For the year ended December 31, 2001, we recorded a net loss of $34.2 million after preferred securities' dividends and accretion and discontinued operations, as compared to a net loss of $6.8 million for the year ended December 31, 2000. Net loss per share for the year ended December 31, 2001 was $1.99 (diluted) versus net loss per share of $0.39 (diluted) in 2000. During 2001, we recorded $13.5 million in dividend expense and accretion on preferred securities, as compared to $12.3 million in dividend expense and accretion on preferred securities in 2000.
SNTL's income before preferred securities' dividends and accretion and discontinued operations items was $5.6 million in 2000, as compared to a loss of $73.5 million in 1999. This $79.1 million decrease in loss in 2000 over 1999 was primarily the result of the recording in 1999 of a $49.9 million valuation allowance against our deferred tax asset, a $7.6 million expense associated with the recognition of deferred debt acquisition costs, a $5.0 million accrual for litigation expenses associated with the FHC Litigation, see "Legal Proceedings", and the recording in 2000 of $10.5 million of other income due to the considerations received pursuant to the Global Settlement Agreement. See "Business-Global Settlement Agreement."
For the year ended December 31, 2000, we recorded a net loss of $6.8 million after preferred securities' dividends and accretion and discontinued operations, as compared to a net loss of $453.7 million for the year ended December 31, 1999. Net loss per share for the year ended December 31, 2000 was $0.39 (diluted) versus net loss per share of $25.61 (diluted) in 1999. During 1999, we recorded a $368.9 million loss from discontinued operations. The $368.9 million loss consisted of $333.6 million loss attributable to the write-off of SNTL's investment in the five insurance companies seized and conserved by the CDI and $35.3 million loss attributable to the operations; no such charges were recorded in 2000. During 2000, we recorded $12.3 million in dividend expense and accretion on preferred securities, as compared to $11.4 million in dividend expense and accretion on preferred securities in 1999.
The consolidated financial statements have been prepared in conformity with principles of accounting applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. As a result of the Chapter 11 filing and circumstances relating to this event, realization of assets and satisfaction of liabilities are subject to uncertainty. A plan of reorganization could materially change the amounts reported in the accompanying consolidated financial statements, which do not give effect to adjustments to the carrying values of assets and liabilities which may be necessary as a consequence of a plan of reorganization. The Company's ability to continue as a going concern is contingent upon, among other things, its ability to formulate a plan of reorganization that will be confirmed by the Bankruptcy Court, to achieve satisfactory levels of profitability and cash flow from operations and the preservation for, and utilization by, one or more of SNTL's former stockholders or creditors, of SNTL's NOLs, See "Business-Tax Net Operating Loss Carryforwards".
Other operating expenses decreased $39.3 million or 82.3% to $8.4 million for the year ended December 31, 2001, as compared to the year ended December 31, 2000. The large decrease is mainly due to the general and administrative expenses incurred in 2000 by SNIS and SNIA as a result of the services performed pursuant to the UMA and CMA, respectively. No such services were performed by SNIS and SNIA in 2001.
The $8.4 million of other operating expenses for 2001 consisted of $6.5 million in operating and administrative expenses and an additional $1.9 million accrual for litigation expenses associated with the FHC Litigation. The $1.9 million accrual is in addition to the $5.0 million accrued in 1999, and reflects SNTL's best estimate at December 31, 2001 for ultimate FHC litigation costs that will be incurred throughout the litigation process. See "Legal Proceedings-Superior National Insurance Group, Inc. v. Foundation Health Corporation, Foundation Health Systems, Inc. and Milliman & Robertson, Inc."
to 2000. Net investment income earned on accumulated cash resulting from Chapter 11 proceeding, in the amount of $715 thousand and $1.6 million has been classified on the consolidated statement of operations as a reorganization item for the year ended December 31, 2001 and 2000, respectively.
Interest expense decreased $2.3 million or 18.6% to $10.1 million for the year ended December 31, 2001, as compared to the year ended December 31, 2000. The decrease in interest expense was primarily due to the decrease in the variable interest rate of the long-term bank debt. See "-Liquidity and Capital Resources."
Claims services income was $26.0 million for the year ended December 31, 2000, as compared to zero for the year ended December 31, 1999. The claims services income in 2000 is a reimbursement from the liquidating companies to SNIA pursuant to the CSA effective January 1, 2000. See "Business-Underwriting Manager Agreement and Claims Services Agreement".
Underwriting management expense was zero for the year ended December 31, 2000, as compared to $39.2 million for the year ended December 31, 1999. Since SNIS had no employees, it contracted the employees of the discontinued insurance company operations to perform the services of SNIS's front company business in 1999 and prior. SNIS agreed to reimburse the discontinued insurance company operations for an amount equal to the commission income SNIS received from the front company business. No such expense was incurred by SNIS in 2000, since SNIS had its own employees.
Reorganization items are income and expenses associated with the Company's Chapter 11 filing. For the year ended December 31, 2000, reorganization items, excluding net interest income earned on accumulated cash resulting from Chapter 11 proceeding, was $2.3 million. The $2.3 million consisted of $2.0 million in professional fees and $0.3 million in retention bonuses to key employees as incentive to remain employed during the Chapter 11 reorganization. The Company anticipates that additional reorganization costs will be incurred throughout the Chapter 11 reorganization.
Net investment income, excluding realized investment gains, increased $1.1 million or 137.5% to $1.9 million for the year ended December 31, 2000 compared to the same period in 1999. The increase in investment income was due to an increase in the average assets available for investment in 2000 as opposed to 1999. In 2000, the net investment income earned on accumulated cash resulting from Chapter 11
We have no current revenue source because we no longer are receiving revenue from the underwriting and claims management agreements we entered into prior to the bankruptcy filing and we have not entered into any new underwriting and claims management agreements. See "Front Company Business." Even though we anticipate entering into an arrangement that will produce operating revenue for us after the Bankruptcy Court confirms our Plan of Reorganization, there can be no assurance that our plan of reorganization will be approved or confirmed by the Bankruptcy Court. Even if our Plan of Reorganization is approved or confirmed by the Bankruptcy Court, with no current revenue source, there can be no assurance that we will have sufficient cash flow to meet our operating obligations before our plan of reorganization is approved or confirmed. If we cannot meet our current obligations, we will need to obtain debtor-in-possession financing that would have priority in right of repayment to our pre-petition liabilities, or we would have to liquidate our remaining assets, jeopardizing our ability to meet the requirements for utilizing our NOLs to satisfy pre-petition liabilities or return capital to our stockholders.
Net cash provided by financing activities was zero during the year ended December 31, 2001, as compared to cash generated of $101 thousand during the year ended December 31, 2000. The $101 thousand decrease in cash provided is due to the absence of any financing activities in 2001.
Our consolidated financial statements have been presented in accordance with Statement of Position 90-7 "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" and we have recorded in our consolidated balance sheet at December 31, 2001 our best estimate of the true liabilities subject to compromise in our reorganization proceedings of approximately $268,965,000. Our plan of reorganization, if ultimately approved by the Company's impaired prepetition creditors and stockholders and confirmed by the Bankruptcy Court, may materially change the amounts and terms of these prepetition liabilities. Such amounts are estimated as of December 31, 2001, and the Company anticipates that claims filed with the Bankruptcy Court by the Company's creditors will be reconciled to the Company's financial records. The additional liability arising from this reconciliation process, if any, is not subject to reasonable estimation, and accordingly, no provision has been recorded for these possible claims. The termination of other contractual obligations and the settlement of disputed claims may create additional prepetition liabilities. Such amounts, if any, will be recognized in the consolidated balance sheet as they are identified and become subject to reasonable estimation.
Exigen was engaged in 2001 to provide us with the Document Imaging Workflow software that would allow users of the claims system to operate in a paperless environment. Exigen currently employs two former SNTL senior executives, Hal Fedora and Dale O'Brien. Despite this association, it in no way affected our decision process to select Exigen for its products and services. We made payments to Exigen totaling $521 thousand in 2001.
WorldGroup Consulting, Inc. ("WorldGroup") was engaged in 2001 to provide general technical consultation and provide recommendations on improvements to our systems due to their specialization in the insurance industry. They also developed the ACH/credit card interface between our policy system and the bank. WorldGroup currently employs a former SNTL data processing employee, Persi Kanga. We made payments to WorldGroup totaling $128 thousand in 2001.
Superior National Insurance Companies in Liquidation ("SNICIL") was engaged in 2001 to provide historical claims and policy data to assist us in the FHC litigation. We made payments to SNICIL totaling $16 thousand in 2001.
Other technical consultants, who were former SNTL data processing employees, were employed in 2000 and 2001 to upgrade our policy, claims, and reporting systems to current technology. They were also engaged to expand our California only system to a national system. Despite the fact that they were former employees, the Company engaged them as technical consultants due to their expertise and knowledge in the particular systems and areas where the Company did not have the manpower to train new employees. We made payments to these consultants totaling $92 thousand and $6 thousand in 2001 and 2000, respectively.
Hench Engineering, Inc. ("Hench") is owned and operated by Chris Henchy, a SNTL shareholder. He currently owns approximately 250,000 shares of common stock, which approximates 1.4% of the total common stock outstanding. We have an outsourcing arrangement whereby Hench provides technical support in the following capacity:
We made payments to Hench totaling $202 thousand and $10 thousand in 2001 and 2000, respectively.
providing certain financing commitments to the Purchasers under the Stock Purchase Agreement. See "Certain Relationships and Related Transactions-Sale of Common Stock to the IP Partnerships and Limitations on Related Party Control of SNTL." In addition, SNTL paid to designees of the Purchasers fees totaling $3.9 million in consideration of their providing SNTL with the opportunity to undertake the acquisition of BIG, originating a portion of the financing for the acquisition of BIG and assisting in negotiating the terms of the acquisition of BIG.
As a result of our Chapter 11 filing, distributions on the Trust Preferred Securities (and interest on the related Senior Subordinated Notes) payable semi-annually, in arrears, on June 1 and December 1 of each year, commencing June 1, 1998 have been suspended. We have continued to accrue interest at a rate of 10.75% per annum compounded semi-annually. The Trust Preferred Securities and interest are classified on our consolidated balance sheet at December 31, 2000, under the category of liabilities subject to compromise under reorganization proceedings. As a result of the commencement of bankruptcy proceedings, the Trustee of the Trust has the right at any time to cause the holders of Preferred Securities to exchange their securities for the Senior Subordinated Notes held by the Trust.
We are party to two leases principally associated with our home office in Agoura Hills and branch office in Denver. Our minimum lease commitment with respect to these leases in 2002 is approximately $248 thousand. The home office lease expires in 2003. In order to reduce the potential risk to the lessor, there is a provision in the lease for the Denver office location that the lease is a month-to-month tenancy until such time as the Plan of Reorganization is effective, which is termed the conversion date. For the purpose of calculating an estimate of the minimum lease payments we assumed a conversion date of July 1, 2002. However, there is no assurance that a plan of reorganization will be approved or confirmed by the Bankruptcy Court. From and after the conversion date, this lease will be converted to a tenancy for a thirty-six month term.
The effect of inflation on our revenues and net income during the years ended December 31, 2001, 2000, and 1999 was not significant.
See the Index included at "Item 14. Exhibits, Financial Statement Schedules and Reports on Form 10-K."