Forever Network owns and operates three funeral homes 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 biography business at each location with central operations in Hollywood, California. Our Internet development operation is based at the Hollywood facility.
Memorial Service Life Insurance Company leases approximately 25,000 square feet in an office building which houses our executive offices located at 10 S. Brentwood, St. Louis, Missouri under the terms of a lease that expires in June 2002. Memorial Service Life Insurance Company also leases approximately 10,000 square feet of property at 1250 Capital of Texas Highway, Building 3, Suite 100, Austin, Texas under the terms of a lease that expires in August 2002. Memorial Service Life Insurance Company entered into a Sublease Agreement with North America Life, effective December 18, 2000, under which North America Life subleases approximately 4,800 square feet of our office space in Austin, Texas. This agreement will terminate concurrent with the expiration of Memorial's lease in August 2002. We believe that the properties currently leased by Memorial Service Life Insurance Company are suitable for our current operations and will allow for the expansion of our business in the future. As our operation expands, the leasing of additional space in Austin, Texas and St. Louis, Missouri may be necessary. We currently do not foresee any material difficulties with leasing additional space that may be required in the foreseeable future.
Forever Enterprises, Inc., through its subsidiaries, produces and markets multimedia biographies, owns and operates combination funeral home and cemetery properties, operates an internet marketing site, and operates life insurance companies that principally issue insurance contracts to fund pre-need funeral contracts. Our life insurance operations are conducted through our wholly owned life insurance subsidiaries.
In connection with our acquisition of Forever Network, Inc. and its subsidiaries on March 9, 2000, we acquired three cemetery/funeral home combination properties located in Los Angeles, California and St. Louis and Kansas City, Missouri, a funeral home located in Kirkwood, Missouri that is leased to Service Corporation International, the Cremation Society of St. Louis, the Cremation Specialists of Los Angeles and Forever Cremation Society of Kansas City. In addition, Forever Network is engaged in the business of selling, archiving and displaying digital interactive life stories viewed at the grave sites and on the Internet at www.forevernetwork.com. Forever Network currently maintains over 4,200 - ---------------------- client biographies that are available for viewing on the Internet site. The acquisition of Forever Network was accounted for in a manner that is similar to a pooling-of-interests.
Expenses for our cemetery operation include the cost to provide the merchandise or service pertaining to the funeral, burial, or biography. Caskets, markers/monuments, professional services, and editing services are some of the major 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. Each of these categories is targeted to meet certain budgeted ratios as a percentage of revenues. Certain expenses may carry higher ratios in the earlier stages of operation under Forever's plan. Our new properties expenses are expected to reach normal sustainable levels within 6-12 months.
Our strategy is to increase shareholder value by growing our funeral/ cemetery/memorialization and insurance business through: (i) acquisitions and operation of cemetery properties in targeted metropolitan areas; (ii) growth of our Internet and cemetery business through the increased traffic and brand recognition generated from implementing our marketing and operational systems; and (iii) expense allowance receipts on life insurance policies ceded to other companies. Our ability to acquire such properties and policies will be dependent upon (among other things) our ability to identify, negotiate and complete transactions of favorable values, arrange necessary financing and integrate and manage the
Insurance revenues decreased approximately $13.2 million, or 23.1% in the year ended December 31, 2000 compared to 1999. The decrease was attributable to realized losses on investments of $2.8 million, a shift in the types of insurance products sold and our reinsurance of significant blocks of our life insurance policies.
Our premium income decreased approximately $8.0 million, or 17.9%, in the year ended December 31, 2000 compared to 1999. The decrease was primarily attributable to reinsurance of significant blocks of our life insurance policies. It was also impacted by a shift in the relative proportions of policies sold from single premium policies to limited pay business.
Our net investment income and realized gains decreased approximately $4.5 million, or 42.1%, in the year ended December 31, 2000, versus the previous year. The decrease was attributable to lower holdings of invested assets and capital losses on equity and fixed income investments. Losses of approximately $2.6 million were incurred for the year ended December 31, 2000 reflecting management's recognition of a decline in market value associated with our investment in various equity securities. Management believed that the decline was other than temporary and due to reasons other than market fluctuations.
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.
Cemetery revenues increased approximately $640,000, or 30.0% in the year ended December 31, 1999 compared to 1998. 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 1999 at each location also increased compared to the prior year due to more effective marketing and increased sales of certain cemetery and memorialization products and services.
Total assets increased from $7.1 million at December 31, 1998 to $20.0 million at December 31, 1999 due largely to the acquisition of the additional 45% of Hollywood Forever and the acquisition of Mount Washington.
Insurance revenues increased approximately $2.4 million, or 4.4% in the year ended December 31, 1999, compared to 1998. The overall increase attributable to higher levels of new policies issued and in force was offset by increased realized losses on investments.
Operating income decreased $2.4 million, or 64.8%, in the year ended December 31, 1999 compared to 1998. The change in operating performance was due primarily to higher administrative expenses as a result of support for increased levels of regulatory reporting requirements, and approximately $330,000 related to the forfeiture of deposits and other expenses associated with our withdrawal of our proposal to acquire Harbourton Reassurance, Inc.
Capital projects at new cemetery properties for mausoleum/funeral home combination buildings and other saleable inventory features are expected to be funded through use of cash generated from pre-construct sales and/or debt financing and should require little or no additional capital investment. Certain other improvements would be accomplished and funded through use of existing personnel and working capital resources and lines of credit.
We have been investing capital to fund the development and enhancement of our Internet/technology business plan and our website www.forevernetwork.com. The ---------------------- Internet/technology segment is currently running a cash shortfall and may require additional investment capital for a period of time until revenues can be built to levels necessary to produce positive cash flow. Margins are expected to be high and overhead relatively low once Internet and other program sales volumes achieve targeted levels.
Our insurance subsidiaries are restricted by state insurance laws as to the amount of dividends that they may pay to us without prior notice to, or in some cases prior approval from, their respective state insurance departments. These restrictions on dividend distributions are based on statutory capital and surplus and operating earnings. Statutory surplus and statutory operating results are determined according to statutes adopted by each state in which the subsidiaries do business. Statutory surplus bears no direct relationship to equity as determined under accounting principles generally accepted in the United States of America. No amounts are currently available for transfer to the parent company by dividend, loan, or advance without prior regulatory approval.
Changes in our consolidated balance sheet between December 31, 2000 and December 31, 1999, 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 $80 million due to funds withheld in relation to the blocks of business ceded to Employers Reassurance Corp. and North America Life Insurance.
Deferred policy acquisition costs decreased approximately $18.9 million from $20.3 million at December 31, 1999 to $1.4 million at December 31, 2000, due to amounts recovered through reinsurance agreements with Employers Reassurance Corporation and North America Life.
At December 31, 2000, fixed assets remained even at $6.1 million due to acquisition of additional fixed assets of Hollywood Forever Cemetery offset by sale of 50% of Mount Washington Forever.
Cost of policies acquired decreased approximately $4.3 million to $-0- at December 31, 2000, due to amounts recovered through reinsurance agreements with North America Life Insurance.
Effective January 1, 2000, the Company adopted Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, and changed its 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. The Company defers prearranged funeral and pre-need cemetery acquisition costs until the time revenue is recognized. The change in the Company's accounting policies resulting from implementation of SAB 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 Extinguishment 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 Company has yet to determine what impact, if any, the remaining provisions to be adopted after March 31, 2001, will have on the Company's consolidated financial statements.