Back to GetFilings.com
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 SEPTEMBER 30, 2002
-----------------------------------------------
Commission file number 001-14067
-------------------------------------------------------
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
- -------------------------------------------------------------------------------
(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 November 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 - September 30,
2002 (Unaudited) and December 31, 2001..................3
Condensed Consolidated Statements of Operations
(Unaudited) - Three Months and Nine Months Ended
September 30, 2002 and 2001..............................5
Condensed Consolidated Statements of Cash Flows
(Unaudited) - Nine Months Ended September 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.....................14
Cautionary Statement Regarding Forward-Looking
Statements..............................................14
Overview..................................................14
Results of Operations.....................................16
Liquidity and Capital Resources...........................20
Item 3. Quantitative and Qualitative Disclosure About
Market Risk.............................................23
Item 4. Controls and Procedures...................................23
PART II. OTHER INFORMATION.........................................24
Item 1. Legal Proceedings.........................................24
Item 6. Exhibits and Reports on Form 8-K..........................24
SIGNATURES...............................................................25
CERTIFICATIONS...........................................................26
EXHIBIT INDEX............................................................30
- 2 -
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FOREVER ENTERPRISES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------- ------------
(UNAUDITED)
Cash and cash equivalents $ 17,086,651 $ 7,568,099
Fixed maturity securities 79,221,089 90,735,727
Equity securities 1,077,104 963,055
Policyholder loans 1,829,280 1,818,550
------------ ------------
Total cash and investments 99,214,124 101,085,431
------------ ------------
Trade accounts receivable, net 8,822,160 5,582,093
Cemetery property, net 4,027,470 3,557,733
Fixed assets, net 7,559,107 6,308,096
Reinsurance receivable 98,093,626 92,167,215
Inventories 200,786 256,564
Deferred policy acquisition costs, net 1,506,550 1,199,802
Due premium 8,039,628 6,293,127
Intangible assets 12,795,986 2,175,067
Deferred cost of reinsurance 1,800,717 1,874,715
Deferred tax assets 4,178,174 4,433,660
Receivable from related party 8,024,099 7,181,207
Other assets 5,869,387 5,239,185
------------ ------------
Total assets $260,131,814 $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
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------- ------------
(UNAUDITED)
LIABILITIES:
Lines of credit $ 2,243,112 $ 2,031,172
Accounts payable and accrued liabilities 11,059,893 8,546,760
Policy liabilities:
Future policy benefits 155,194,664 147,668,986
Policyholder deposits 47,105,011 48,312,002
Deferred preneed revenues 7,634,427 5,574,815
Payable to related party 5,734,889 3,620,601
Notes payable 24,968,478 17,805,539
------------ ------------
Total liabilities 253,940,474 233,559,875
------------ ------------
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 10,279,979 10,337,502
Accumulated deficit (1,571,232) (5,143,602)
Accumulated other comprehensive loss (2,586,756) (1,469,229)
------------ ------------
Total shareholders' equity 6,191,340 3,794,020
------------ ------------
Total liabilities and shareholders' equity $260,131,814 $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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
2002 2001 2002 2001
---- ---- ---- ----
Premium income $ 2,855,511 $1,747,896 $ 6,214,720 $ 5,251,910
Net investment income
and realized gains 499,931 635,638 3,984,923 2,154,037
Cemetery revenue 2,631,175 1,867,884 7,339,378 5,759,669
Commission and expense allowances 4,985,260 3,706,727 13,380,259 10,693,461
Other revenue 1,347,820 312,470 4,014,039 854,837
----------- ---------- ----------- -----------
Total revenues 12,319,697 8,270,615 34,933,319 24,713,914
----------- ---------- ----------- -----------
Benefits incurred 1,967,574 2,143,891 6,696,606 6,731,199
Cost of cemetery revenue 647,989 547,676 1,872,859 1,564,460
Insurance commissions 3,937,436 3,505,413 11,582,430 9,278,814
Selling, general and administrative 4,012,091 2,583,469 9,684,007 7,310,115
Other income (266,485) (36,904) (695,192) (120,205)
Interest expense 472,915 243,463 1,436,058 430,707
----------- ---------- ----------- -----------
Income (loss) before income taxes 1,548,177 (716,393) 4,356,551 (481,176)
Income tax expense (benefit) 228,535 (51,282) 784,181 24,609
----------- ---------- ----------- -----------
Income (loss) before extraordinary
item 1,319,642 (665,111) 3,572,370 (505,785)
Extraordinary item, net of tax -- -- -- 258,659
----------- ---------- ----------- -----------
Net income (loss) $ 1,319,642 $ (665,111) $ 3,572,370 $ (247,126)
=========== ========== =========== ===========
Income (loss) per share before
extraordinary item
Basic $ 0.19 $ (0.10) $ 0.52 $ (0.07)
Diluted 0.18 (0.09) 0.49 (0.07)
Income (loss) per share
Basic $ 0.19 $ (0.10) $ 0.52 $ (0.04)
Diluted 0.18 (0.09) 0.49 (0.03)
Weighted average shares outstanding
Basic 6,934,934 6,934,607 6,934,934 6,934,168
Diluted 7,358,020 7,463,359 7,358,020 7,462,920
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)
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------------
2002 2001
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by (used in) operating activities $ 3,726,347 $ (6,148,930)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales and maturities of available-for-sale investments 36,846,238 34,452,309
Cost of investments purchased (26,664,044) (46,295,077)
Purchase of fixed assets (1,798,284) (643,098)
Purchase of intangible assets (10,400,000) --
Purchase of cemetery properties (455,780) --
Increase in investment in subsidiary (130,000) --
Increase in policyholder loans -- (29,289)
Other, net 1,019,196 1,458,064
------------ ------------
Net cash used in investing activities (1,582,674) (11,057,091)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of shares for stock options -- 2,037
Proceeds from long-term debt 10,835,780 15,253,988
Repayment of long-term debt (3,672,841) (1,972,991)
Credit line proceeds 2,652,258 1,631,656
Repayment of credit line (2,440,318) --
------------ ------------
Net cash provided by financing activities 7,374,879 14,914,690
------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 9,518,552 (2,291,331)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 7,568,099 12,034,307
------------ ------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 17,086,651 $ 9,742,976
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid $ 215,285 $ 112,000
============ ============
Interest paid $ 1,653,874 $ 288,087
============ ============
The accompanying notes are an integral
part of the unaudited condensed
consolidated financial statements.
- 6 -
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 September 30, 2002 and the results of operations and cash
flows for the three and nine months ended September 30, 2002. The results
for the three and nine months ended September 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 September 30, 2002 and December 31, 2001, we had a note
payable to Allegiant Bank in the amount of $1,988,278 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 September 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 $250,000 and $220,000 at September 30, 2002 and
December 31, 2001, respectively. 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 (1.76% per annum at September 30, 2002) as published in The Wall
Street Journal. The balance outstanding was $1,993,112 and $1,811,172 at
September 30, 2002 and December 31, 2001, respectively.
- 7 -
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"). On July 26, 2002 we increased the balance
of this note by $130,000 in conjunction with the settlement of a lawsuit
with Odessa Group, L.L.C. (see Part II, Item 1). The balance of this note
was $1,635,729 and $1,597,335 as of September 30, 2002 and December 31,
2001, respectively. Payments of $21,292 of principal and interest 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 a cemetery property in Missouri in
December 2001. Payments of $5,357 of principal and interest 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 $561,759 and $577,864 as of
September 30, 2002 and December 31, 2001, respectively.
We also have a note payable to Allegiant Trust IV in conjunction
with the purchase of an online interactive memorial product in February 2002
in the amount of $250,000. Payments of $2,967 of principal and interest 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 $239,978 as of
September 30, 2002.
We entered into a note payable to Allegiant Trust IV in conjunction
with the purchase of two cemetery properties in Illinois in June 2002. The
balance of this note was $450,641 as of September 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, which
was in the amount of $11.5 million and $13.6 million as of September 30,
2002 and December 31, 2001, respectively. 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 (2.64% at September 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 September 30, 2002, the
balance of this note was $8,592,093. 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.
- 8 -
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 September 30, 2002 were as follows:
COST OR GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ------------ -----------
Fixed maturity securities:
Corporate bonds $30,225,572 $ 404,893 $(6,108,473) $24,521,992
Mortgage backed securities 46,748,722 1,990,311 -- 48,739,033
U.S. government 5,685,007 275,057 -- 5,960,064
----------- ---------- ----------- -----------
Total fixed maturity securities 82,659,301 2,670,261 (6,108,473) 79,221,089
Equity securities:
Preferred stock 1,052,498 97,118 (117,312) 1,032,304
Common stock 1,766,900 -- (1,722,100) 44,800
----------- ---------- ----------- -----------
Total equity securities 2,819,398 97,118 (1,839,412) 1,077,104
----------- ---------- ----------- -----------
Total $85,478,699 $2,767,379 $(7,947,885) $80,298,193
=========== ========== =========== ===========
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."
NINE MONTHS ENDED SEPTEMBER 30, 2002
CEMETERY INSURANCE CORPORATE INTERSEGMENT TOTAL
-------- --------- --------- ------------ -----
Revenues $ 7,339,378 $ 23,144,579 $ 5,249,654 $ (800,292) $ 34,933,319
Net income before income taxes 410,784 3,340,639 605,128 -- 4,356,551
Total assets at period-end 21,471,986 214,887,140 28,931,467 (5,158,779) 260,131,814
THREE MONTHS ENDED SEPTEMBER 30, 2002
CEMETERY INSURANCE CORPORATE INTERSEGMENT TOTAL
-------- --------- --------- ------------ -----
Revenues $ 2,631,175 $ 8,424,056 $ 1,529,264 $ (264,798) $ 12,319,697
Net income (loss) before income taxes (160,054) 1,772,215 (63,984) -- 1,548,177
- 9 -
NINE MONTHS ENDED SEPTEMBER 30, 2001
CEMETERY INSURANCE CORPORATE INTERSEGMENT TOTAL
-------- --------- --------- ------------ -----
Revenues $ 5,759,669 $ 18,657,124 $ 919,891 $ (622,770) $ 24,713,914
Net income (loss) before income taxes 176,414 1,217,095 (1,874,685) -- (481,176)
Total assets at period-end 13,513,449 207,920,315 18,053,850 (4,753,686) 234,733,928
THREE MONTHS ENDED SEPTEMBER 30, 2001
CEMETERY INSURANCE CORPORATE INTERSEGMENT TOTAL
-------- --------- --------- ------------ -----
Revenues $1,867,884 $6,252,238 $ 371,818 $(221,325) $8,270,615
Net income (loss) before income taxes (275,369) 32,052 (473,076) -- (716,393)
NOTE 5 -- COMMITMENTS AND CONTINGENCIES
Effective July 1, 2002, we entered into a non-cancelable lease
agreement for office space in Clayton, Missouri. This lease is accounted for
as an operating lease. Future minimum lease payments under the terms of this
operating lease at September 30, 2002 were $2.9 million. This lease
agreement expires in June 2007.
Effective July 11, 2002, we entered into the first of several
phases of a long-term lease with Dell Financial Services L.P. to provide
computer equipment for all Forever locations. The term of each phase of the
lease is for 36 months with varying payment amounts and ending dates. These
leases are being accounted for as capital leases. Total aggregate purchases
through September 30, 2002 were $84,557. As of September 30, 2002, the
balance of the leases payable was $80,589.
Effective August 2, 2002, we entered into a guaranty agreement with
Commerce Bank N.A. to secure a $2,000,000 promissory note with and between
Mount Washington Forever, L.L.C. and Commerce Bank N.A. to finance the
construction of a new mausoleum at the Mt. Washington cemetery. As of
September 30, 2002 the balance of the promissory note was $546,392.
NOTE 6 -- RELATED PARTY TRANSACTIONS
On November 29, 2001, to finance the construction of an addition to
the mausoleum in Hollywood, 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. Due to higher than expected
costs during 2002, this amount was increased to $1.7 million. 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 "Payable to related party" on our
consolidated balance sheets, were $1,561,538 and $196,000 as of September
30, 2002 and December 31, 2001, respectively. Due to the excessive
administrative time and expense associated with managing the accounts
receivable agreement, in October 2002, this agreement was converted to a
note payable to Allegiant Trust IV, retroactive to the date of the original
agreement (see Note 10).
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
- 10 -
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
revenue" on our consolidated statements of operations, were $1.0 million and
$2.9 million for the three and nine months ended September 30, 2002,
respectively.
On June 5, 2002, we entered into agreements in connection with the
acquisition of the business of a funeral home in Missouri. 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 September 30, 2002 were $601,157 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 revenue" on our consolidated statements of
operations, were $332,000 and $925,000 for the three- and nine-month periods
ended September 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
$270,000 for the three and nine months ended September 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 $7,076,769 and $6,226,702 as of September
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 $4,962,293 and
$3,129,154 as of September 30, 2002 and December 31, 2001, respectively.
Notes payable to National Prearranged Services, Inc., which is included in
"Notes payable" on our consolidated balance sheets, were $8,592,093 and $0
as of September 30, 2002 and December 31, 2001, respectively (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.
- 11 -
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 will not have 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:
FOR QUARTER ENDED
-----------------
SEPTEMBER 30, 2002 SEPTEMBER 30, 2001
------------------ ------------------
Weighted average shares outstanding (basic EPS) 6,934,934 6,934,168
Dilutive potential common shares 423,086 528,752
Weighted average shares outstanding and
dilutive potential common shares (diluted EPS) 7,358,020 7,462,920
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.
- 12 -
NOTE 9 -- ACQUISITIONS
We regularly evaluate possible acquisitions of cemetery properties
that appear consistent with our acquisition strategy. On September 27, 2002
we entered into a letter of intent to purchase a single-location cemetery
property located in the Southwest United States. The purchase price and
working capital, if agreeable terms are secured, are expected to be funded
largely through owner financing with the balance to be funded through
additional debt arrangements with an outside lender and additional equity
financing. We anticipate beginning our due diligence investigation in the
fourth quarter of 2002. If due diligence proves favorable, closing is
expected to occur during the first quarter of 2003.
NOTE 10 -- SUBSEQUENT EVENTS
In October 2002, we converted the accounts receivable purchase
agreement (see Note 6) with National Prearranged Services into a note
payable to Allegiant Trust IV in the amount of $1.7 million. Payments of
$34,065 of principal and interest are due monthly until the principal
balance is paid in full. The interest rate on this note is 7.5% per annum.
- 13 -
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, 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 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.
- 14 -
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 those amounts to us either directly
or through assumed reinsurance.
We regularly evaluate possible acquisitions of cemetery properties
that appear consistent with our acquisition strategy. On September 27, 2002
we entered into a letter of intent to purchase a single-location cemetery
property located in the Southwest United States. The purchase price and
working capital, if agreeable terms are secured, are expected to be funded
largely through owner financing with the balance to be funded through
additional debt arrangements with an outside lender and additional equity
financing. We anticipate beginning our due diligence investigation in the
fourth quarter of 2002. If due diligence proves favorable, closing is
expected to occur during the first quarter of 2003.
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. Approximately $78.6 million of the
reinsurance receivable as of September 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 $61.6 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. Approximately $19.5 million of
the reinsurance receivable as of September 30, 2002 was related to the
agreements with NAL and Hannover.
The above 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 September 30, 2002 was approximately $1.8 million.
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,
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
- 15 -
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.
- 16 -
Our financial highlights were as follows:
NINE MONTHS ENDED
STATEMENT OF OPERATIONS DATA: SEPTEMBER 30,
--------------------------------------
2002 2001
---- ----
Premium income $ 6,214,720 $ 5,251,910
Net investment income and realized gains 3,984,923 2,154,037
Cemetery revenue 7,339,378 5,759,669
Commission and expense allowances 13,380,259 10,693,461
Other revenue 4,014,039 854,837
----------- -----------
Total revenues 34,933,319 24,713,914
Benefits incurred 6,696,606 6,731,199
Cost of cemetery revenues 1,872,859 1,564,460
Insurance commissions 11,582,430 9,278,814
Selling, general and administrative expenses 9,684,007 7,310,115
Other income (695,192) (120,205)
Interest expense 1,436,058 430,707
----------- -----------
Income (loss) before income taxes 4,356,551 (481,176)
Income tax expense 784,181 24,609
----------- -----------
Income (loss) before extraordinary item 3,572,370 (505,785)
Extraordinary item -- 258,659
----------- -----------
Net income (loss) $ 3,572,370 $ (247,126)
=========== ===========
Income (loss) per share before extraordinary item
Basic $ 0.52 $ (0.07)
Diluted 0.49 (0.07)
Income (loss) per share
Basic $ 0.52 $ (0.04)
Diluted 0.49 (0.03)
BALANCE SHEET DATA: SEPTEMBER 30, 2002 DECEMBER 31, 2001
------------------ -----------------
Trade accounts receivable, net $ 8,822,160 $ 5,582,093
Cemetery property, net 4,027,470 3,557,733
Total assets 260,131,814 237,353,895
Total policy liabilities 202,299,675 195,980,988
Deferred preneed revenues 7,634,427 5,574,815
Shareholders' equity 6,191,340 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."
NINE MONTHS ENDED SEPTEMBER 30, 2002
CEMETERY INSURANCE CORPORATE INTERSEGMENT TOTAL
-------- --------- --------- ------------ -----
Revenues $ 7,339,378 $ 23,144,579 $ 5,249,654 $ (800,292) $ 34,933,319
Net income before income taxes 410,784 3,340,639 605,128 -- 4,356,551
Total assets at period-end 21,471,986 214,887,140 28,931,467 (5,158,779) 260,131,814
- 17 -
THREE MONTHS ENDED SEPTEMBER 30, 2002
CEMETERY INSURANCE CORPORATE INTERSEGMENT TOTAL
-------- --------- --------- ------------ -----
Revenues $2,631,175 $8,424,056 $1,529,264 $(264,798) $12,319,697
Net income (loss) before income taxes (160,054) 1,772,215 (63,984) -- 1,548,177
NINE MONTHS ENDED SEPTEMBER 30, 2001
CEMETERY INSURANCE CORPORATE INTERSEGMENT TOTAL
-------- --------- --------- ------------ -----
Revenues $ 5,759,669 $ 18,657,124 $ 919,891 $ (622,770) $ 24,713,914
Net income (loss) before income taxes 176,414 1,217,095 (1,874,685) -- (481,176)
Total assets at period-end 13,513,449 207,920,315 18,053,850 (4,753,686) 234,733,928
THREE MONTHS ENDED SEPTEMBER 30, 2001
CEMETERY INSURANCE CORPORATE INTERSEGMENT TOTAL
-------- --------- --------- ------------ -----
Revenues $1,867,884 $6,252,238 $371,818 $(221,325) $8,270,615
Net income (loss) before income taxes (275,369) 32,052 (473,076) -- (716,393)
Cemetery Operations. Cemetery revenues increased approximately
$763,000 and $1.6 million, or 40.9% and 27.4%, in the three-month and
nine-month periods ended September 30, 2002, respectively, compared to the
corresponding periods of 2001. Sales for the first nine 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 $100,000 and $308,000, or 18.3% and 19.7%,
from $548,000 and $1.6 million in the three and nine months ended September
30, 2001, respectively, to $648,000 and $1.9 million in the corresponding
periods of 2002 due to increased cemetery sales. Cost of sales as a
percentage of revenues decreased to 24.6% and 25.5% for the three and nine
months ended September 30, 2002, respectively, compared to 29.3% and 27.2%
for the three and nine months ended September 30, 2001, respectively, due to
more efficient uses of cemetery resources.
Selling, general and administrative expenses increased $935,000 and
$1.7 million, or 67.6% and 43.6%, from $1.4 million and $3.9 million in the
three and nine months ended September 30, 2001, respectively, to $2.3
million and $5.6 million, in the corresponding periods of 2002 due to the
addition of new locations and a more aggressive marketing approach,
including increased advertising. As a percentage of revenues, selling,
general and administrative costs increased to 88.0% and 76.0% in the three
and nine months ended September 30, 2002, respectively, from 74.0% and 67.4%
in the three and nine months ended September 30, 2001, respectively.
Income (loss) before income taxes increased from a loss of $275,000
and income of $176,000 in the three and nine months ended September 30,
2001, respectively, to a loss of $160,000 and income of $411,000 in the
corresponding periods of 2002. Operating income as a percentage of revenues
improved to (6.1%) and 5.6% in the three and nine months ended September 30,
2002, respectively, from (14.7%) and 3.1% 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
and third quarters.
- 18 -
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.
NINE MONTHS ENDED
---------------------------------------------
SEPTEMBER 30, 2002 SEPTEMBER 30, 2001
------------------ ------------------
Revenues $2,417,856 $2,310,688
Cost of goods sold 646,921 672,964
Selling, general and administrative expenses 1,609,438 1,739,361
Income (loss) from operations 161,497 (101,637)
Insurance Operations. Insurance revenues increased approximately
$2.2 million and $4.5 million, or 34.7% and 24.1%, in the three-month and
nine-month periods ended September 30, 2002, respectively, compared to the
corresponding periods in 2001. The increases were primarily attributable to
higher premium income, as well as a higher than expected experience rating
refund.
Our premium income increased approximately $1.2 million and $1.2
million, or 64.4% and 22.1%, in the three-month and nine-month periods ended
September 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 $1.3 million and $2.7 million, or 34.5% and 25.1%, in the
three-month and nine-month periods ended September 30, 2002, respectively,
compared to the corresponding periods of 2001 due to a greater 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 decreased
approximately $479,000 and increased approximately $359,000, or (70.2%) and
14.6%, in the three-month and nine-month periods ended September 30, 2002,
respectively, compared to the corresponding periods of 2001. The decrease in
investment income for the quarter was due primarily to unfavorable market
conditions, offset by the inclusion of interest income of approximately
$833,000 on the experience rating refund received in August 2002.
Our benefit expenses decreased approximately $158,000 and increased
approximately $35,000, or (7.3%) and 0.5%, in the three-month and nine-month
periods ended September 30, 2002, respectively, compared to the
corresponding periods of 2001. These variances were due to a lower than
expected mortality experience in the second and third quarters offset by a
higher than expected mortality experience in the first quarter on retained
business.
Income before income taxes increased $1.7 million and $2.1 million,
from $32,000 and $1.2 million, respectively, for the three- and nine-month
periods ended September 30, 2001, to $1.8 million and $3.3 million for the
three- and nine-month periods ended September 30, 2002. Income before income
taxes as a percentage of revenues improved to 21.0% and 14.4% in the three
and nine months ended September 30, 2002, respectively, from 0.5% and 6.5%
in the corresponding periods of 2001.
Total assets increased $7.0 million from $207.9 million at
September 30, 2001 to $214.9 million at September 30, 2002 due primarily to
an increase in the amount due from reinsurers.
- 19 -
Corporate. Income before income taxes increased $409,000 and $2.5
million, or 86.5% and 132.3%, in the three-month and nine-month periods
ended September 30, 2002 compared to the corresponding periods of 2001, due
primarily to increased revenues associated with the management agreement
with National Prearranged Services, Inc. (see Note 6 to the accompanying
unaudited condensed consolidated financial statements).
Consolidated. Income before income taxes for the three- and
nine-month periods ended September 30, 2002 increased $2.3 million and $4.8
million, compared to the corresponding periods of 2001. Net income per basic
share for the three- and nine-month periods ended September 30, 2002,
increased to $0.19 and $0.52, respectively, from ($0.10) and ($0.04) per
share for the corresponding periods of 2001. The increase in operating
income for the three and nine months ended September 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 18.0% in the current year was due to our
cemetery operations being in a net operating loss carryforward position
combined with a lower tax rate applicable to 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
25,000 hits per day.
Our insurance subsidiaries are restricted by state insurance laws
as to the amount of dividends
- 20 -
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. As of September 30, 2002, no 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 September 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 September 30, 2002 due to the absence of new loans.
Due from reinsurer increased approximately $5.9 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 $1.9 million from $101.1
million at December 31, 2001 to $99.2 million at September 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 $10.6 million from $2.2 million at
December 31, 2001 to $12.8 million at September 30, 2002. This increase was
due to the execution of the NPS Management Agreement, the acquisition of
intellectual property rights and distribution agreements and the acquisition
of the Missouri funeral home business.
Future policy benefits increased approximately $7.5 million from
$147.7 million at December 31, 2001 to $155.2 million at September 30, 2002.
This increase was primarily due to the growth of our retained and reinsured
business.
Policyholder deposits decreased approximately $1.2 million from
$48.3 million at December 31, 2001 to $47.1 million at September 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
- 21 -
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 preneed revenues increased approximately $2.1 million from
$5.5 million at December 31, 2001 to $7.6 million at September 30, 2002 due
to increased sales of preneed cemetery items.
Notes payable increased approximately $7.2 million from $17.8
million at December 31, 2001 to $25.0 million at September 30, 2002 due to
increased borrowings associated with the various transactions and
acquisitions noted above, offset by reductions 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 will not have 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.
- 22 -
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.
ITEM 4. CONTROLS AND PROCEDURES
The Company's certifying officers have established and maintained
disclosure controls and procedures to ensure that material information is
made known to them for purposes of complying with applicable laws and
regulations. With the assistance and periodic review of our outside legal
counsel and our independent auditors, we continually evaluate the
effectiveness of the design and operation of our internal controls and
procedures over financial reporting and disclosure pursuant to Exchange Act
Rule 13a-14.
Based upon this evaluation, our Chief Executive Officer and Chief
Financial Officer determined that, as of September 30, 2002, our disclosure
controls and procedures were adequate to ensure that information required to
be disclosed by us in the reports filed or submitted by us under the
Exchange Act is recorded, processed, and summarized and reported within the
time periods specified in the Securities and Exchange Commission's rules and
forms. Additionally, our certifying officers determined, as of September 30,
2002, that there have been no significant changes in our internal controls
or in other factors that could significantly affect our internal controls.
- 23 -
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Forever Enterprises, Inc. was named as defendant in a lawsuit filed
by Odessa Group, L.L.C. during 2001 in state court in Los Angeles,
California. On July 26, 2002, this suit was settled in consideration
for the payment of $130,000 from our company to Odessa Group, L.L.C.
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 September 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: November 14, 2002 By: /s/ Brent D. Cassity
------------------------------------------
Brent D. Cassity, Chief Executive Officer
Dated: November 14, 2002 By: /s/ J. Tyler Cassity
------------------------------------------
J. Tyler Cassity, President
Dated: November 14, 2002 By: /s/ Michael R. Butler
------------------------------------------
Michael R. Butler, Chief Financial Officer
- 25 -
CERTIFICATIONS
I, Brent D. Cassity, certify that:
(1) I have reviewed this quarterly report on Form 10-Q of Forever
Enterprises, Inc.;
(2) Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the
statements made, in light of the circumstances under which
such statements were made, not misleading with respect to
the period covered by this quarterly report;
(3) Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
(4) The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures
to ensure that material information relating to
the registrant, including its consolidated
subsidiaries, is made known to us by others
within those entities, particularly during the
period for which this quarterly report is being
prepared;
(b) evaluated the effectiveness of the registrant's
disclosure controls as of a date within 90 days
prior to the filing date of this quarterly report
(the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Effective Date;
(5) The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or
operation of internal controls which could
adversely affect the registrant's ability to
record, process, summarize and report financial
data and have identified for the registrant's
auditors any material weaknesses in internal
controls; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
- 26 -
(6) The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there
were significant changes in internal controls or in other
factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation,
including any corrective actions with regard to
significant deficiencies and material weaknesses.
November 14, 2002 /s/ Brent D. Cassity
--------------------------
Brent D. Cassity
Chief Executive Officer
- 27 -
CERTIFICATIONS
I, Michael R. Butler, certify that:
(1) I have reviewed this quarterly report on Form 10-Q of
Forever Enterprises, Inc.;
(2) Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the
statements made, in light of the circumstances under which
such statements were made, not misleading with respect to
the period covered by this quarterly report;
(3) Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
(4) The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures
to ensure that material information relating to
the registrant, including its consolidated
subsidiaries, is made known to us by others
within those entities, particularly during the
period for which this quarterly report is being
prepared;
(b) evaluated the effectiveness of the registrant's
disclosure controls as of a date within 90 days
prior to the filing date of this quarterly report
(the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Effective Date;
(5) The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or
operation of internal controls which could
adversely affect the registrant's ability to
record, process, summarize and report financial
data and have identified for the registrant's
auditors any material weaknesses in internal
controls; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
- 28 -
(6) The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there
were significant changes in internal controls or in other
factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation,
including any corrective actions with regard to
significant deficiencies and material weaknesses.
November 14, 2002 /s/ Michael R. Butler
--------------------------
Michael R. Butler
Chief Financial Officer
- 29 -
EXHIBIT INDEX
Ex. No. Description
------- -----------
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.
- 30 -