Forever Network owns and operates four cemetery/funeral home properties in St. Louis and Kansas City, Missouri and Los Angeles, California, and maintains sales and administrative offices at each of those sites. Forever Network also operates production facilities for the Life Story biography business at each location with central operations in Hollywood, California. Our Internet development operation is based at the Hollywood facility.
Expenses for our cemetery operation include the cost to provide the merchandise or service pertaining to the funeral, burial or Life Story. Caskets, markers/monuments, professional services and editing services are some of the primary items. Other expenses relate to selling and marketing, such as commissions and advertising, general and administrative operations wages, insurance, supplies, utilities, maintenance wages, equipment and interest. Management's operating plans call for each of these categories to meet certain budgeted ratios as a percentage of revenues. Certain expenses may carry higher ratios in the earlier stages of operation under our plan. Our newly acquired properties' expenses are generally expected to reach normal sustainable levels within six-twelve months.
Our life insurance subsidiaries primarily write policies purchased by our affiliate, National Prearranged Services, in connection with National Prearranged Services' sale of prearranged funeral contracts. During 2001, we derived revenues primarily from investment income, ceding allowances and premiums on retained business, in comparison to 2000 and 1999, where we derived revenues primarily from direct premiums on insurance policies generated by National Prearranged Services. Looking forward, we expect insurance revenues to remain relatively level. Investment income and realized investment gains will continue to contribute significantly to total revenues in the future.
Expenses for our insurance operation during 2001 consisted primarily of administrative costs associated with life insurance company operations, as compared to 2000 and 1999, where expenses consisted principally of benefits paid or accrued, commissions on the sale of policies and general and administrative costs associated with life insurance company operations. Although general and administrative costs have increased in accordance with the growth in our business, we believe our infrastructure will support increasing levels of internal revenue growth without the need for general and administrative expenses to increase at a similar rate.
Total assets decreased from $16.1 million at December 31, 2000 to $14.9 million at December 31, 2001 due largely to the exclusion of certain assets which were included at December 31, 2000, but are now included in the Corporate segment.
Insurance revenues decreased approximately $17.3 million, or 39.3%, in the year ended December 31, 2001 compared to 2000. The decrease was attributable to a shift in the types of insurance products sold (from single premium policies to limited pay policies) and our reinsurance of significant blocks of our life insurance policies.
Our net investment income and realized gains decreased approximately $3.0 million, or 45.1%, in the year ended December 31, 2001, versus the previous year. The decrease was attributable to lower holdings of invested assets due to reinsurance transactions.
Our benefit expenses decreased approximately $10.4 million, or 55.1%, in the year ended December 31, 2001 compared to 2000. This decrease was due primarily to the reinsurance agreements entered into during 2000.
Operating income increased $6.5 million in the year ended December 31, 2001 compared to 2000. The change in operating performance was due primarily to the effects on revenues and expenses related to reinsurance transactions.
The following table compares selected financial information for 2000 and 1999 that has been adjusted to consistently reflect the impact of SAB 101 for both years on the Cemetery segment of the business. The revenue recognition adjustments due to SAB 101 below are adjusted for the year in which they occurred versus the one-time year 2000 adjustment shown in amounts for financial presentation in other parts of this document. The impact of SAB 101 for 1998 was not significant.
Cemetery revenues increased approximately $5.0 million, or 178%, in the year ended December 31, 2000 compared to 1999. The increase was largely attributable to Forever Network's acquisition of an additional 45% interest in Hollywood Forever in December 1999, which brought our total ownership to 90%. Revenues for 2000 at each location also increased compared to the corresponding period in 1999 due to more effective marketing and increased sales of certain cemetery and memorialization products and services. Significant sales of Forever Memorial Life Story products and services sold through Mount Washington Forever, which is 50% owned by Forever, as compared with 1999 also contributed to the positive variance.
Cost of sales increased approximately $1.8 million, or 291%, from $632,000 in 1999, to $2.4 million in 2000, due primarily to increased cemetery sales. Cost of sales as a percentage of revenues increased to 32% for the year ended December 31, 2000 compared to 23% for the previous year due to a higher percentage of memorialization products and services relative to property sales.
Selling, general and administrative expenses increased $4.1 million, or 137%, from $2.9 million for the year ended December 31, 1999, to $7.0 million, in 2000 due to increased variable selling expenses (as a result of increased sales) and additional administrative expenses associated with the acquisition of an additional 45% interest in Hollywood Forever. As a percentage of revenues, selling, general and administrative costs declined to 89.5% for the year ended December 31, 2000, from 105.1% for the year ended December 31, 1999 due to more efficient deployment of company resources and certain economies of scale.
Operating loss increased $5.4 million in the year ended December 31, 2000 compared to 1999. The change in operating performance was due primarily to investment losses realized during 2000 and the impairment of assets of approximately $2.6 million.
Total assets increased $8.6 million from $189.4 million at December 31, 1999 to $198.0 million at December 31, 2000, due primarily to the growth of our insurance policies in force during 2000.
Operating losses increased approximately $1.0 million, or 38.5%, from a loss of $2.2 million in the year ended December 31, 1999 to a loss of $3.2 million in 2000 due to expenses incurred in connection with the acquisition of Forever Network, Inc. and related investment banking services. Additionally, interest expense for the year increased to $407,000 in 2000 compared with $203,000 for 1999 due to the acquisition of the additional interest in Hollywood Forever.
We expect to secure capital required for additional new cemetery properties and technology developments related to the digital biographies and the Internet through debt and/or equity financing. With new cemetery properties, the initial capital required for the purchase and working capital is anticipated to be sufficient to allow the property to achieve positive cash flow within 12-18 months. Because we are able to significantly increase the volume of pre-need revenues at new properties, and much of those revenues are financed over time and/or deferred until the time of need (death), we have a natural and budgeted delay in profitability and positive cash flow. Our cemetery property in St. Louis, Missouri, which has been actively marketed since 1997, generates significant positive cash flow from operations and represents the type of relative financial performance expected on our current and future properties. Similar positive trends are expected at our cemetery properties in Kansas City, Missouri and Los Angeles, California and we anticipate both properties being able to sustain positive cash flow and contribute to earnings in 2002. We believe that any operating cash requirements for our cemetery properties will be funded through working capital cash on hand or lines of credit.
We anticipate the management agreement between Forever Enterprises, Inc. and National Prearranged Services entered into in January 2002 will provide sufficient cash above that necessary to meet our monthly repayment obligations under said agreement.
Changes in our consolidated balance sheet between December 31, 2001 and December 31, 2000, reflect growth through operations, changes in the fair value of actively managed fixed maturity and equity securities, changes in the investment portfolio mix and changes in our insurance business strategy.
Due from reinsurer increased approximately $12 million due to an increase in funds withheld in relation to the blocks of business ceded to Employers Reassurance Corp., Hannover Life Reassurance Company of America and North America Life Insurance Company.
Total cash and investments increased approximately $10.6 million from $90.5 million at December 31, 2000 to $101.1 million at December 31, 2001, primarily due to investments purchased.
Accounts receivable increased approximately $1.4 million from $4.2 million at December 31, 2000 to $5.6 million at December 31, 2001 due to increased cemetery/funeral home sales.
Goodwill decreased approximately $83,000 from $2.3 million at December 31, 2000 to $2.2 million at December 31, 2001 due to amortization.
Future policy benefits increased approximately $8.4 million from $139.3 million at December 31, 2000 to $147.7 million at December 31, 2001. This increase was due to the growth of our reinsured business.
Policyholder deposits decreased approximately $4.2 million from $52.5 million at December 31, 2000 to $48.3 million at December 31, 2001. The decrease was due to withdrawals and surrenders of existing annuity policies and the absence of the issuance of new annuity policies. Policyholder deposits are comprised primarily of annuities acquired with the block of business from Woodmen Accident & Life, World Insurance Company, and Funeral Security Life Insurance Company.
Deferred tax assets decreased approximately $1.4 million from $5.2 million at December 31, 2000 to $3.8 million at December 31, 2001 due primarily to the effects of our reinsurance agreements, increase in valuation allowance and to deferred taxes on unrealized losses on fixed maturity and equity securities.
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designed as part of a hedge transaction, and if it is, the type of hedge transaction. SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. We adopted SFAS No. 133 on January 1, 2001, which resulted in no effect on our financial position, results of operations or cash flows.
Effective January 1, 2000, we adopted Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, and changed our revenue recognition policy, as follows: Cemetery interment right sales are recognized as revenue at the time the contract is signed, the cemetery property is developed and a minimum percentage of the purchase price has been collected. Sales of merchandise are recognized at the time the merchandise is delivered or been customized for the customer. Service fee revenues are recognized in the period the services are performed. We defer prearranged funeral and pre-need cemetery costs until the time revenue is recognized. The change in our accounting policies resulting from implementation of Staff Accounting Bulletin No. 101 has been treated as a change in accounting principle effective as of January 1, 2000. The cumulative effect of the accounting change through December 31, 1999 resulted in a charge to net income of $315,801 (net of a $-0- tax benefit), or $.04 per diluted share recorded on January 1, 2000.
In September 2000, the FASB issued SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. This statement replaces SFAS No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, and rescinds SFAS No. 127, Deferral of Effective Date of Certain Provisions of FASB Statement No. 125. It revises the standards for accounting for securitizations and other transfers of financial assets and extinguishments of liabilities. Those standards are based on consistent application of a financial-components approach that focuses on control. This statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. The implementation of SFAS No. 140 has had no effect on our financial position, results of operations or cash flows.
Reference is made to the consolidated financial statements listed under the heading "(a)1. Consolidated Financial Statements" in Item 14 hereof, which financial statements are incorporated herein by reference.