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 2007. Memorial Service Life Insurance Company also leases approximately 3,400 square feet of property at 805 Las Cimas Parkway, Building III, Suite 420, Austin, Texas under the terms of a lease
o Forever Bellerive Cemetery, located in St. Louis, Missouri, encompasses approximately 46 acres, with over 15 acres undeveloped for future use. This property includes an office building with approximately 3,100 square feet and a 1,000 crypt white marble mausoleum/chapel facility.
o Hollywood Forever Cemetery, located in Los Angeles, California, is approximately 65 acres, with three community mausoleums totaling approximately 40,000 square feet. An additional 4,600 crypts of inventory are currently under construction, with some already completed. An additional multi-story, 10,000 crypt building is planned with construction expected to begin during 2003. This facility also includes 7,500 square feet of funeral home, chapel and flower shop, 10,000 square feet of office space, and 6,000 square feet of studio production and editing space for the Forever Memorial LifeStory(TM) and Internet businesses.
o Mount Washington Forever Cemetery (50% ownership accounted for under the equity method), located in Kansas City, Missouri, is a combination cemetery/funeral home property with 229 acres, of which 100 are developed for current use, including a garden mausoleum. We are in the middle stages of development of a 1,000 crypt white marble mausoleum/chapel, including a newly created lake with waterfall, bridge, and natural memorialization options surrounding it. This property also includes 10,500 square feet of office space and funeral home.
o Forever Oak Hill Funeral Home at Pfitzinger is located in St. Louis, Missouri, and is a full-service funeral home with approximately 8,500 square feet.
o Forever All Faiths, located in Austin, Texas, performs funeral services at two separate locations, North and South, with square footage of approximately 4,800 and 3,600, respectively.
In connection with our acquisition of Forever Network, Inc. and its subsidiaries in March 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 was leased to Service Corporation International, the Cremation Society of St. Louis, the Cremation Specialists of Los Angeles and Forever Cremation Society of Kansas City. Subsequent acquisitions include the operating assets of another cemetery property in St. Louis, Missouri in December 2001, the funeral home business of the funeral home previously leased to Service Corporation International located in Kirkwood, Missouri in June 2002, the operating assets of two cemetery properties in Edwardsville and Belleville, Illinois (metropolitan St. Louis) in June 2002, and the operating assets and business of two funeral home properties in Austin, Texas in November 2002. In addition, Forever Network offers digital LifeStories(TM) for sale to individuals and groups, archives and displays these interactive LifeStories(TM) which can be viewed at Company cemetery/funeral homes and on the Internet at www.forevernetwork.com. Forever Network currently maintains more than 9,700 client LifeStories(TM) that are available for viewing on our Internet site. The Forever Network website is currently averaging more than 75,000 hits (visits) per day. The acquisition of Forever Network was accounted for in a manner similar to a pooling-of-interests.
Our revenues from the cemetery and memorialization business are principally derived from products and services sold in connection with funerals and burials and revenues derived from LifeStories(TM) sold through our eight properties or through other marketing programs. Larger contributors to cemetery revenues include interment rights (grave, entombment and inurnment spaces), grave markers and monuments, services related to visitation and burial, burial containers (caskets and burial vaults) and LifeStory(TM) services. Revenues at newly acquired properties are expected to ramp up to sustainable profitability levels, and to grow at more normal levels within 12 to 18 months of operations.
Investment income and realized investment gains will continue to contribute significantly to total revenues in the future. Expenses for our insurance operation during 2002 and 2001 consisted primarily of administrative costs associated with life insurance company operations, compared to 1999, in which 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. General and administrative costs have decreased at a rate slower than the growth in our business, evidencing our belief that our infrastructure will support increasing levels of internal revenue growth without the need for general and administrative expenses to increase at a similar rate.
properties acquired since the beginning of 2001. The increase also was due to the positive effect of deferred revenue being recognized on installment contracts as they were paid in full and merchandise delivered.
Selling, general and administrative expenses increased $3.4 million, or 67.8%, from $5.1 million for the year ended December 31, 2001 to $8.5 million in 2002 primarily due to the relatively large startup costs associated with the acquisition of three cemetery properties. The increase was also due to an adjustment of $435,000 to increase our reserve for doubtful accounts. As a percentage of revenues, selling, general and administrative costs increased to 88.3% for the year ended December 31, 2002, from 68.0% for the year ended December 31, 2001.
Our income (loss) before income taxes decreased from income of $328,000 to a loss of $1.4 million in the year ended December 31, 2002 compared to 2001. The operating loss as a percentage of revenues declined from income of 4.4% in 2001 to a loss of 14.6% in 2002. These changes were due to increased expenses associated with new cemetery properties acquired during 2002 as well as the year-end adjustments to cost of sales and selling, general and administrative expenses noted above.
Deferred revenue increased from $5.6 million at December 31, 2001 to $7.3 million as of December 31, 2002 due to the increases in sales of pre-need services and merchandise.
Commission and expense allowances on reinsurance ceded increased approximately $2.7 million, or 17.2%, in the year ended December 31, 2002 compared to 2001, due to a greater number of monthly pay policies written, combined with an increase in the number of single premium policies written.
Our impact equity in the earnings (losses) of Mount Washington Forever, L.L.C. ("Mount Washington") for the year ended December 31, 2002 was not recognized in consolidated earnings because our net equity investment in Mount Washington remains in a deficit position. We first acquired an interest in Mount Washington in November 1999, and, therefore, had no share in its earnings prior to that time. Forever Enterprises, Inc. currently has a 50% interest in Mount Washington and is responsible for all aspects of the cemetery's marketing and operations.
Operating income increased approximately $3.0 million, or 125.8%, from a loss of $2.4 million for the year ended December 31, 2001 to income of $619,000 in 2002 due primarily to revenue associated with the NPS Management Agreement.
The following comparative financial information reflects the impact of Staff Accounting Bulletin 101 on the cemetery segment of the business. Under SAB 101, revenue is deferred until services or merchandise are delivered. As such, SAB 101 will have a more significant impact on our newly acquired properties in their early years until pre-need contracts begin to turn to at-need. "Deferred revenue" represents revenue associated with cemetery/funeral home properties which cannot be recognized as income in the current year. Deferred revenue represents future streams of income (and cash flow) which will be recognized as services are completed and/or merchandise delivered.
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 were included in the Corporate segment in 2001.
Deferred revenue increased from $4.7 million at December 31, 2000 to $5.6 million at December 31, 2001 due to increased sales of pre-need services and merchandise.
Our impact equity in the earnings of Mount Washington for the year ended December 31, 2001 was not recognized in consolidated earnings because our net equity investment in Mount Washington remained in a deficit position. We first acquired an interest in Mount Washington in November 1999 and, therefore, had no share in its earnings prior to that time. Forever Enterprises, Inc. currently has a 50% interest in Mount Washington and is responsible for all aspects of the cemetery's marketing and operations.
Operating losses decreased approximately $808,000, or 25.2%, from a loss of $3.2 million for the year ended December 31, 2000 to a loss of $2.4 million in 2001 due primarily to an increase in management fees allocated to an affiliated entity.
We expect to secure any significant capital required for acquisition of additional cemetery properties and development of our LifeStory(TM) business and the Internet through debt and/or equity financing. Otherwise, cash generated from our operations and from our management agreement with National Prearranged Services (see Note 13 to the consolidated financial statements) will provide working capital for our operations. 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 to 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 being experienced 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 2003. Financing alternatives related to the build-up of our trade accounts receivable may provide opportunities for "bridge" cash financing until we reach positive sustaining cash flow at certain properties. We believe that any operating cash requirements for our current cemetery properties will be funded through working capital cash on hand or lines of credit. Certain outstanding lines of credit of our company expire in the first and second quarters of 2003. Currently, we believe that we will be able to renew these lines of credit on terms favorable to us. However, if we are unable to renew such lines of credit, we would be required to seek other sources of funding to satisfy our obligations. There can be no assurance that such other sources of funding will be available or available on terms favorable to our company.
Our cash requirements for 2003 and in the future will depend upon mortality experience, acquisitions, timing of expansion plans and capital expenditures. Our insurance subsidiaries generally generate sufficient cash receipts from premium collections and investment income to satisfy their obligations. We believe that the diversity of the investment portfolio of our insurance subsidiaries provides sufficient liquidity to meet their operating cash requirements. We believe that anticipated revenue from operations should be adequate for the working capital requirements of our existing businesses over the next 12 months.
We anticipate the management agreement between Forever Enterprises, Inc. and National Prearranged Services entered into in January 2002 will provide cash in excess of that necessary to meet our monthly repayment obligations under said agreement.
Property and equipment increased approximately $2.2 million from $6.3 million at December 31, 2001 to $8.5 million at December 31, 2002, due primarily to the acquisition of new properties and new construction at an existing property.
Intangible assets increased approximately $8.8 million from $2.2 million at December 31, 2001 to $10.9 million at December 31, 2002 due to entering into the NPS Marketing Agreement, offset by the write off of goodwill associated with Dartmont Investment, Inc.
Policyholder deposits decreased approximately $1.7 million from $48.3 million at December 31, 2001 to $46.6 million at December 31, 2002. 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 pre-need revenues increased approximately $1.7 million from $5.6 million at December 31, 2001 to $7.3 million at December 31, 2002 due to increased sales of deferred revenue items offset by items being recognized in current year revenue.
Deferred tax assets decreased approximately $2.9 million from $4.4 million at December 31, 2001 to $1.5 million at December 31, 2002 due primarily to the effects of our reinsurance agreements, increase in valuation allowance and deferred taxes on insurance income and realized gains 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 was 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.
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 was 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.
In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets, which was effective January 1, 2002. SFAS No. 142 requires, among other things, the discontinuance of goodwill amortization. In addition, the standard includes provisions for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill. SFAS No. 142 requires a company to complete a transitional impairment test six months from the date of adoption. We have completed our initial assessment and have determined that there has been no impairment of goodwill or other intangible assets and, accordingly, the implementation of SFAS No. 142 had no material impact on our financial condition and results of operations for the year ended December 31, 2002. If our estimates or their related assumptions change in the future, we may be required to record impairment charges for these assets.
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations, which is effective for fiscal years beginning after June 15, 2002. SFAS No. 143 requires, among other things, that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred. We do not believe that the adoption of SFAS No. 143 will have a significant impact on our financial statements.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which is effective for exit or disposal activities that are initiated after December 15, 2002. SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. We do not believe that the adoption of SFAS No. 146 will have a significant impact on our financial statements.
Reference is made to the consolidated financial statements listed under the heading "(a)1. Consolidated Financial Statements" in Item 15 hereof, which financial statements are incorporated herein by reference.