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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 2002
-----------------------------------------------
Commission file number 001-14067
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FOREVER ENTERPRISES, INC.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
TEXAS 36-3427454
- ------------------------------ --------------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or
organization)
10 S. BRENTWOOD
CLAYTON, MISSOURI 63105
- ------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(314) 726-3371
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(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. /X/ Yes / / No
Number of shares
Title of class outstanding as of August 14, 2002
- --------------------------------------- -------------------------------------
Common stock, $0.01 par value 6,934,934
FOREVER ENTERPRISES, INC.
FORM 10-Q
INDEX
Page
----
PART I. FINANCIAL INFORMATION..........................................3
Item 1. Financial Statements...........................................3
Condensed Consolidated Balance Sheets - June 30, 2002
(Unaudited) and December 31, 2001..............................3
Condensed Consolidated Statements of Operations (Unaudited) -
Three Months and Six Months Ended June 30, 2002 and 2001.......5
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Six Months Ended June 30, 2002 and 2001........................6
Notes to Condensed Consolidated Financial Statements
(Unaudited)....................................................7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.....................................13
Cautionary Statement Regarding Forward-Looking Statements.....13
Overview......................................................13
Results of Operations.........................................15
Liquidity and Capital Resources...............................19
Item 3. Quantitative and Qualitative Disclosure About Market Risk.....22
PART II. OTHER INFORMATION.............................................23
Item 4. Submission of Matters to a Vote of Security Holders...........23
Item 6. Exhibits and Reports on Form 8-K..............................24
SIGNATURES.................................................................25
EXHIBIT INDEX..............................................................26
- 2 -
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FOREVER ENTERPRISES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
JUNE 30, DECEMBER 31,
2002 2001
---- ----
(UNAUDITED)
Cash and cash equivalents $ 10,041,877 $ 7,568,099
Fixed maturity securities 84,511,616 90,735,727
Equity securities 1,588,360 963,055
Policyholder loans 1,808,667 1,818,550
------------ ------------
Total cash and investments 97,950,520 101,085,431
------------ ------------
Trade accounts receivable, net 7,673,121 5,582,093
Cemetery property, net 4,083,591 3,557,733
Fixed assets, net 6,986,307 6,308,096
Reinsurance receivable 98,741,213 92,167,215
Inventories 207,238 256,564
Deferred policy acquisition costs, net 1,225,498 1,199,802
Due premium 7,062,990 6,293,127
Intangible assets 12,964,589 2,175,067
Deferred cost of reinsurance 1,825,383 1,874,715
Deferred tax assets 3,978,872 4,433,660
Receivable from related party 10,028,608 7,181,207
Other assets 5,782,025 5,239,185
------------ ------------
Total assets $258,509,955 $237,353,895
============ ============
(continued on next page)
The accompanying notes are an integral
part of the unaudited condensed
consolidated financial statements.
- 3 -
FOREVER ENTERPRISES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY
JUNE 30, DECEMBER 31,
2002 2001
---- ----
(UNAUDITED)
LIABILITIES:
Lines of credit $ 1,875,925 $ 2,031,172
Accounts payable and accrued liabilities 11,455,130 8,546,760
Policy liabilities:
Future policy benefits 151,611,988 147,668,986
Policyholder deposits 47,955,444 48,312,002
Deferred preneed revenues 6,704,030 5,574,815
Payable to related party 5,074,344 3,620,601
Notes payable 27,729,776 17,805,539
------------ ------------
Total liabilities 252,406,637 233,559,875
------------ ------------
SHAREHOLDERS' EQUITY:
Preferred stock ($.01 par value; 1,000,000 shares authorized;
none issued) -- --
Common stock ($.01 par value; 30,000,000
shares authorized; 6,934,934 issued and outstanding) 69,349 69,349
Additional paid-in capital 10,386,209 10,337,502
Accumulated deficit (2,890,874) (5,143,602)
Accumulated other comprehensive loss (1,461,366) (1,469,229)
------------ ------------
Total shareholders' equity 6,103,318 3,794,020
------------ ------------
Total liabilities and shareholders' equity $258,509,955 $237,353,895
============ ============
The accompanying notes are an integral
part of the unaudited condensed
consolidated financial statements.
- 4 -
FOREVER ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
2002 2001 2002 2001
---- ---- ---- ----
Premium income $ 1,714,904 $1,639,668 $ 3,359,209 $ 3,504,014
Net investment income
and realized gains 2,365,412 353,958 3,484,992 1,518,399
Cemetery revenue 2,625,335 2,071,685 4,708,203 3,891,785
Commission and expense allowances 4,959,626 3,505,799 8,394,999 6,986,734
Other revenue -- 1,177 -- 1,194
----------- ---------- ----------- -----------
Total revenues 11,665,277 7,572,287 19,947,403 15,902,126
----------- ---------- ----------- -----------
Benefits incurred 2,104,780 2,156,345 4,729,032 4,587,308
Cost of cemetery revenue 685,672 589,500 1,224,870 1,016,784
Selling, general and administrative 7,908,344 5,196,644 13,316,910 10,500,047
Other income (1,783,849) (300,060) (3,094,926) (624,474)
Interest expense 481,193 60,163 963,143 187,244
----------- ---------- ----------- -----------
Income (loss) before income taxes 2,269,137 (130,305) 2,808,374 235,217
Income tax expense (benefit) 422,546 (7,786) 555,646 75,891
----------- ---------- ----------- -----------
Income (loss) before extraordinary
item 1,846,591 (122,519) 2,252,728 159,326
Extraordinary item, net of tax -- 258,659 -- 258,659
----------- ---------- ----------- -----------
Net income $ 1,846,591 $ 136,140 $ 2,252,728 $ 417,985
=========== ========== =========== ===========
Income (loss) per share before
extraordinary item
Basic $ 0.27 $ (0.02) $ 0.32 $ 0.02
Diluted 0.25 (0.02) 0.31 0.02
Income per share
Basic $ 0.27 $ 0.02 $ 0.32 $ 0.06
Diluted 0.25 0.02 0.31 0.06
Weighted average shares outstanding
Basic 6,934,934 6,933,924 6,934,934 6,933,924
Diluted 7,376,527 7,390,096 7,376,527 7,390,096
The accompanying notes are an integral
part of the unaudited condensed
consolidated financial statements.
- 5 -
FOREVER ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
-------------------------------------
2002 2001
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash used in operating activities $ (2,347,455) $ (3,519,793)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales and maturities of available-for-sale investments 25,007,052 25,071,042
Cost of investments purchased (19,102,945) (23,826,495)
Purchase of fixed assets (1,006,739) (324,196)
Purchase of intangible assets (10,400,000) --
Purchase of cemetery properties (455,780) --
Increase in policyholder loans -- (21,037)
Other, net 1,000,656 202,875
------------ ------------
Net cash provided by (used in) investing activities (4,957,756) 1,102,189
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 10,705,780 1,653,988
Repayment of long-term debt (781,543) (1,930,908)
Credit line proceeds 1,114,142 797,276
Repayment of credit line (1,259,390) --
------------ ------------
Net cash provided by financing activities 9,778,989 520,356
------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 2,473,778 (1,897,248)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 7,568,099 12,034,307
------------ ------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 10,041,877 $ 10,137,059
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid $ 130,000 $ --
============ ============
Interest paid $ 462,925 $ 181,472
============ ============
The accompanying notes are an integral
part of the unaudited condensed
consolidated financial statements.
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FOREVER ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
-----------
NOTE 1 -- BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements
include the accounts of Forever Enterprises, Inc. and its direct and
indirect wholly-owned subsidiaries, Forever Network, Inc., Memorial Service
Life Insurance Company and Lincoln Memorial Life Insurance Company. We
account for our fifty-percent investment in Mount Washington Forever, L.L.C.
under the equity method. These condensed consolidated financial statements
have been prepared in accordance with accounting principles generally
accepted in the United States for interim financial information and the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly,
they do not include all of the information and notes required by accounting
principles generally accepted in the United States for complete financial
statements. All intercompany accounts and transactions have been eliminated
in consolidation. Certain prior period amounts have been reclassified to
conform with the current period presentation.
The accompanying condensed consolidated financial statements and
notes thereto are unaudited and should be read in conjunction with our
audited financial statements included in our Annual Report on Form 10-K for
the year ended December 31, 2001 filed with the Securities and Exchange
Commission. The balance sheet information as of December 31, 2001 has been
derived from our audited consolidated balance sheet as of that date. The
unaudited interim condensed consolidated financial statements have been
prepared on the same basis as the annual consolidated financial statements
and, in the opinion of management, reflect all adjustments, which include
only normal recurring adjustments, necessary to present fairly our financial
position as of June 30, 2002 and the results of operations and cash flows
for the three and six months ended June 30, 2002. The results for the three
and six months ended June 30, 2002 are not necessarily indicative of the
results to be expected for the year ending December 31, 2002.
NOTE 2 -- NOTES PAYABLE
As of June 30, 2002 and December 31, 2001, we had a note payable to
Allegiant Bank in the amount of $2,002,299 and $2,030,340, respectively,
which matures on January 1, 2003. Principal payments of $4,674 are due
monthly along with interest at the "corporate market" interest rate (5.25%
per annum at June 30, 2002). The "corporate market" interest rate is based
upon an index developed by Allegiant Bank.
We also have a $250,000 revolving line of credit from Allegiant
Bank at rates similar to the primary credit agreement discussed above. The
balance outstanding was $220,000 at June 30, 2002 and December 31, 2001.
This line of credit is renewable on a yearly basis subject to Allegiant
Bank's discretion.
We have a $2,000,000 revolving line of credit from Merrill Lynch
Business Financial Services, Inc., which matures on March 31, 2003. Interest
is due monthly on the unpaid balance at a per annum rate equal to the sum of
2.40% and the Dealer Commercial Paper rate for 30-day high-grade unsecured
notes (1.75% per annum at June 30, 2002) as published in The Wall Street
Journal. The balance outstanding was $1,655,925 and $1,811,172 at June 30,
2002 and December 31, 2001, respectively.
Notes payable in the amount of $1,912,647 were settled in full for
$1,653,988 on June 5, 2001 resulting in an extraordinary gain of $258,659
($.04 per basic and diluted share). Concurrent with the retirement of this
debt, we entered into a note payable with Allegiant Bank, Trustee under
Trust for National Prearranged Services, Inc. Pre-Need Plans dated 7/24/98
- -Trust IV ("Allegiant Trust IV"). The balance of this note was $1,538,524
and $1,597,335 as of June 30, 2002 and December 31, 2001,
- 7 -
respectively. Payments of $19,633 are due monthly until the principal
balance is paid in full. The interest rate on this note is 7.5% per annum.
We entered into another note payable to Allegiant Trust IV in
conjunction with the purchase of Forever Oak Hill Cemetery in December 2001.
Payments of $5,357 are due monthly until the principal balance is paid in
full. The interest rate on this note is 7.5% per annum. The balance of this
note was $567,228 and $577,864 as of June 30, 2002 and December 31, 2001,
respectively.
We also have a note payable to Allegiant Trust IV in conjunction
with the purchase of Family Tree Memorials in February 2002 in the amount of
$250,000. Payments of $2,967 are due monthly until the principal balance is
paid in full. The interest rate on this note is 7.5% per annum. The balance
of this note was $244,327 as of June 30, 2002.
We entered into a note payable to Allegiant Trust IV in conjunction
with the purchase of Forever Valley View Cemetery and Forever Mt. Hope
Cemetery in June 2002. The balance of this note was $455,780 as of June 30,
2002. Payments of principal and interest of $5,419 are due monthly until the
principal balance is paid in full. The interest rate on this note is 7.5%
per annum.
We have a note payable to Employers Reassurance Corporation in the
amount of $13,600,000 as of June 30, 2002 and December 31, 2001. Principal
payments of varying amounts are due annually on each anniversary date.
Interest on this note is payable annually in arrears on each anniversary
date at a rate equal to the five-year Treasury note plus 150 basis points
(4.02% at June 30, 2002).
We have a note payable to National Prearranged Services, Inc. in
conjunction with the Management Agreement entered into on January 1, 2002 in
the amount of $10,000,000 (see Note 6). As of June 30, 2002, the balance of
this note was $9,321,618. Payments of $246,483 of principal and interest are
due monthly until the principal balance of the note is paid in full. This
note bears interest at the rate of 8.5% per annum.
NOTE 3 -- INVESTMENTS
The cost or amortized cost, gross unrealized gains and losses, and
estimated fair value of fixed maturity and equity securities
available-for-sale as of June 30, 2002 were as follows:
COST OR GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ------------ -----------
Fixed maturity securities:
Corporate bonds $30,710,552 $ 248,773 $(2,976,310) $27,983,015
Mortgage backed securities 48,190,604 1,340,856 (249,941) 49,281,519
U.S. government 7,587,594 121,713 (462,225) 7,247,082
----------- ---------- ------------ -----------
Total fixed maturity securities 86,488,750 1,711,342 (3,688,476) 84,511,616
Equity securities:
Preferred stock 1,103,990 149,361 (24,750) 1,228,601
Common stock 1,982,605 -- (1,622,846) 359,759
----------- ---------- ------------ -----------
Total equity securities 3,086,595 149,361 (1,647,596) 1,588,360
----------- ---------- ------------ -----------
Total $89,575,345 $1,860,703 $(5,336,072) $86,099,976
=========== ========== =========== ===========
- 8 -
NOTE 4 -- SEGMENT INFORMATION
We conduct and manage our business through two segments,
cemetery/funeral operations and life insurance operations. The following
tables summarize the results of our operations by our business segments.
Costs and revenues that are not related to operating segments are included
in the column "Corporate."
SIX MONTHS ENDED JUNE 30, 2002
CEMETERY INSURANCE CORPORATE INTERSEGMENT TOTAL
-------- --------- --------- ------------ -----
Revenues $ 4,708,203 $ 14,720,523 $ 1,054,171 $ (535,494) $ 19,947,403
Net income before income taxes 570,838 1,568,424 669,112 -- 2,808,374
Total assets at period-end 19,574,863 211,759,386 32,209,173 (5,033,467) 258,509,955
THREE MONTHS ENDED JUNE 30, 2002
CEMETERY INSURANCE CORPORATE INTERSEGMENT TOTAL
-------- --------- --------- ------------ -----
Revenues $ 2,625,335 $ 8,441,090 $ 874,633 $ (275,781) $ 11,665,277
Net income before income taxes 210,220 1,368,600 690,317 -- 2,269,137
SIX MONTHS ENDED JUNE 30, 2001
CEMETERY INSURANCE CORPORATE INTERSEGMENT TOTAL
-------- --------- --------- ------------ -----
Revenues $ 3,891,785 $ 12,404,886 $ 6,900 $ (401,445) $ 15,902,126
Net income (loss) before income taxes 451,783 1,185,043 (1,401,609) -- 235,217
Total assets at period-end 13,060,341 202,528,523 6,284,126 (4,728,566) 217,144,424
THREE MONTHS ENDED JUNE 30, 2001
CEMETERY INSURANCE CORPORATE INTERSEGMENT TOTAL
-------- --------- --------- ------------ -----
Revenues $ 2,071,685 $ 5,719,701 $ 1,015 $ (220,114) $ 7,572,287
Net income (loss) before income taxes 235,069 90,150 (455,524) -- (130,305)
NOTE 5 -- ACQUISITIONS
On June 3, 2002, we acquired from the court-appointed receiver,
all of the operating assets of Mt. Hope Cemetery located in Belleville,
Illinois, and Valley View Cemetery located in Edwardsville, Illinois, for a
purchase price of $455,780. In connection with such acquisitions, we entered
into a note payable with Allegiant Trust IV in the amount of $455,780 with
an interest rate of 7.5% per annum.
On June 5, 2002, we acquired from SCI Missouri Funeral Services,
Inc. ("SCI") all of the operating assets and business of the Pfitzinger
Funeral Home located in Kirkwood, Missouri, for a cash price of $10 and
other consideration. Other consideration included the termination of the
existing lease
- 9 -
agreement with SCI and the termination of certain non-compete agreements
between SCI and Brent D. Cassity, J. Tyler Cassity, J. Douglas Cassity and
James M. Crawford, dated February 23, 1996. Upon termination of these
agreements, Forever Network, Inc. entered into agreements with Brent D.
Cassity, J. Tyler Cassity, J. Douglas Cassity and James M. Crawford for the
remainder of the previous non-compete agreements on terms substantially
equivalent to the original agreements, resulting in a cash price of
$654,057. We accounted for these acquisitions using the purchase method of
accounting.
NOTE 6 -- RELATED PARTY TRANSACTIONS
On November 29, 2001, we entered into an agreement with National
Prearranged Services, Inc. ("NPS") to sell up to $1.4 million of cemetery
accounts receivable of Hollywood Forever, Inc. Payments for purchased
cemetery accounts receivable will be forwarded to NPS monthly until the
total amount sold is paid in full. Amounts due under this agreement, which
are included in "Other liabilities" on our consolidated balance sheets, were
$1,152,000 and $196,000 as of June 30, 2002 and December 31, 2001,
respectively.
On January 1, 2002, we entered into a Management Agreement with NPS
whereby we agreed to provide all necessary personnel to supervise NPS' field
sales force in return for a monthly management fee equal to a percentage of
the net sales revenues of NPS as payment for the services rendered. As
consideration to NPS for entering into this Management Agreement, we entered
into a promissory note in the amount of $10.0 million. Due to the nature of
the agreement and the relationship of the parties involved, this agreement
has an estimated useful life of 20 years, although the agreement will be
re-evaluated by the parties every five years (December 31, 2005 will be the
first evaluation date). This agreement was treated as a purchase of an
intangible asset and will be accounted for under the guidance of Statement
of Financial Accounting Standards No. 142, Goodwill and Other Intangible
Assets. Management fees, which have been recorded as "Other income" on our
consolidated statements of operations, were $1.2 million and $1.9 million
for the three and six months ended June 30, 2002, respectively.
On June 5, 2002, we entered into agreements in connection with the
acquisition of the business of Forever Oak Hill Funeral Home at Pfitzinger
(see Note 5). Payments of $16,667 (of which equal amounts of $4,944 are
payable to Messrs. Brent D. Cassity, our chief executive officer, J. Tyler
Cassity, our president, and J. Douglas Cassity, the father of Messrs. Brent
and Tyler Cassity) are payable monthly until the balance is paid in full.
Amounts payable under these agreements as of June 30, 2002 were $639,406 and
are included in "Accrued liabilities" on our consolidated balance sheet.
We also provide and receive administrative and other services
to/from related parties. Management fees charged to related parties, which
have been recorded as "Other income" on our consolidated statements of
operations, were $348,000 and $593,000 for the three and six month periods
ended June 30, 2002, respectively. Management fees incurred with related
parties, which are included in "Selling, general and administrative
expenses" on our consolidated statements of operations, were $90,000 and
$180,000 for the three and six months ended June 30, 2002, respectively.
These fees reflect an allocation based on actual costs incurred.
Amounts receivable from National Heritage Enterprises and its
affiliates, which are included in "Receivable from related party" on our
consolidated balance sheets, were $9,005,748 and $6,226,702 as of June 30,
2002 and December 31, 2001, respectively. Amounts payable to National
Heritage Enterprises and its affiliates, which are included in "Payable to
related party" on our consolidated balance sheets, were $4,303,049 and
$3,129,154 as of June 30, 2002 and December 31, 2001, respectively. Notes
- 10 -
payable to National Prearranged Services, Inc., which is included in "Notes
payable" on our consolidated balance sheets, were $9,321,618 and $0 as of
June 30, 2002 and December 31, 2001 (see Note 2 above).
NOTE 7 -- NEW ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 141 ("SFAS 141"),
Business Combinations. SFAS 141 requires the purchase method of accounting
for business combinations initiated after June 30, 2001 and eliminates the
pooling-of-interests method. We have determined that the adoption of SFAS
141 has not had a significant impact on our financial statements.
In July 2001, the FASB issued Statement of Financial Accounting
Standards No. 142 ("SFAS 142"), Goodwill and Other Intangible Assets, which
is effective January 1, 2002. SFAS 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 142
also requires a company to complete a transitional goodwill 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, and accordingly no material impact of SFAS 142 on our financial
position and results of operations.
In June 2001, the FASB issued Statement of Financial Accounting
Standards No. 143 ("SFAS 143"), Accounting for Asset Retirement Obligations,
which is effective for fiscal years beginning after June 15, 2002. SFAS 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 143 will have a
significant impact on our financial statements.
In August 2001, the FASB issued Statement of Financial Accounting
Standards No. 144 ("SFAS 144"), Accounting for the Impairment or Disposal of
Long-Lived Assets, which is effective for fiscal years beginning after
December 15, 2001, and interim periods within those fiscal years. SFAS 144
establishes a single accounting model for long-lived assets to be disposed
of by sale. We have determined that the adoption of SFAS 144 has not had a
significant impact on our financial statements.
In June 2002, the FASB issued Statement of Financial Accounting
Standards No. 146 ("SFAS 146"), Accounting for Costs Associated with Exit or
Disposal Activities, which is effective for exit or disposal activities that
are initiated after December 31, 2002. SFAS 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 146
will have a significant impact on our financial statements.
NOTE 8 -- INCOME (LOSS) PER SHARE OF STOCK
Income (loss) per share of stock is computed using the weighted
average number of common shares outstanding during the applicable period.
Diluted income (loss) per share of stock is computed using the weighted
average number of common shares outstanding and dilutive potential common
shares (primarily outstanding stock options). Weighted average shares of
common stock and dilutive potential common shares used in the calculation of
basic and diluted income (loss) per share are summarized as follows:
- 11 -
FOR QUARTER ENDED
-----------------
JUNE 30, 2002 JUNE 30, 2001
------------- -------------
Weighted average shares outstanding (basic EPS) 6,934,934 6,933,924
Dilutive potential common shares 441,593 456,172
Weighted average shares outstanding and
dilutive potential common shares (diluted EPS) 7,376,527 7,390,096
Dilutive potential common shares included in the diluted income
(loss) per share calculation were determined using the treasury stock
method. Under the treasury stock method, outstanding stock options are
dilutive when the average market price of a company's common stock exceeds
the option price during a period. In addition, proceeds from the assumed
exercise of dilutive options along with the related tax benefit are assumed
to be used to repurchase common shares at the average market price of such
stock during the period.
NOTE 9 -- SUBSEQUENT EVENTS
On July 18, 2002, we repaid $2.1 million in principal along with
interest of $832,592 to Employers Reassurance Corporation ("ERC") pursuant
to the terms of the promissory note with ERC. Such amounts were paid from
available funds and no additional borrowings were incurred to meet this
obligation.
- 12 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning
of the "safe harbor" provisions of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements are based on the beliefs of our
management as well as on assumptions made by and information currently
available to us at the time such statements were made. We can give no
assurance that the expectations indicated by such forward-looking statements
will be realized. If any of management's assumptions should prove incorrect,
or if any of the risks and uncertainties underlying such expectations should
materialize, our actual results may differ materially from those indicated
by the forward-looking statements.
Factors that are not within our control and that may have a direct
bearing on operating results include, but are not limited to: (1) general
economic conditions and other factors, including prevailing interest rate
levels and stock market performance, which may affect our ability to sell
our products, the market value of our investments and the lapse rate and
profitability of our policies; (2) our ability to achieve anticipated levels
of operational efficiencies for acquired companies or properties, as well as
through other cost-saving initiatives; (3) mortality, morbidity, and other
factors which may affect the profitability of our insurance products; (4)
changes in the federal income tax laws and regulations which may affect the
cost of or demand for our products; (5) increasing competition in the sale
of our products; (6) regulatory changes or actions, including those relating
to regulation of financial services affecting (among other things) sales and
underwriting of insurance products to fund obligations under pre-need
contracts, regulation of the sale, underwriting and pricing of insurance
products and regulation of the sale and pricing of funeral home operations
and products; (7) the availability and terms of future acquisitions, if any;
and (8) the risk factors or uncertainties listed in our other filings with
the Securities and Exchange Commission.
Additionally, we may not be successful in identifying, acquiring,
and integrating other companies or their businesses, implementing improved
management and accounting information systems and controls and may be
dependent upon additional capital and equipment purchases for future growth.
There may be other risks and uncertainties that management is not able to
predict.
When used in this report, the words "anticipate," "believe,"
"estimate," "expect," "intends," and similar expressions, as they relate to
us are intended to identify forward-looking statements, although there may
be certain forward-looking statements not accompanied by such expressions.
OVERVIEW
We, through our subsidiaries, own and operate combination funeral
home and cemetery properties, produce and market multimedia Life Stories,
operate an Internet marketing site, and operate 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.
Forever Network, Inc., directly and through its subsidiaries, Mason
Securities Association, Inc. (d/b/a Forever Bellerive Cemetery), Forever Oak
Hill Cemetery, Forever Oak Hill Funeral Home at Pfitzinger, Forever Valley
View Cemetery, Forever Mt. Hope Cemetery, Forever Memorial, Inc., Hollywood
Forever, Inc., Dartmont Investment, Inc. and Mount Washington Forever, Inc.,
owns and operates funeral homes and cemetery properties and sells, archives
and displays digital interactive Life Stories viewed at grave sites and on
the Internet at www.forevernetwork.com. In addition, the Internet
- 13 -
site provides valuable information to consumers on memorial products and
services and markets related merchandise and services to the growing
population of people who visit the site.
Substantially all of our life insurance policies are issued to fund
prearranged funeral contracts sold by National Prearranged Services, Inc.
and National Prearranged Services Agency, Inc. National Prearranged
Services, Inc. is an affiliated company that collects all payments for
prearranged funeral contracts and remits such amounts to us either directly
or through assumed reinsurance.
On June 3, 2002, we acquired from Donald M. Sampson, Receiver, all
of the operating assets of Mt. Hope Cemetery located in Belleville,
Illinois, and Valley View Cemetery located in Edwardsville, Illinois, for a
cash purchase price of $455,780.
On June 5, 2002, we acquired from SCI Missouri Funeral Services,
Inc. ("SCI") all of the operating assets and business of the Pfitzinger
Funeral Home located in Kirkwood, Missouri, for a cash purchase price of
$654,057.
In August 2000, we entered into a coinsurance agreement with
Employers Reassurance Corporation whereby we ceded a significant portion of
our in-force policies. This coinsurance agreement includes experience refund
provisions whereby we may earn additional ceding commissions in varying
amounts each year through 2010, subject to the mortality experience of the
policies not exceeding certain levels. This coinsurance agreement does not
relieve us from our obligations to our policyholders and, accordingly, the
net cost of the coinsurance agreement of approximately $80,000 was deferred
and is being amortized over the remaining life of the underlying insurance
policies. Approximately $80.3 million of the reinsurance receivable as of
June 30, 2002 was related to the agreement with Employers Reassurance
Corporation.
In November 2000, we entered into various coinsurance agreements
with North America Life Insurance Company of Texas ("NAL") whereby we ceded
blocks of certain direct written life insurance policies and all of our
assumed life insurance and annuity policies. We have segregated funds of
approximately $55.6 million in a trust account for the benefit of the
reinsurer. The funds withheld are presented net of amounts due from the
reinsurer in our consolidated financial statements. We also entered into a
100% coinsurance agreement with NAL in September 2000, whereby substantially
all of the policies issued by us that are sold by NPS and NPS Agency are
ceded to NAL. This agreement was modified in August 2001, at which time we
also entered into a coinsurance agreement with Hannover Life Reassurance
Company of America ("Hannover"), whereby all of the policies issued by us
that are sold by NPS are ceded to Hannover. These coinsurance agreements do
not relieve us from our obligations to our policyholders and, accordingly,
the cost of the coinsurance agreements was deferred and is being amortized
over the remaining life of the underlying insurance policies. The
unamortized deferred cost as of June 30, 2002 was approximately $1.8
million. Approximately $18.4 million of the reinsurance receivable as of
June 30, 2002 was related to the agreements with NAL and Hannover.
The arrangements with Employers Reassurance Corporation, North
America Life Insurance Company of Texas and Hannover Reassurance Life
Company of America were made to allow us to shift our focus from insurance
operations to the cemetery operations of our company.
Our business strategy is to grow our business by acquiring
cemetery/funeral home combination properties in targeted metropolitan areas,
aggressively grow the multimedia Life Story business through all company
properties and the Internet, and further develop our Internet marketing
business. Through this strategy, we expect to develop the Forever brand to
enhance consumer recognition and sales. No assurance can be given that we
will be successful in completing any acquisition, or that any acquisition,
- 14 -
once completed, will ultimately enhance our results of operations.
We will seek to increase the number of quality cemetery/funeral
home combination properties we own and operate and to expand our Forever
network of families with digital Life Stories. Our plan is to acquire
properties in or near major metropolitan areas to allow us to advertise and
market the Forever programs to large populations. We seek properties with
enough inventory and/or land to accommodate future sales and/or construction
of Forever mausoleums/chapels to create inventory and service space. The
targeted properties could possibly be distressed in some way. We believe
those in need of an innovative marketing approach are ideal. Established
properties with a large heritage of families will also allow us to market
our Life Story services to existing client family members, thus expanding
our market potential. We also may pursue properties in the form of
undeveloped land in a current or developing population center that can
support a funeral home/mausoleum structure, and that provide a suitable
supply of saleable cemetery land. We believe that acquiring and developing
properties in major metropolitan areas should facilitate development of our
Internet business strategy, which serves to display family archives, educate
consumers on memorial products, services and providers, and to sell memorial
services and merchandise through the www.forevernetwork.com website. We
believe that the current environment provides excellent opportunities to
acquire cemetery properties at attractive prices due to the fact that
certain of the major acquisition companies are in financial distress, more
properties should be available for acquisition, and the prices for
properties are declining to what we believe are reasonable levels. Execution
of this strategy should allow us to develop further the Forever brand and
our company as a leader in providing unique and valuable memorialization
products and services.
We believe we are well positioned to enhance the profitability of
the businesses and properties we acquire. With respect to our
cemetery/funeral home operations, we believe we can apply tested and proven
marketing techniques to produce significant revenue and market share growth.
Efficient property operations management should allow for greatly enhanced
profitability on newly acquired properties. Demographics and the growing
interest in organizing and preserving family memories, use of the Internet
for information gathering, and commerce on the World Wide Web should provide
the platform for successful results on our Internet strategy.
RESULTS OF OPERATIONS
The following presents management's discussion and analysis of our
consolidated financial condition and results of operations as of the dates
and for the periods indicated. This discussion should be read in conjunction
with the other information set forth in this Quarterly Report on Form 10-Q,
including our unaudited condensed consolidated financial statements and the
accompanying notes thereto.
- 15 -
Our financial highlights were as follows:
SIX MONTHS ENDED
STATEMENT OF OPERATIONS DATA: JUNE 31,
---------------------------------------
2002 2001
---- ----
Premium income $ 3,359,209 $ 3,504,014
Net investment income and realized gains 3,484,992 1,518,399
Cemetery revenue 4,708,203 3,891,785
Commission and expense allowances 8,394,999 6,986,734
Other revenue -- 1,194
------------ ------------
Total revenues 19,947,403 15,902,126
Benefits incurred 4,729,032 4,587,308
Cost of cemetery revenues 1,224,870 1,016,784
Selling, general and administrative expenses 13,316,910 10,500,047
Other income (3,094,926) (624,474)
Interest expense 963,143 187,244
------------ ------------
Income before income taxes 2,808,374 235,217
Income tax expense 555,646 75,891
------------ ------------
Income before extraordinary item 2,252,728 159,326
Extraordinary item -- 258,659
------------ ------------
Net income $ 2,252,728 $ 417,985
============ ============
Income per share before extraordinary item
Basic $ 0.32 $ 0.02
Diluted 0.31 0.02
Income per share
Basic $ 0.32 $ 0.06
Diluted 0.31 0.06
BALANCE SHEET DATA: JUNE 30, 2002 DECEMBER 31, 2001
------------- -----------------
Trade accounts receivable, net $ 7,673,121 $ 5,582,093
Cemetery property, net 4,083,591 3,557,733
Total assets 258,509,955 237,353,895
Total policy liabilities 199,567,432 195,980,988
Deferred preneed revenues 6,704,030 5,574,815
Shareholders' equity 6,103,318 3,794,020
We conduct and manage our business through two segments,
cemetery/funeral operations and life insurance operations. The following
tables and narratives summarize the results of our operations by our
business segments. Costs and revenues that are not related to operating
segments are included in the column "Corporate."
SIX MONTHS ENDED JUNE 30, 2002
CEMETERY INSURANCE CORPORATE INTERSEGMENT TOTAL
-------- --------- --------- ------------ -----
Revenues $ 4,708,203 $ 14,720,523 $ 1,054,171 $ (535,494) $ 19,947,403
Net income before income taxes 570,838 1,568,424 669,112 -- 2,808,374
Total assets at period-end 19,574,863 211,759,386 32,209,173 (5,033,467) 258,509,955
- 16 -
THREE MONTHS ENDED JUNE 30, 2002
CEMETERY INSURANCE CORPORATE INTERSEGMENT TOTAL
-------- --------- --------- ------------ -----
Revenues $ 2,625,335 $ 8,441,090 $ 874,633 $ (275,781) $ 11,665,277
Net income before income taxes 210,220 1,368,600 690,317 -- 2,269,137
SIX MONTHS ENDED JUNE 30, 2001
CEMETERY INSURANCE CORPORATE INTERSEGMENT TOTAL
-------- --------- --------- ------------ -----
Revenues $ 3,891,785 $ 12,404,886 $ 6,900 $ (401,445) $ 15,902,126
Net income (loss) before income taxes 451,783 1,185,043 (1,401,609) -- 235,217
Total assets at period-end 13,060,341 202,528,523 6,284,126 (4,728,566) 217,144,424
THREE MONTHS ENDED JUNE 30, 2001
CEMETERY INSURANCE CORPORATE INTERSEGMENT TOTAL
-------- --------- --------- ------------ -----
Revenues $ 2,071,685 $ 5,719,701 $ 1,015 $ (220,114) $ 7,572,287
Net income (loss) before income taxes 235,069 90,150 (455,524) -- (130,305)
Cemetery Operations. Cemetery revenues increased approximately
$554,000 and $816,000, or 26.7% and 21.0%, in the three-month and six-month
periods ended June 30, 2002, respectively, compared to the corresponding
periods of 2001. Sales for the first six months of 2002 increased due to the
inclusion of new properties, more effective marketing and increased sales of
certain cemetery and memorialization products and services.
Cost of sales increased $96,000 and $208,000, or 16.3% and 20.5%,
from $590,000 and $1.0 million in the three and six months ended June 30,
2001, respectively, to $686,000 and $1.2 million in the corresponding
periods of 2002 due to increased cemetery sales. Cost of sales as a
percentage of revenues decreased to 26.1% and 26.0% for the three and six
months ended June 30, 2002, respectively, compared to 28.5% and 26.1% for
the three and six months ended June 30, 2001, respectively, due to more
efficient uses of cemetery resources.
Selling, general and administrative expenses increased $617,000 and
$760,000, or 48.0% and 30.4%, from $1.3 million and $2.5 million in the
three and six months ended June 30, 2001, respectively, to $1.9 million and
$3.3 million, in the corresponding periods of 2002 due to the addition of
new locations and a more aggressive marketing approach. As a percentage of
revenues, selling, general and administrative costs increased to 72.5% and
69.2% in the three and six months ended June 30, 2002, respectively, from
62.0% and 64.3% in the three and six months ended June 30, 2001,
respectively.
Income before income taxes decreased from $235,000 and increased
from $452,000 in the three and six months ended June 30, 2001, respectively,
to $210,000 and $571,000 in the corresponding periods of 2002. Operating
income as a percentage of revenues declined to 8.0% and improved to 12.1% in
the three and six months ended June 30, 2002, respectively, from 11.3% and
11.6% in the corresponding periods of 2001 due to the higher revenues
generated and improved operating efficiencies year to date, offset by higher
operating expenses in the second quarter.
- 17 -
Investment in Mount Washington Forever, LLC. We currently have a
50% interest in Mount Washington Forever, LLC, and are responsible for all
aspects of the cemetery's marketing and operations. The results of Mount
Washington Forever, LLC are summarized in the table below.
SIX MONTHS ENDED
---------------------------------------
JUNE 30, 2002 JUNE 30, 2001
------------- -------------
Revenues $1,563,697 $1,631,189
Cost of goods sold 415,371 443,659
Selling, general and administrative expenses 1,045,967 1,000,429
Income from operations 102,359 187,101
Insurance Operations. Insurance revenues increased approximately
$2.7 million and $2.3 million, or 47.6% and 18.7%, in the three-month and
six-month periods ended June 30, 2002, respectively, compared to the
corresponding periods in 2001. The increases were primarily attributable to
higher than expected investment income as discussed below.
Our premium income increased approximately $187,000 and $17,000, or
11.1% and 0.5%, in the three-month and six-month periods ended June 30,
2002, respectively, compared to the corresponding periods of 2001. These
increases were due to an increase in the number of policies written from
more profitable lines of business.
Commission and expense allowances on reinsurance ceded increased
approximately $1.5 million and $1.4 million, or 41.5% and 20.2%, in the
three-month and six-month periods ended June 30, 2002, respectively,
compared to the corresponding periods of 2001 due to a higher number of
monthly pay policies written along with an increase in the number of single
premium policies written.
Our net investment income and realized gains increased
approximately $1.2 million and $838,000, or 343.0% and 47.0%, in the
three-month and six-month periods ended June 31, 2002, respectively,
compared to the corresponding periods of 2001. The increases in investment
income were due primarily to the inclusion of interest income of $694,000
accrued on the experience rating refund due in August 2002.
Our benefit expenses decreased approximately $34,000 and increased
$193,000, or 1.5% and 4.1%, in the three-month and six-month periods ended
June 30, 2002, respectively, compared to the corresponding periods of 2001.
These variances were due to a lower than expected mortality experience in
the second quarter offset by a higher than expected mortality experience in
the first quarter on retained business.
Income before income taxes increased $1.3 million and $383,000,
from $90,000 and $1.2 million, respectively, for the three- and six-month
periods ended June 30, 2001, to $1.4 million and $1.6 million for the three-
and six-month periods ended June 30, 2002. Income before income taxes as a
percentage of revenues improved to 16.2% and 10.7% in the three and six
months ended June 30, 2002, respectively, from 1.6% and 9.6% in the
corresponding periods of 2001.
Total assets increased $9.2 million from $202.5 million at June 30,
2001 to $211.7 million at June 30, 2002 due primarily to an increase in the
amount due from reinsurers.
- 18 -
Corporate. Income before income taxes increased $1.1 million and
$2.1 million, or 251.5% and 147.7%, in the three-month and six-month periods
ended June 30, 2002 compared to the corresponding periods of 2001, due
primarily to increased revenues generated by the management agreement with
National Prearranged Services, Inc. (See Note 6).
Consolidated. Income before income taxes for the three- and
six-month periods ended June 30, 2002 increased $2.4 million and $2.6
million, compared to the corresponding periods of 2001. Net income per basic
share for the three- and six-month periods ended June 30, 2002, increased to
$0.27 and $0.32, respectively, from $0.02 and $0.06 per share for the
corresponding periods of 2001. The increase in operating income for the
three and six months ended June 30, 2002, compared to the same periods of
2001, was primarily due to increased revenues from our cemetery and
insurance operations and increased revenues from the management agreement
with National Prearranged Services.
The effective tax rate of 19.8% in the current year was due to our
cemetery operations being in a net operating loss position combined with a
lower tax rate used by our insurance operations.
LIQUIDITY AND CAPITAL RESOURCES
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 to 18 months. Because we have been 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. One of our cemetery properties in St. Louis,
Missouri, which has been actively marketed since 1997, currently generates
significant positive cash flow from operations and represents the type of
relative financial performance expected on our current and future
properties. We are experiencing similar positive trends 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 for the remainder of 2002. We believe that any
operating cash requirements for our cemetery properties will be funded
through working capital on hand or existing lines of credit.
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 invested significant capital to develop and enhance our
Life Story and Internet business and our website www.forevernetwork.com. The
Life Story program is an important part of our cemetery/funeral home
business as well as our brand strategy, and is currently contributing to
profitability at the cemetery locations. Margins on the Life Story products
and services are high relative to our other revenue sources and overhead
relatively low. The Forever Network website is currently averaging more than
21,000 hits per day.
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
- 19 -
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. Effective
March 31, 2002, our subsidiary Memorial Service Life Insurance Company
declared a dividend payable to Forever Enterprises, Inc. for the full
available amount of $4.3 million. We received the dividend in two equal
payments of $2.15 million on May 8, 2002 and May 17, 2002. As of June 30,
2002, no additional funds were available for transfer to us by our insurance
subsidiaries by dividend, loan or advance.
Our cash requirements for the remainder of 2002 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 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 twelve months; however, from time to
time, we may need to draw on existing lines of credit to supplement
available working capital.
In the event that our plans or assumptions change, or if the
resources available to meet unanticipated changes in business conditions
prove to be insufficient to fund operations, we could be required to seek
additional financing prior to that time, or to curtail certain proposed
activities.
Changes in our consolidated balance sheets between December 31,
2001 and June 30, 2002 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 business strategy.
Policyholder loans were essentially unchanged at $1.8 million at
December 31, 2001 and June 30, 2002 due to the absence of new loans.
Due from reinsurer increased approximately $6.6 million due to an
increase in new business written in relation to the blocks of business ceded
to Hannover Life Reassurance Company of America and North America Life
Insurance Company.
Total cash and investments decreased $3.1 million from $101.1
million at December 31, 2001 to $98.0 million at June 30, 2002 due primarily
to a decrease in the market values of investments held. Changes in the
separate components of invested assets were due to the portfolio mix of our
invested assets and changes in the fair market value of balances in actively
managed fixed maturity and equity securities.
Intangible assets increased $10.8 million from $2.2 million at
December 31, 2001 to $13.0 million at June 30, 2002. This increase was due
to the execution of the NPS Management Agreement and the acquisition of
intellectual property rights and distribution agreements from Family Tree
Memorials. The increase was also due to the payment agreements executed in
connection with the acquisition of the Forever Oak Hill Funeral Home at
Pfitzinger (See Note 5).
Future policy benefits increased approximately $3.9 million from
$147.7 million at December 31, 2001 to $151.6 million at June 30, 2002. This
increase was primarily due to the growth of our reinsured business.
Policyholder deposits decreased approximately $357,000 from $48.3
million at December 31, 2001 to $47.9 million at June 30, 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
- 20 -
comprised primarily of annuities acquired with the block of business from
Woodmen Accident & Life, World Insurance Company and Funeral Security Life
Insurance Company.
Notes payable increased approximately $9.9 million from $17.8
million at December 31, 2001 to $27.7 million at June 30, 2002 due to
increased debt associated with the transactions and acquisitions noted
above, offset by paydowns against such debt.
ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 141 ("SFAS 141"),
Business Combinations. SFAS 141 requires the purchase method of accounting
for business combinations initiated after June 30, 2001 and eliminates the
pooling-of-interests method. We have determined that the adoption of SFAS
141 has not had a significant impact on our financial statements.
In July 2001, the FASB issued Statement of Financial Accounting
Standards No. 142 ("SFAS 142"), Goodwill and Other Intangible Assets, which
was effective January 1, 2002. SFAS 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 142
also requires a company to complete a transitional goodwill 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, and accordingly no material impact of SFAS 142 on our financial
position and results of operations.
In June 2001, the FASB issued Statement of Financial Accounting
Standards No. 143 ("SFAS 143"), Accounting for Asset Retirement Obligations,
which is effective for fiscal years beginning after June 15, 2002. SFAS 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 143 will have a
significant impact on our financial statements.
In August 2001, the FASB issued Statement of Financial Accounting
Standards No. 144 ("SFAS 144"), Accounting for the Impairment or Disposal of
Long-Lived Assets, which is effective for fiscal years beginning after
December 15, 2001, and interim periods within those fiscal years. SFAS 144
establishes a single accounting model for long-lived assets to be disposed
of by sale. We have determined that the adoption of SFAS 144 has not had a
significant impact on our financial statements.
In June 2002, the FASB issued Statement of Financial Accounting
Standards No. 146 ("SFAS 146"), Accounting for Costs Associated with Exit or
Disposal Activities, which is effective for exit or disposal activities that
are initiated after December 31, 2002. SFAS 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 146
will have a significant impact on our financial statements.
- 21 -
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
There have been no material changes from the information provided
in our Annual Report on Form 10-K for the year ended December 31, 2001.
- 22 -
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Our 2002 annual meeting of shareholders was held on May 14, 2002.
Of 6,934,934 shares issued, outstanding and eligible to be voted at the
meeting, 6,556,813 shares, constituting a quorum, were represented in person
or by proxy at the meeting. One matter was submitted to a vote of the
shareholders at the meeting.
The only matter submitted was the election of two director nominees
to our board of directors as follows: two Class I directors to continue in
office until the year 2005. There is no cumulative voting in the election of
directors. Upon tabulation of the votes cast, it was determined that each
director nominee had been elected. The voting results are set forth below:
NAME FOR WITHHELD
---- --- --------
Class I
J. Tyler Cassity 6,556,768 45
Steven M. Zamler 6,556,768 45
Because we have a staggered board, the term of office of the
following named Class II and Class III directors, who were not up for
election at the 2002 annual meeting, continued after the meeting:
Class II (to continue in office until 2003)
Randall K. Sutton
Oliver C. Boileau, Jr.
Class III (to continue in office until 2004)
Brent D. Cassity
Howard A. Wittner
- 23 -
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
See Exhibit Index hereto.
(b) Reports on Form 8-K.
We did not file any Current Reports on Form 8-K during the
quarter ended June 30, 2002.
- 24 -
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FOREVER ENTERPRISES, INC.
(Registrant)
Dated: August 14, 2002 By: /s/ Brent D. Cassity
------------------------------------------
Brent D. Cassity, Chief Executive Officer
Dated: August 14, 2002 By: /s/ J. Tyler Cassity
------------------------------------------
J. Tyler Cassity, President
Dated: August 14, 2002 By: /s/ Michael R. Butler
------------------------------------------
Michael R. Butler, Chief Financial Officer
- 25 -
EXHIBIT INDEX
Ex. No. Description
- ------- -----------
10.1 Payment Agreement, dated June 5, 2002, between Forever
Network, Inc. and Brent D. Cassity, is filed herewith.
10.2 Payment Agreement, dated June 5, 2002, between Forever
Network, Inc. and J. Tyler Cassity, is filed herewith.
99.1 Chief Executive Officer Certification pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, is filed herewith.
99.2 Chief Financial Officer Certification pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, is filed herewith.
- 26 -