000 and 1999, respectively. The increase from
1999 to 2000 resulted primarily from increased earnings before depreciation and
amortization and the timing of payments received for accounts receivable, and
paid for liabilities, principally royalties. The Company's retail distribution
agreement in 2000 provided for the earlier payment of monthly trade receivables,
and has resulted in decreased accounts receivable on a monthly basis as compared
to the prior periods.
Investing activities used $1.9 million and $1.6 million during the six
months ended June 30, 2000 and 1999, respectively. This cash outflow consisted
of capital expenditures for computer equipment and capital improvements to
existing buildings totaling $444,000 and $232,000 for the six months ended June
30, 2000 and 1999, respectively, and the investments in product masters for the
six months ended June 30, 2000 and 1999 totaled $2.0 million and $1.3 million,
respectively. The increase in the investments in product masters related to
future new releases for 2000 and 2001 and the continued development of other
products by the Company. The Company received $500,000 during the first quarter
related to payments received on a notes receivable balance established from the
sale of certain product masters during 1999.
The Company made principal payments on its term loan of $1.3 million
and $1.2 million in the six months ended June 30, 2000 and 1999, respectively,
and used excess cash from operations of $1.7 million to reduce the Company's
revolving credit facility.
During the six month periods ended June 30, 2000 and 1999, the company
made distributions of $0 and $510,000 to its 50% partner in the Celebration
Hymnal LLC joint venture, Word Entertainment.
9
<PAGE> 11
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements ("SAB
101"). This bulletin summarizes certain of the Staff's views in the application
of generally accepted accounting principles to revenue recognition in financial
statements. The required implementation of SAB 101 has been deferred until the
fourth quarter of 2000, although adoption would be as of January 1, 2000 if
applicable. The Company is monitoring on-going interpretations of SAB 101, but
at this time believes that there will be no material impact on the Company's
financial statements.
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to the Item 3 disclosure made in
the Company's Annual Report on Form 10-K for the year ended December 31, 1999.
10
<PAGE> 12
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders of the Company held on May
11,2000, the following matters were brought before and voted upon by
stockholders:
1. A proposal to elect the following to the Board of Directors to serve
until the 2000 annual meeting:
<TABLE>
<CAPTION>
Class A Common Stock
For Withhold Authority Non-Votes
--------- ------------------ ---------
<S> <C> <C> <C>
P. Michael Coleman 2,119,347 17,393 42,260
Jean C. Coleman 2,120,010 16,730 42,260
Charles V. Simpson 2,119,697 17,043 42,260
Heeth Varnedoe III 2,119,717 17,023 42,260
Jimmy M. Woodward 2,119,717 17,023 42,260
<CAPTION>
Class A Common Stock
For Withhold Authority Non-Votes
--------- ------------------ ---------
<S> <C> <C> <C>
P. Michael Coleman 34,350,000 0 0
Jean C. Coleman 34,350,000 0 0
Charles V. Simpson 34,350,000 0 0
Heeth Varnedoe III 34,350,000 0 0
Jimmy M. Woodward 34,350,000 0 0
</TABLE>
2. A proposal to ratify the selection of PricewaterhouseCoopers LLP as
independent auditors for the Company for the fiscal year ending
December 31, 2000:
Class A
<TABLE>
<CAPTION>
For Against Abstain Non-Votes
--------- ------- ------- ---------
<S> <C> <C> <C>
2,133,692 1,550 1,498 42,260
Class B
<CAPTION>
For Against Abstain Non-Votes
---------- ------- ------- ---------
<S> <C> <C> <C>
34,350,000 0 0 0
</TABLE>
11
<PAGE> 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
<S> <C>
3(i) Certificate of Incorporation of the Registrant, as amended
(incorporated by reference from Exhibit 4(a) to the
Registrant's Registration Statement on Form S-8 (File No.
33-84584) filed on September 29, 1994).
3(i).1 Certificate of Amendment to the Certificate of Incorporation
of the Registrant, dated July 21, 1995, (incorporated by
reference from Exhibit 3(i).1 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1995).
3(ii) Bylaws of the Registrant, as amended (incorporated by
reference from Exhibit 3(ii) to the Registrant's Registration
Statement on Form S-1 (File No. 33-78582), and amendments
thereto, originally filed on May 6, 1994).
4 Form of Class A Common Stock certificate of the Registrant
(incorporated by reference from Exhibit 4.2 to the
Registrant's Registration Statement on Form S-1 (File No.
33-78582), and amendments thereto, originally filed on May 6,
1994)
27 Financial Data Schedule (for SEC use only).
(b) REPORT ON FORM 8-K
There were no reports on Form 8-K filed for the quarter ended
June 30, 2000.
</TABLE>
12
<PAGE> 14
SIGNATURES
Pursuant to the requirements 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.
INTEGRITY INCORPORATED
Date: August 10, 2000 /s/ P. Michael Coleman
---------------------- ---------------------------------
P. Michael Coleman
Chairman, President and Chief
Executive Officer
Date: August 10, 2000 /s/ Don S. Ellington
---------------------- ---------------------------------
Don S. Ellington
Chief Financial Officer
13
