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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from__________ to
Commission File Number: 0-18786
PICO HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
CALIFORNIA 94-2723335
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
875 PROSPECT STREET, SUITE 301
LA JOLLA, CALIFORNIA 92037
(858) 456-6022
(Address and telephone number of principal executive offices)
Indicate by check mark whether 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.
YES (X) NO
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES (X) NO
The number of shares outstanding of the Registrant's common stock, $0.001 par
value, was 12,368,928 as of June 30, 2004, excluding 4,432,995 shares of common
stock held by the Registrant and its subsidiaries.
PICO HOLDINGS, INC.
FORM 10-Q
TABLE OF CONTENTS
PAGE NO.
--------
PART I: FINANCIAL INFORMATION
Item 1: Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of
June 30, 2004 and December 31, 2003 3
Condensed Consolidated Statements of Operations for the Three
And Six Months Ended June 30, 2004 and 2003 4
Condensed Consolidated Statements of Cash Flows for
the Six Months Ended June 30, 2004 and 2003 5
Notes to Condensed Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3: Quantitative and Qualitative Disclosure About Market Risk 20
Item 4: Controls and Procedures 21
PART II: OTHER INFORMATION
Item 1: Legal Proceedings 21
Item 2: Changes in Securities, Use of Proceeds and Issuer Purchases of
Equity Securities 21
Item 3: Defaults Upon Senior Securities 21
Item 4: Submission of Matters to a Vote of Security Holders 21
Item 5: Other Information 21
Item 6: Exhibits and Reports on Form 8-K 22
Signature 23
2
PART I: FINANCIAL INFORMATION
ITEM I: CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PICO HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
June 30, December 31,
2004 2003
------------- -------------
ASSETS
Investments $ 159,333,051 $ 148,921,411
Cash and cash equivalents 17,603,474 24,348,693
Notes and other receivables, net 15,397,273 16,430,541
Reinsurance receivables 16,865,073 17,714,012
Real estate and water assets, net 112,428,031 112,270,280
Property and equipment, net 2,718,406 3,117,521
Net deferred income taxes 132,571 29,577
Other assets 7,791,451 7,246,695
Other assets - Discontinued Operations 483,966 818,537
------------- -------------
Total assets $ 332,753,296 $ 330,897,267
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Unpaid losses and loss adjustment expenses $ 56,853,827 $ 60,863,884
Reinsurance balance payable 671,031 671,031
Stock appreciation rights liability 12,039,281 5,969,762
Bank and other borrowings 17,854,295 15,376,640
Other liabilities 11,934,288 10,871,288
Other liabilities - Discontinued Operations 1,212,424 2,169,879
------------- -------------
Total liabilities 100,565,146 95,922,484
------------- -------------
Minority interest 3,237,409 5,814,381
------------- -------------
Commitments and Contingencies (Note 4)
Common stock, $.001 par value; authorized 100,000,000 shares,
16,801,923 issued in 2004 and 2003 16,802 16,802
Additional paid-in capital 236,089,222 236,082,703
Retained earnings 46,533,014 56,082,903
Accumulated other comprehensive income 24,692,350 15,283,404
Treasury stock, at cost (common shares: 4,432,995 in 2004 and 4,428,389 in 2003) (78,380,647) (78,305,410)
------------- -------------
Total shareholders' equity 228,950,741 229,160,402
------------- -------------
Total liabilities and shareholders' equity $ 332,753,296 $ 330,897,267
============= =============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
PICO HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended June 30, Six Months Ended June 30,
2004 2003 2004 2003
------------ ------------ ------------ ------------
Revenues:
Net investment income $ 2,397,355 $ 2,099,268 $ 3,475,109 $ 2,975,560
Net realized gain (loss) on investments (614,734) 1,523,593 (949,862) 975,809
Sale of real estate and water assets 2,096,044 2,195,940 2,372,543 2,215,854
Rents, royalties and lease income 294,083 278,953 609,682 723,239
Service revenue 1,416,434 104,991 2,254,561 104,991
Other 176,436 208,883 400,395 899,079
------------ ------------ ------------ ------------
Total revenues 5,765,618 6,411,628 8,162,428 7,894,532
------------ ------------ ------------ ------------
Costs and Expenses:
Operating and other costs 10,767,174 4,117,660 19,969,183 7,658,847
Cost of real estate and water assets sold 1,173,035 1,322,097 1,284,711 1,331,366
Cost of service revenue 457,797 208,236 921,465 208,236
Loss and loss adjustment expenses 4,008,609 4,022,600
Depreciation and amortization 557,746 479,847 1,091,860 784,552
Interest 181,703 181,596 366,673 360,853
------------ ------------ ------------ ------------
Total costs and expenses 13,137,455 10,318,045 23,633,892 14,366,454
------------ ------------ ------------ ------------
Equity in loss of unconsolidated affiliates (224,389) (564,785)
------------ ------------ ------------ ------------
Loss before income taxes and minority interest (7,371,837) (4,130,806) (15,471,464) (7,036,707)
Benefit for income taxes (2,008,543) (1,089,162) (3,597,764) (1,867,062)
------------ ------------ ------------ ------------
Loss before minority interest (5,363,294) (3,041,644) (11,873,700) (5,169,645)
Minority interest in loss of subsidiaries 868,262 333,352 2,309,333 447,953
------------ ------------ ------------ ------------
Loss from continuing operations (4,495,032) (2,708,292) (9,564,367) (4,721,692)
Income (loss) from discontinued operations,
net of tax (36,848) 383,050 14,478 2,771,898
Gain on disposal of discontinued
operations, net (See Note 5) 323,848 804,830
------------ ------------ ------------ ------------
Net loss $ (4,531,880) $ (2,001,394) $ (9,549,889) $ (1,144,964)
============ ============ ============ ============
Net loss per common share - basic and diluted:
Loss from continuing operations $ (0.36) $ (0.22) $ (0.77) $ (0.38)
Discontinued operations (0.01) 0.06 0.29
------------ ------------ ------------ ------------
Net loss per common share $ (0.37) $ (0.16) $ (0.77) $ (0.09)
============ ============ ============ ============
Weighted average shares outstanding 12,368,928 12,375,610 12,368,928 12,377,326
============ ============ ============ ============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
PICO HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30,
2004 2003
------------ ------------
OPERATING ACTIVITIES:
Net cash used in operating activities $ (6,913,479) $ (6,628,097)
Net cash used in discontinued operations (622,884) (1,065,672)
------------ ------------
(7,536,363) (7,693,769)
------------ ------------
INVESTING ACTIVITIES:
Purchases of investments (18,749,321) (37,201,061)
Proceeds from sale of discontinued operations 25,144,350
Proceeds from sale of investments 15,658,940 13,463,324
Proceeds from maturity of investments 3,662,932 3,941,091
Purchases of property and equipment (436,788) (152,790)
Proceeds from the sale of property and equipment 28,750 5,737
Cash used to purchase shares of HyperFeed, net of cash acquired (107,253)
Purchases of minority interest in subsidiaries (1,322,129)
Capitalized software costs (676,236)
------------ ------------
Net cash provided by (used in) investing activities (1,833,852) 5,093,398
------------ ------------
FINANCING ACTIVITIES:
Repayments of debt (49,280) (84,101)
Proceeds from borrowings 2,596,804
Proceeds from exercise of stock options (HyperFeed) 35,011
Purchase of treasury stock for deferred compensation plans (75,237) (51,420)
------------ ------------
Net cash provided by (used in) financing activities 2,507,298 (135,521)
------------ ------------
Effect of exchange rate changes on cash 117,698 (352,877)
------------ ------------
DECREASE IN CASH AND CASH EQUIVALENTS (6,745,219) (3,088,769)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 24,348,693 22,079,082
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 17,603,474 $ 18,990,313
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest: $ 193,565 $ 259,892
============ ============
Cash paid for taxes: $ 550,000
============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
PICO HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements of PICO Holdings, Inc. and Subsidiaries (the "Company" or
"PICO") have been prepared in accordance with the interim reporting
requirements of Form 10-Q, pursuant to the rules and regulations of the
United States Securities and Exchange Commission (the "SEC"). Accordingly,
they do not include all of the information and notes required by
accounting principles generally accepted in the United States of America
("US GAAP") for complete consolidated financial statements.
In the opinion of management, all adjustments and reclassifications
considered necessary for a fair and comparable presentation of the
financial statements presented, have been included and are of a normal
recurring nature. Operating results presented are not necessarily
indicative of the results that may be expected for the year ending
December 31, 2004.
These condensed consolidated financial statements should be read in
conjunction with the Company's audited financial statements and notes
thereto, together with Management's Discussion and Analysis of Financial
Condition and the Results of Operations and Risk Factors contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 2003
as filed with the SEC.
The preparation of condensed consolidated financial statements in
accordance with US GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
condensed consolidated financial statements and the reported amounts of
revenues and expenses for each reporting period. The significant estimates
made in the preparation of the Company's condensed consolidated financial
statements relate to the assessment of the carrying value of real estate
and water assets, investments, unpaid losses and loss adjustment expenses,
deferred income taxes, accounts and loans receivable, and contingent
liabilities. While management believes that the carrying value of such
assets and liabilities are appropriate as of June 30, 2004 and December
31, 2003, it is reasonably possible that actual results could differ from
the estimates upon which the carrying values were based.
Stock-Based Compensation
On July 2, 2003, all 1,687,242 outstanding stock options were
voluntarily surrendered by employees and directors. On July 17, 2003, the
Company's shareholders voted to adopt the PICO Holdings, Inc. 2003 Stock
Appreciation Rights Program (the "SAR program") to replace the Company's
stock option plans and call option agreements. Upon adoption of the SAR
program, all 355,539 outstanding options under call option agreements were
also surrendered by the holders. The maximum number of SARs issuable under
the SAR program may not exceed 2,042,781. At the date of adoption,
1,962,781 SARs were issued to the prior option holders at an exercise
price equal to that of the surrendered options. Included in the
accompanying financial statements, in the case of "in the money" SARs
(i.e., the market price of PICO stock is higher than the exercise price of
the SAR), a charge is recorded in the statement of operations. The charge
recognizes the change during the period in the difference between the
exercise price of "in the money" SARs and the market value of PICO stock
at the end of the period. For the three and six months ended June 30,
2004, a charge of $4.7 million and $6.2 million, respectively, was
recorded. The accrued benefit payable under this program is $12 million at
June 30, 2004. No expense was recorded in the three or six months ended
June 30, 2003 as the SAR plan was adopted in the third quarter of 2003.
In December 2002, the Financial Accounting Standards Board issued
SFAS No. 148, "Accounting for Stock-Based Compensation, Transition and
Disclosure." SFAS No. 148 requires more prominent disclosures of the pro
forma effect of using the fair value method of accounting for stock-based
employee compensation as well as pro forma disclosure of the effect in
interim condensed consolidated financial statements. The Company has
elected to continue accounting for stock-based compensation under the
intrinsic value method of APB No. 25, "Accounting for Stock Issued to
Employees."
6
Had compensation cost for the Company's stock-based compensation
plans been determined consistent with SFAS No. 148, the Company's net
income and net income per share would approximate the following pro forma
amounts for the three and six months ended June 30:
Three Months Ended June 30, Six Months Ended June 30,
-------------------------- ------------------------------
2004 2003 2004 2003
Reported net loss $(4,531,880) $(2,001,394) $ (9,549,889) $ (1,144,964)
Add: stock-based compensation recorded, net of income tax 3,082,407 4,080,387
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net
of income tax (58,950) (99,680)
----------- ----------- ------------- -------------
Pro forma net loss $(1,449,473) $(2,060,344) $ (5,469,502) $ (1,244,644)
=========== =========== ============= =============
Reported net loss per share: basic and diluted $ (0.37) $ (0.16) $ (0.77) $ (0.09)
=========== =========== ============= =============
Pro forma net loss per share: basic and diluted $ (0.12) $ (0.17) $ (0.44) $ (0.10)
=========== =========== ============= =============
The Black Scholes valuation model was used to estimate the fair
value of the Company's stock-based compensation which is fully vested and
non-transferable. This model requires the input of highly subjective
assumptions, including the expected stock price volatility and estimated
life of the stock-based compensation. Since the Company's stock-based
compensation has characteristics significantly different from any similar
instrument that is publicly traded, and because changes in the subjective
input assumptions can materially change the fair value estimate,
management believes that the existing model does not necessarily provide a
reliable single measure of the fair value of its stock-based compensation.
No stock-based compensation is reported in the table above for 2004
since all the awards vested on the date of grant, July 17, 2003, and no
additional grants have been made.
The effects of applying SFAS No. 148 in this pro forma disclosure
are not indicative of future amounts.
2. NET LOSS PER SHARE
Basic earnings per share is computed by dividing net earnings by the
weighted average shares outstanding during the period. For the three and
six months ended June 30, 2004, the Company has no common stock
equivalents, and consequently, diluted earnings per share is identical to
basic earnings per share. For the three and six months ended June 30,
2003, the common stock equivalents were anti-dilutive and excluded from
the calculation.
3. COMPREHENSIVE INCOME (LOSS)
The Company applies the provisions of SFAS No. 130, "Reporting
Comprehensive Income." Comprehensive income for the Company includes
foreign currency translation and unrealized holding gains and losses on
available for sale securities.
The components of comprehensive income are as follows:
Three Months Ended June 30, Six Months Ended June 30,
2004 2003 2004 2003
----------- ----------- ----------- -----------
Net loss $(4,531,880) $(2,001,394) $(9,549,889) $(1,144,964)
Net change in unrealized appreciation
on available for sale investments 188,793 3,920,759 9,710,084 1,565,586
Net change in foreign currency translation (309,686) (309,637) (301,138) 27,794
----------- ----------- ----------- -----------
Total comprehensive income (loss) $(4,652,773) $ 1,609,728 $ (140,943) $ 448,416
=========== =========== =========== ===========
Total comprehensive loss for the three and six months ended June 30,
2004 is net of deferred income tax benefit of $2.6 million and $103,000,
respectively. Total comprehensive income for the three and six months
ended June 30, 2003 is net of a deferred income tax charge of $507,000 and
$558,000, respectively.
7
The components of accumulated other comprehensive income are as
follows:
June 30, December 31,
2004 2003
------------ ------------
Unrealized appreciation on
available for sale investments $ 30,589,114 $ 20,879,030
Foreign currency translation (5,896,764) (5,595,626)
------------ ------------
Accumulated other comprehensive income $ 24,692,350 $ 15,283,404
============ ============
Accumulated other comprehensive income is net of deferred income tax
liability of $10.3 million at June 30, 2004 and $7.2 million at December
31, 2003.
4. COMMITMENTS AND CONTINGENCIES
In 1997, pursuant to a Quota Share Reinsurance Agreement, Citation
Insurance Company ("Citation") ceded its workers' compensation insurance
business to Fremont Indemnity Company ("Fremont"). Fremont maintained a
security deposit for the benefit of claimants under workers' compensation
insurance policies issued, or assumed, by Fremont. A portion of that
deposit was specifically allocated for the benefit of Citation.
Consequently, Citation reduced its own workers' compensation insurance
reserves by the amount of the deposit. On June 4, 2003, the Superior Court
of the State of California for the County of Los Angeles entered an Order
of Conservation over Fremont and appointed the California Department of
Insurance Commissioner as the conservator. Pursuant to such order, the
Commissioner was granted authority to take possession of all of Fremont's
assets, including the Citation deposit. On July 2, 2003, the Liquidation
Court entered an Order appointing the Commissioner as liquidator of
Fremont.
Under Citation's interpretation of the applicable law, Citation's
allocated deposit assets are required to be (i) held by the Commissioner
in trust, "separate and apart" from Fremont's general account and other
assets of its estate, and (ii) applied solely towards the payment of the
assumed claims and allocated claims expenses arising from the workers'
compensation insurance policies that Citation ceded/transferred to Fremont
and its predecessor-in-interest. Citation requested that the Commissioner,
in his capacity as the liquidator, (i) maintain Citation's allocated
deposit assets separate and apart from other assets of the estate and (ii)
apply the same solely to the payment of the direct and assumed claims and
allocated claims expenses arising from the workers' compensation insurance
liabilities that Citation ceded/transferred to Fremont. Alternatively,
Citation requested that the Commissioner pay Citation's ceded liabilities
from the totality of Fremont's Special Schedule P Deposit on a pari passu
basis with Fremont's direct and assumed workers' compensation claims and
allocated claims expenses.
The Commissioner has refused to comply with Citation's request;
instead, the Commissioner indicated that he intended to transfer the
Citation deposit to the California Insurance Guarantee Association
("CIGA").
As Fremont had been placed in liquidation and therefore was no
longer an admitted reinsurer, Citation was no longer entitled to take a
reinsurance credit for the Citation deposit under the statutory basis of
accounting. Consequently, during 2003 Citation reversed $7.5 million
reinsurance recoverable from Fremont in its financial statements prepared
on the statutory basis of accounting. In addition, Citation made a
corresponding provision for the reinsurance recoverable from Fremont for
GAAP purposes. Accordingly, Citation has, for both its statutory and GAAP
financial statements, provided for the reinsurance recoverable from
Fremont on its workers' compensation policy liabilities.
In June 2004, Citation filed litigation to recover its workers'
compensation trust deposits held by Fremont prior to the liquidation in
the amount of $7.1 million. In the event that Citation fails to prevail on
its claim, it is unlikely to receive any distribution from Fremont or any
credit for the Citation deposit. If, however, Citation prevails on its
claim, it may obtain the benefit of its deposit, as well as other relief.
The Company is presently unable to predict the outcome of this
dispute with a reasonable degree of certainty.
Global Equity S.A, the Company's wholly owned Swiss-domiciled
subsidiary, made a commitment to Accu Holding AG to participate with other
shareholders of Accu in raising capital. The maximum commitment for Global
Equity was $1.9 million (2.3 million CHF). During June 2004, Global Equity
SA participated in the offering and purchased 15,130 common shares of Accu
Holding for $1.2 million.
8
In 2000, PICO loaned a total of $2.2 million to Dominion Capital
Pty. Ltd. ("Dominion Capital"), a private Australian company. In 2001,
$1.2 million of the loans became overdue. Negotiations between PICO and
Dominion Capital to reach a settlement agreement on both the overdue loan
of $1.2 million and the other loan of $1 million proved unsuccessful.
Accordingly, PICO commenced a legal action through the Australian courts
against Dominion Capital to recover the total amount due to PICO Holdings.
Due to the inherent uncertainty involved in pursuing legal action, and our
ability to realize the assets collateralizing the loans, PICO recorded an
allowance in 2001 for the total outstanding balance of $2.3 million for
the loans and interest. The court appointed receiver is in the process of
ascertaining Dominion Capital's assets and liabilities. PICO has been
awarded summary judgment in relation to the principal and interest on the
loan for $1.2 million and as a result, Dominion Capital has been placed in
receivership. A trial was held in July 2003 in the Australian courts
concerning both loans. The Company received judgment in August 2004
and was unsuccessful in its actions. The Company is considering an appeal.
The Company is subject to various other litigation that arises in
the ordinary course of its business. Based upon information presently
available, management is of the opinion that such litigation will not have
a material adverse effect on the consolidated financial position, results
of operations or cash flows of the Company.
5. DISCONTINUED OPERATIONS
On March 31, 2003, the sale of Sequoia Insurance Company ("Sequoia")
closed for gross proceeds of $43.1 million, which consisted of $25.2
million in cash and a dividend of equity and debt securities previously
held by Sequoia with a market value of $17.9 million. The final sale price
that was determined 60 days after the closing date was reduced by $58,000.
The net income from Sequoia included in PICO's condensed consolidated
results for the six months ended June 30, 2003 was $2.4 million, which is
reported as "Income (loss) from discontinued operations, net of tax." The
Company also recorded a $443,000 gain on disposal, net of estimated income
taxes of $281,000 and selling costs of $844,000, which is reported as
"Gain on disposal of discontinued operations, net" for the six months
ended June 30, 2003.
In June 2003, HyperFeed disposed of a consolidated subsidiary,
recording a gain on sale of $362,000. In the fourth quarter of 2003,
HyperFeed sold additional operations, and recast its 2003 reported results
to classify these operations as discontinued. Included in PICO's condensed
consolidated results of operations for the three and six months ended June
30, 2003, is income of $383,000 from HyperFeed's discontinued operations.
The residual discontinued operations reported a loss of $37,000 and income
of $15,000 for the three and six months ended June 30, 2004, respectively.
At June 30, 2004, discontinued operations reported assets of $484,000 and
liabilities of $1.2 million.
6. SEGMENT REPORTING
PICO Holdings, Inc. is a diversified holding company engaged in five
major operating segments: Vidler Water Company, Nevada Land & Resource
Company, Business Acquisitions and Financing, Insurance Operations in Run
Off, and HyperFeed Technologies, Inc.
The accounting policies of the reportable segments are the same as
those described in the Company's 2003 Annual Report on Form 10-K.
Management analyzes segments using the following information:
Segment assets:
At June 30, At December 31,
2004 2003
------------ ---------------
TOTAL ASSETS:
Vidler Water Company $ 87,367,005 $ 88,134,979
Nevada Land and Resource Company 46,782,968 46,267,828
Business Acquisitions and Financing 69,956,454 68,278,691
Insurance Operations in Run Off 122,677,160 118,351,511
HyperFeed Technologies, Inc. 5,969,709 9,864,258
------------ ------------
$332,753,296 $330,897,267
============ ============
9
Segment revenues and income (loss) before taxes and minority
interest for the second quarter and first half of 2004 and 2003 were:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------------------------------------
2004 2003 2004 2003
---------------------------------------------------------
REVENUES:
Vidler Water Company $ 429,000 $ 301,000 $ 791,000 $ 885,000
Nevada Land & Resource Company 2,336,000 2,494,000 2,875,000 3,062,000
Business Acquisitions and Financing 659,000 2,752,000 438,000 2,525,000
Insurance Operations in Run Off 924,000 758,000 1,795,000 1,316,000
HyperFeed Technologies 1,418,000 107,000 2,263,000 107,000
----------- ----------- ------------ -----------
Total Revenues $ 5,766,000 $ 6,412,000 $ 8,162,000 $ 7,895,000
=========== =========== ============ ===========
INCOME (LOSS) BEFORE TAXES AND MINORITY INTEREST:
Vidler Water Company $(1,433,000) $(1,274,000) $ (2,820,000) $(2,056,000)
Nevada Land & Resource Company 672,000 720,000 646,000 767,000
Business Acquisitions and Financing (5,785,000) 769,000 (10,344,000) (1,407,000)
Insurance Operations in Run Off 683,000 (3,391,000) 1,209,000 (3,386,000)
HyperFeed Technologies (1,509,000) (955,000) (4,162,000) (955,000)
----------- ----------- ------------ -----------
Loss Before Taxes and Minority Interest $(7,372,000) $(4,131,000) $(15,471,000) $(7,037,000)
=========== =========== ============ ===========
Note: Beginning May 15, 2003, the Company consolidated HyperFeed
Technologies, Inc. and presented HyperFeed's results of operations as a
separate segment.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THIS FORM 10-Q (INCLUDING THE "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" SECTION) CONTAINS
"FORWARD-LOOKING STATEMENTS" REGARDING OUR BUSINESS, FINANCIAL CONDITION,
RESULTS OF OPERATIONS, AND PROSPECTS. WORDS SUCH AS "EXPECTS," "ANTICIPATES,"
"INTENDS," "PLANS," "BELIEVES," "SEEKS," "ESTIMATES," AND SIMILAR EXPRESSIONS OR
VARIATIONS OF SUCH WORDS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS,
BUT ARE NOT THE EXCLUSIVE MEANS OF IDENTIFYING FORWARD-LOOKING STATEMENTS IN
THIS FORM 10-Q. ADDITIONALLY, STATEMENTS CONCERNING FUTURE MATTERS ARE
FORWARD-LOOKING STATEMENTS.
ALTHOUGH FORWARD-LOOKING STATEMENTS IN THE FORM 10-Q REPRESENT THE GOOD
FAITH JUDGMENT OF OUR MANAGEMENT, SUCH STATEMENTS CAN ONLY BE BASED ON FACTS AND
FACTORS CURRENTLY KNOWN BY US. CONSEQUENTLY, FORWARD-LOOKING STATEMENTS ARE
INHERENTLY SUBJECT TO RISKS AND UNCERTAINTIES, AND ACTUAL RESULTS AND OUTCOMES
COULD DIFFER FROM THOSE DISCUSSED IN OR ANTICIPATED BY THE FORWARD-LOOKING
STATEMENTS. FACTORS WHICH COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES IN
RESULTS AND OUTCOMES INCLUDE, WITHOUT LIMITATION, THOSE DISCUSSED UNDER THE
HEADING "RISK FACTORS" AND ELSEWHERE IN OUR 2003 ANNUAL REPORT ON FORM 10-K.
READERS ARE URGED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING
STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE OF THIS FORM 10-Q. WE UNDERTAKE NO
OBLIGATION TO REVISE OR UPDATE ANY FORWARD-LOOKING STATEMENT IN ORDER TO REFLECT
ANY EVENT OR CIRCUMSTANCE WHICH MAY ARISE AFTER THE DATE OF THIS FORM 10-Q.
READERS ARE URGED TO CAREFULLY REVIEW AND CONSIDER THE VARIOUS DISCLOSURES MADE
IN THIS FORM 10-Q AND OUR 2003 ANNUAL REPORT ON FORM 10-K, WHICH ATTEMPT TO
ADVISE INTERESTED PARTIES OF THE RISKS AND FACTORS WHICH MAY AFFECT OUR
BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS, AND PROSPECTS.
The condensed consolidated financial statements and other portions of this
quarterly report on Form 10-Q for the period ended June 30, 2004, including Item
2, "Management's Discussion and Analysis of Financial Condition and Results of
Operations," reflect the effects of:
(1) presenting HyperFeed Technologies, Inc. as a separate segment beginning
May 15, 2003; and
(2) presenting Sequoia Insurance Company and two businesses sold by HyperFeed
Technologies, Inc. as discontinued operations. See "Discontinued
Operations."
INTRODUCTION
PICO Holdings, Inc. (PICO and its subsidiaries are referred to as "PICO"
and "the Company," and by words such as "we" and "our") is a diversified holding
company. PICO seeks to acquire businesses and interests in businesses which we
identify as undervalued based on fundamental analysis -- that is, our assessment
of what the business is worth, based on the private market value of its assets,
earnings, and cash flow. We prefer long-established businesses, with a history
of operating successfully through industry cycles, recessions, and geo-political
disruptions, in basic, "old economy" industries. Typically, the businesses will
be generating free cash flow and have a low level of debt; or, alternatively,
strong interest coverage ratios or the ability to realize surplus assets. As
well as being undervalued, the business must have special qualities such as
unique assets, a potential catalyst for change, or be in an industry with
attractive economics. We are also interested in acquiring interests in companies
where there is significant unrecognized value in land and other tangible assets.
10
We have acquired businesses and interests in businesses by the purchase of
private companies, and shares in public companies, both directly through
participation in financing transactions and through open market purchases. When
we buy a business or an interest in a business, we have a long-term horizon,
typically 5 years or more. Selected acquisitions may become core operations;
however, we are prepared to sell businesses if the price received exceeds the
return we expect to earn if we retain ownership. We expect that most of our
interests in businesses will ultimately be sold to other companies in the same
industry seeking to expand or to gain economies of scale.
Our objective is to generate superior long-term growth in shareholders'
equity, as measured by book value per share. Over time, we anticipate that most
of our net income and growth in shareholders' equity will come from realized
gains on the sale of businesses and interests in businesses, as opposed to
ongoing operating earnings. Consequently, we anticipate that PICO's earnings
will fluctuate, and that the results for any one quarter or year are not
necessarily indicative of our future performance.
Currently our major businesses are:
- - Vidler Water Company, Inc. ("Vidler"), which develops and owns water
rights and water storage operations in the southwestern United States,
primarily in Nevada and Arizona;
- - Nevada Land & Resource Company, LLC ("Nevada Land"), which owns
approximately 1.1 million acres of land in northern Nevada, and the
mineral rights and water rights related to the property;
- - Physicians Insurance Company of Ohio ("Physicians"), which is "running
off" its medical professional liability insurance loss reserves, and
Citation Insurance Company ("Citation"), which is "running off" its
historical property and casualty insurance loss reserves; and
- - HyperFeed Technologies, Inc. ("HyperFeed"), which became a 51%-owned
subsidiary in 2003. HyperFeed is a developer and provider of software,
ticker plant technologies, and managed services to the financial markets
industry.
RESULTS OF OPERATIONS -- THREE AND SIX MONTHS ENDED JUNE 30, 2004 AND 2003
SHAREHOLDERS' EQUITY
At June 30, 2004, PICO had shareholders' equity of $229 million ($18.51
per share), compared to $233.6 million ($18.89 per share) at March 31, 2004, and
$229.2 million ($18.52 per share) at December 31, 2003.
The $210,000 decrease in shareholders' equity during the first half of
2004 primarily resulted from the net loss of $9.5 million and $301,000 in
negative foreign currency translation, which more than offset a $9.7 million net
increase in unrealized appreciation in investments.
The $4.6 million decrease in shareholders' equity during the second
quarter of 2004 primarily resulted from the quarter's net loss of $4.5 million
and negative foreign currency translation of $310,000, partially offset by a
$189,000 net increase in unrealized appreciation in investments.
COMPREHENSIVE LOSS
In accordance with Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," PICO reports comprehensive income (loss) in
addition to net income (loss) from the Condensed Consolidated Statement of
Operations. Comprehensive income (loss) includes items resulting in unrealized
changes in shareholders' equity, such as foreign currency translation and change
in unrealized investment gains and losses on available-for-sale securities.
During the first half of 2004, PICO recorded a comprehensive loss of
$141,000, consisting of the $9.7 million net increase in unrealized appreciation
in investments, which was more than offset by the $9.5 million net loss and a
foreign currency translation debit of $301,000.
For the second quarter of 2004, PICO recorded a comprehensive loss of $4.7
million, consisting of the $4.5 million net loss and a foreign currency
translation debit of $310,000, partially offset by a $189,000 net increase in
unrealized appreciation in investments.
SECOND QUARTER NET LOSS
PICO reported a net loss of $4.5 million ($0.37 per share) for the second
quarter of 2004, consisting of a $4.5 million ($0.36 per share) loss from
continuing operations, and a $37,000 after-tax loss from discontinued operations
($0.01 per share). The $4.5 million net loss from continuing operations
consisted of a $7.4 million loss before income taxes and minority interest,
partially offset by an income tax benefit of $2 million and minority interest of
$868,000.
11
In the second quarter of 2003, PICO reported a net loss of $2 million
($0.16 per share). The net loss consisted of a $2.7 million loss from continuing
operations ($0.22 per share), income from discontinued operations of $383,000
after-tax, and a $324,000 after-tax gain on the disposal of discontinued
operations ($0.06 per share in total). The $2.7 million loss from continuing
operations consisted of a $4.1 million loss before income taxes and minority
interest, which was partially offset by an income tax benefit of $1.1 million,
and minority interest of $333,000.
FIRST HALF NET LOSS
PICO reported a net loss of $9.5 million ($0.77 per share) for the first
half of 2004, comprised of a loss from continuing operations of $9.6 million
($0.77 per share) and income from discontinued operations of $14,000 after-tax
($0.00 per share). The $9.6 million loss from continuing operations consisted of
a $15.5 million loss before income taxes and minority interest, partially offset
by an income tax benefit of $3.6 million and minority interest of $2.3 million.
The consolidated income tax benefits of $2 million for the second quarter and
$3.6 million for the first half that we recorded do not include any benefit for
HyperFeed's losses of $1.5 million for the second quarter and $4.2 million for
the first half as, in the opinion of HyperFeed's management, it is more likely
than not that deferred tax assets, represented by operating loss carryforwards,
will not be realized.
For the first half of 2003, PICO reported a net loss of $1.1 million
($0.09 per share). A loss from continuing operations of $4.7 million ($0.38 per
share) was partially offset by $3.6 million ($0.29 per share in total) of
after-tax income related to discontinued operations. The income from
discontinued operations consisted of $2.8 million in after-tax income earned by
Sequoia and the two businesses divested by HyperFeed in 2003 until their sale,
and $805,000 in after-tax gains on the sale of the Sequoia and the discontinued
operations of HyperFeed. The $4.7 million loss from continuing operations
consisted of a $7 million loss before income taxes and minority interest, which
was partially offset by an income tax benefit of $1.9 million and minority
interest of $448,000.
Segment revenues and income (loss) before taxes and minority interest for
the second quarter and first half of 2004 and 2003 were:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------------------------------------
2004 2003 2004 2003
---------------------------------------------------------
REVENUES:
Vidler Water Company $ 429,000 $ 301,000 $ 791,000 $ 885,000
Nevada Land & Resource Company 2,336,000 2,494,000 2,875,000 3,062,000
Business Acquisitions and Financing 659,000 2,752,000 438,000 2,525,000
Insurance Operations in Run Off 924,000 758,000 1,795,000 1,316,000
HyperFeed Technologies 1,418,000 107,000 2,263,000 107,000
----------- ----------- ------------ -----------
Total Revenues $ 5,766,000 $ 6,412,000 $ 8,162,000 $ 7,895,000
=========== =========== ============ ===========
INCOME (LOSS) BEFORE TAXES AND MINORITY INTEREST:
Vidler Water Company $(1,433,000) $(1,274,000) $ (2,820,000) $(2,056,000)
Nevada Land & Resource Company 672,000 720,000 646,000 767,000
Business Acquisitions and Financing (5,785,000) 769,000 (10,344,000) (1,407,000)
Insurance Operations in Run Off 683,000 (3,391,000) 1,209,000 (3,386,000)
HyperFeed Technologies (1,509,000) (955,000) (4,162,000) (955,000)
----------- ----------- ------------ -----------
Loss Before Taxes and Minority Interest $(7,372,000) $(4,131,000) $(15,471,000) $(7,037,000)
=========== =========== ============ ===========
VIDLER WATER COMPANY, INC.
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------------------------------------
2004 2003 2004 2003
--------------------------------------------------------
REVENUES:
Sale of Land, Water Rights and Water $ 3,000 $ 3,000
Option Premiums Earned $ 346,000
Lease of Water 30,000 $ 5,000 51,000 6,000
Lease of Agricultural Land 121,000 176,000 242,000 352,000
Interest 133,000 293,000
Other 142,000 120,000 202,000 181,000
----------- ----------- ----------- -----------
Segment Total Revenues $ 429,000 $ 301,000 $ 791,000 $ 885,000
=========== =========== =========== ===========
EXPENSES:
Cost of Land, Water Rights and Water Sold $ (2,000) $ (2,000)
Depreciation and Amortization (299,000) $ (239,000) (575,000) $ (478,000)
Interest (80,000) (115,000) (173,000) (233,000)
Overhead Expenses (348,000) (355,000) (818,000) (726,000)
Project Expenses (1,133,000) (866,000) (2,043,000) (1,504,000)
----------- ----------- ----------- -----------
Segment Total Expenses $(1,862,000) $(1,575,000) $(3,611,000) $(2,941,000)
----------- ----------- ----------- -----------
LOSS BEFORE TAX $(1,433,000) $(1,274,000) $(2,820,000) $(2,056,000)
=========== =========== =========== ===========
12
In the second quarter of 2004, Vidler's revenues totaled $429,000. The
largest revenue item was $133,000 of interest earned on collateralized notes
receivable related to the assets at Big Springs Ranch and West Wendover sold in
December 2003, which are scheduled to be repaid during 2004. After operating
expenses of $1.9 million, Vidler incurred a loss before taxes of $1.4 million
for the second quarter of 2004.
In the second quarter of 2003, Vidler's revenues totaled $301,000; the
largest component being $176,000 in revenue earned from the lease of
agricultural land. After operating expenses of $1.6 million, Vidler incurred a
loss before taxes of $1.3 million for the second quarter of 2003.
In the first half of 2004, Vidler's revenues totaled $791,000. The largest
revenue item was $293,000 of interest earned on collateralized notes receivable
from the sale of assets at Big Springs Ranch and West Wendover. After operating
expenses of $3.6 million, Vidler generated a loss before taxes of $2.8 million
for the first half of 2004.
In the first half of 2003, Vidler's revenues totaled $885,000; the largest
components being $352,000 in revenue earned from the lease of agricultural land,
and $346,000 of option premiums earned when options over land and water granted
to two electricity-generating companies expired without being exercised. After
operating expenses of $2.9 million, Vidler generated a loss before taxes of $2.1
million for the first half of 2003.
To increase transparency, the line "Operations, Maintenance, and Other
Expenses" reported in previous years is now broken into two components, Overhead
Expenses and Project Expenses.
Overhead Expenses consist of costs which are not related to the
development of specific water resources, such as salaries and benefits, rent,
and audit fees. Overhead Expenses were $348,000 in the second quarter of 2004
and $818,000 in the first half of 2004, compared to $355,000 in the second
quarter of 2003 and $726,000 in the first half of 2003.
Project Expenses were $1.1 million in the second quarter of 2004 and $2
million in the first half of 2004, compared to $866,000 in the second quarter of
2003 and $1.5 million in the first half of 2003. Project Expenses consist of
costs related to (1) the development of water resources which do not meet the
criteria to be recorded as assets; and (2) the development and maintenance of
existing water resources, such as repairs & maintenance, property taxes, and
professional fees. Project expenses are recorded as expenses as incurred, and
fluctuate from period to period depending on activity regarding Vidler's various
water resource projects.
In the second quarter of 2004, revenues increased $128,000 year over year,
primarily due to the $133,000 in interest revenue earned in 2004. Operating
expenses increased by $287,000 year over year, principally due to a $267,000
increase in Project Expenses, and a $60,000 increase in Depreciation and
Amortization. Consequently, Vidler's second quarter segment loss was $159,000
higher in 2004 than in 2003.
For the first half of 2004, revenues decreased $94,000 year over year.
This was primarily due to the $346,000 in option premiums earned in 2003 which
did not recur in 2004, partially offset by the $293,000 in interest revenue
earned in 2004. Operating expenses increased by $670,000 year over year,
principally due to increases of $539,000 in Project Expenses, $97,000 in
Depreciation and Amortization, and $92,000 in Overhead Expenses. The principal
increases in Project Expenses year over year were $268,000 higher maintenance
expenses at the Vidler Arizona Recharge Facility, and approximately $200,000 in
professional studies regarding the future utilization of water from Fish Springs
Ranch. As a consequence, Vidler's first half segment loss was $764,000 higher
year over year.
COYOTE SPRINGS DEVELOPMENT PROJECT
As a result of the limited supply of land, rapid population growth, and
decreased housing affordability in the Las Vegas metropolitan area, developers
are procuring land in surrounding valleys. Vidler's water rights in southern
Nevada can be utilized to provide water supply to new developments of this type.
The Coyote Springs community is a planned mixed-use development to be
located 40 miles north of Las Vegas. The developer, Coyote Springs Investment,
LLC ("CSIL"), has received entitlements for approximately 50,000 residential
units, 6 golf courses, and 1,200 acres of retail and commercial development on
13,100 acres in Clark County. It is expected that full absorption of the
residential units will take 25 years or more. CSIL expects to receive additional
entitlements for its 29,800 acres in Lincoln County. Based on the entitlements
obtained so far, it is estimated that the community will require approximately
35,000 acre-feet of permanent water. Additional water will be required as
further entitlements are obtained.
Vidler recently signed a joint venture agreement with CSIL to supply
various water resources required to support the development. As previously
disclosed, Lincoln County and Vidler have jointly filed applications for water
rights in various basins in Lincoln County. We anticipate that under the
agreement, Lincoln/Vidler could provide the majority of water required for the
development project at an indicative price of $5,000 per acre-foot, indexed for
inflation.
13
In order to provide an immediately available water supply so that the
development can progress, the Vidler/developer joint venture has agreed to
acquire net recharge credits owned by Vidler in the Vidler Arizona Recharge
Facility at a price of $500 per acre-foot, subject to approval by the relevant
Nevada and Arizona water authorities. As ground water is ultimately permitted to
Lincoln/Vidler from the water rights applications in Lincoln County, we
anticipate that the Vidler/developer joint venture will acquire water at $5,000
per acre-foot, indexed for inflation, from Lincoln/Vidler.
The final economics of the joint venture will depend on additional
agreements to be negotiated with the General Improvement District, which will
act as the water supplier for the proposed development.
The Coyote Springs Project is an example of how Vidler's water rights in
Nevada and water storage facility in Arizona could potentially interact to
provide water solutions in southern Nevada.
NEVADA LAND & RESOURCE COMPANY, LLC
Three Months Ended June 30, Six Months Ended June 30,
2004 2003 2004 2003
REVENUES:
Sale of Land $ 2,093,000 $ 2,196,000 $ 2,370,000 $ 2,216,000
Option Premiums Earned 137,000
Lease and Royalty 143,000 155,000 316,000 365,000
Interest and Other 100,000 143,000 189,000 344,000
----------- ----------- ----------- -------------
Segment Total Revenues $ 2,336,000 $ 2,494,000 $2,875,000 $ 3,062,000
=========== =========== ========== =============
EXPENSES:
Cost of Land Sales $(1,171,000) $(1,322,000) $(1,283,000) $ (1,331,000)
Operating Expenses ( 493,000) ( 452,000) (946,000) (964,000)
----------- ----------- ----------- -------------
Segment Total Expenses $(1,664,000) $(1,774,000) $(2,229,000) $ (2,295,000)
----------- ----------- ----------- -------------
INCOME BEFORE TAX $ 672,000 $ 720,000 $ 646,000 $ 767,000
=========== =========== =========== =============
Nevada Land recognizes revenue from land sales, and the resulting gross
profit, when the sales transactions legally close, in accordance with FASB 66.
On closing, the entire sales price is recorded as revenue, and a gross margin is
recognized depending on the cost basis attributed to the land which was sold.
Since the date of closing determines the accounting period in which the sales
revenue and gross margin are recorded:
- - Nevada Land's reported revenues and income fluctuate from quarter to
quarter depending on the dates when specific transactions close; and
- - land sales revenues for any individual quarter are not indicative of
likely full-year revenues.
In the second quarter of 2004, segment total revenues were $2.3 million.
Nevada Land sold approximately 21,285 acres of land for $2.1 million. The
average sales price was $98 per acre and our average basis in the land sold was
$55 per acre. The gross margin on land sales was $922,000, which represents a
gross margin percentage of 44%. Lease and royalty revenues were $143,000, and
interest and other revenues contributed $100,000. After operating expenses of
$493,000, Nevada Land generated income of $672,000.
In the second quarter of 2003, segment total revenues were $2.5 million.
Nevada Land sold approximately 52,286 acres of land for $2.2 million. The
average sales price was $42 per acre and our average basis in the land sold was
$25 per acre. The gross margin on land sales was $874,000, which represents a
gross margin percentage of 39.8%. Lease and royalty revenues were $155,000, and
interest and other revenues contributed $143,000. After operating expenses of
$452,000, Nevada Land recorded income of $720,000.
In the first half of 2004, segment total revenues were $2.9 million.
Nevada Land sold approximately 25,009 acres of land for $2.4 million. The
average sales price was $95 per acre and our average basis in the land sold was
$51 per acre. The gross margin on land sales was $1.1 million, which represents
a gross margin percentage of 45.9%. Lease and royalty revenues were $316,000,
and interest and other revenues contributed $189,000. After operating expenses
of $946,000, Nevada Land generated income of $646,000.
In the first half of 2003, segment total revenues were $3.1 million.
Nevada Land sold approximately 52,407 acres of land for $2.2 million. The
average sales price was $42 per acre and our average basis in the land sold was
$25 per acre. The gross margin on land sales was $885,000, which represents a
gross margin percentage of 39.9%. Lease and royalty revenues were $365,000,
option premiums of $137,000 were earned, and interest and other revenues
contributed $344,000. After operating expenses of $964,000, Nevada Land recorded
income of $767,000.
14
The second quarter segment result decreased $48,000 year over year. A
$49,000 year over year increase in gross margin from land sales was more than
offset by a $55,000 reduction in all other revenues, and a $41,000 increase in
operating expenses.
The first half segment result decreased $121,000 year over year. The
2004 segment result benefited from a $202,000 higher gross margin from land
sales and an $18,000 reduction in operating expenses year over year. These
positive factors were more than offset by a $137,000 option premium earned in
2003 which did not recur in 2004, and a $204,000 reduction in all other revenue
items year over year, principally resulting from decreased interest revenue due
to Nevada Land holding a lower level of interest-bearing temporary investments
after surplus funds were distributed to other group companies during the latter
half of 2003.
BUSINESS ACQUISITIONS AND FINANCING
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------------------------------------
2004 2003 2004 2003
REVENUES (CHARGES):
Realized Gains (Losses):
On Sale or Impairment of Holdings $ (436,000) $ 1,169,000 $ (832,000) $ 573,000
SFAS No. 133 Change in Warrants (379,000) 267,000 (549,000) 246,000
Investment Income 1,416,000 1,229,000 1,604,000 1,452,000
Other 58,000 87,000 215,000 254,000
----------- ----------- ------------ -----------
Segment Total Revenues (Charges) $ 659,000 $ 2,752,000 $ 438,000 $ 2,525,000
=========== =========== ============ ===========
SEGMENT TOTAL EXPENSES $(6,444,000) $(1,759,000) $(10,782,000) $(3,367,000)
----------- ----------- ------------ -----------
INCOME (LOSS) BEFORE INVESTEE INCOME $(5,785,000) $ 993,000 $(10,344,000) $ (842,000)
Equity in Loss of Unconsolidated Affiliates $ (224,000) $ (565,000)
----------- ----------- ------------ -----------
INCOME (LOSS) BEFORE TAX $(5,785,000) $ 769,000 $(10,344,000) $(1,407,000)
=========== =========== ============ ===========
This segment contains businesses, interests in businesses, and other
parent company assets. Revenues and results in this segment vary considerably
from quarter to quarter, primarily due to fluctuations in net realized gains or
losses on the sale of investments.
The largest holding in this segment is Jungfraubahn Holding AG, which
has a market value and carrying value of $30.1 million (before taxes) at June
30, 2004.
In the second quarter of 2004, Business Acquisitions and Financing
segment revenues were $659,000. Investment income was $1.4 million, including $1
million from Jungfraubahn's annual dividend for 2003 which was received in June.
Net realized losses of $815,000 were recorded. A $687,000 charge for
other-than-temporary impairment of our holding in Accu Holding AG to reflect a
decline in the market value of this security during the second quarter of 2004
(see next paragraph), was partially offset by $251,000 in net realized gains on
the sale of other securities. In addition, a $379,000 decline in the estimated
fair value of warrants we own to buy shares in HyperFeed was recorded as a
realized loss in accordance with Statement of Financial Accounting Standards No.
133, "Accounting For Derivative Instruments and Hedging Activities." After
segment expenses of $6.4 million, the segment reported a loss before taxes of
$5.8 million for the second quarter of 2004.
During the second quarter of 2004, Accu Holding AG completed a 1:1
rights offering at CHF (i.e., Swiss Francs) 100 per share. We subscribed for our
full entitlement, and partially underwrote the rights offering. At June 30,
2004, the market price of Accu common stock was CHF130, compared to a market
price of approximately CHF200 for the shares on issue before the offering.
For the second quarter of 2003, Business Acquisitions and Financing
segment revenues were $2.8 million. Investment income was $1.2 million,
including $957,000 from Jungfraubahn's annual dividend for 2002. Net realized
gains were approximately $1.4 million. Realized gains of approximately $1.6
million on the sale of two equity securities were partially offset by a $470,000
charge for other-than-temporary impairment of our holding in Accu Holding AG, to
reflect a further decline in the market value of this holding during the second
quarter of 2003. In addition, a $267,000 increase in the estimated fair value of
warrants we own to buy shares in other companies, principally HyperFeed, was
recorded as a realized gain in accordance with SFAS No. 133. After segment
expenses of $1.8 million, and our $224,000 equity share of HyperFeed's net loss
and other events affecting equity (during the period from January 1, 2003 until
May 14, 2003), the segment reported income before taxes of $769,000 for the
second quarter of 2003.
15
In the first half of 2004, Business Acquisitions and Financing segment
revenues were $438,000. Investment income was $1.6 million, including $1 million
from Jungfraubahn's annual dividend for 2003. Net realized losses of $1.4
million were recorded. A $1.3 million charge for other-than-temporary impairment
of our holdings in SIHL, Accu Holding, and Phoenix Capital, Inc., to reflect a
decline in the market value of these securities during the first half of 2004,
was partially offset by $493,000 in net realized gains on the sale of other
securities. In addition, a $549,000 decline in the estimated fair value of
warrants we own to buy shares in HyperFeed was recorded as a realized loss in
accordance with SFAS No. 133. After segment expenses of $10.8 million, the
segment reported a loss before taxes of $10.3 million for the first half of
2004.
For the first half of 2003, Business Acquisitions and Financing segment
revenues were $2.5 million. Investment income was $1.5 million, including
$957,000 from Jungfraubahn's annual dividend for 2002. Net realized gains were
$819,000. Realized gains of approximately $1.6 million on the sale of two equity
securities were partially offset by approximately $1.1 million in charges for
other-than-temporary impairment of our holdings in Accu Holding and SIHL,
reflecting a further decline in the market value of these holdings during the
first half of 2003. In addition, a $254,000 increase in the estimated fair value
of warrants we own to buy shares in other companies, principally HyperFeed, was
recorded as a realized gain in accordance with SFAS No. 133. After segment
expenses of $3.4 million, and our $565,000 equity share of HyperFeed's net loss
and other events affecting equity (during the period from January 1, 2003 until
May 14, 2003), the segment reported a loss before taxes of $1.4 million for the
first half of 2003.
The year over year increases in segment expenses of $4.6 million in the
second quarter and $7.4 million in the first half of 2004 primarily resulted
from expenses recorded related to the PICO Holdings, Inc. Stock Appreciation
Rights ("SAR") Program. The $4.7 million SAR expense for the second quarter of
2004 resulted from an increase in the PICO stock price of $2.41 per share
during the quarter, which represented a $29.8 million increase in PICO's equity
market capitalization. The $7.4 million SAR expense for the first half of 2004
resulted from an increase in the PICO stock price of $3.18 per share ($39.3
million increase in market capitalization) during the half. No SAR expense was
recorded in the second quarter and first half of 2003, as the SAR plan was not
adopted until the third quarter of 2003.
During the third quarter of 2003, the call options and stock options
previously on issue were canceled and replaced with SAR. A holder may only
exercise a maximum of 20% of the vested SAR initially received in any 12 month
period, except with the permission of the Company's Compensation Committee.
We believe that the accounting treatment for SAR is more transparent
than the accounting treatment of stock options. Following the adoption of the
SAR Program, PICO began to record the change in the "in the money" amount
(i.e., the difference between the market value of PICO stock and the exercise
price of the SAR) of SAR outstanding during each quarter through the statement
of operations. An increase in the "in the money" amount of SAR (i.e., if the
price of PICO stock rises during the quarter) is recorded as an expense.
In effect, the balance sheet line "Stock appreciation rights liability"
of $12 million recognizes the cumulative "in the money" value of SAR dating
back to the time when the call and stock options were originally issued, which
is up to 10 years ago. Since the end of 1993, shortly after PICO's current
Chairman and Chief Executive Officer became involved with Physicians Insurance
Company of Ohio, the stock price has increased from approximately $3.25 per
share to $18.85 per share, on a comparable basis. Over the same period, the
market capitalization has increased from $14.5 million to $233.2 million
(including new shares issued for cash and acquisitions). After the related tax
effect, the stock appreciation rights liability reduced book value per share by
3.4% at June 30, 2004 (dilution effect).
INSURANCE OPERATIONS IN RUN OFF
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
-------------------------------------------------------
2004 2003 2004 2003
REVENUES:
Investment Income $ 724,000 $ 671,000 $ 1,363,000 $ 1,162,000
Realized Investment Gains 200,000 87,000 432,000 153,000
Other 1,000
--------- ----------- ----------- -----------
Segment Total Revenues $ 924,000 $ 758,000 $ 1,795,000 $ 1,316,000
========= =========== =========== ===========
EXPENSES:
Operating and Underwriting Expenses $(241,000) $(4,149,000) $ (586,000) $(4,702,000)
--------- ----------- ----------- -----------
Segment Total Expenses $(241,000) $(4,149,000) $ (586,000) $(4,702,000)
INCOME (LOSS) BEFORE TAXES:
Physicians Insurance Company of Ohio $ 337,000 $ 3,906,000 $ 561,000 $ 3,659,000
Citation Insurance Company 346,000 (7,297,000) 648,000 (7,045,000)
--------- ----------- ----------- -----------
Segment Income Before Tax $ 683,000 $(3,391,000) $ 1,209,000 $(3,386,000)
========= =========== =========== ===========
16
This segment consists of Physicians Insurance Company of Ohio and Citation
Insurance Company. Both Physicians and Citation are in "run off." This means
that the companies are handling and resolving claims on expired policies, but
not writing new business.
Typically, most of the revenues of an insurance company in "run off' come
from investment income. Investment income is expected to decline over time as
fixed-income securities mature or are sold to provide the funds to pay claims
and expenses. The Insurance Operations in Run Off segment generated total
revenues of $924,000 in the second quarter of 2004, compared to $758,000 in the
second quarter of 2003. Investment income was $724,000 in the second quarter of
2004, compared to $671,000 in the second quarter of 2003, an increase of $53,000
year over year. Realized investment gains were $200,000 in the second quarter of
2004, compared to $87,000 in the second quarter of 2003, an increase of $113,000
year over year.
Operating and underwriting expenses were $241,000 in the second quarter of
2004, compared to $4.1 million in the second quarter of 2003. Consequently,
segment income increased from a $3.4 million loss in the second quarter of 2003
to income of $683,000 in the second quarter of 2004.
The operating and underwriting expenses of $4.1 million in the second
quarter of 2003 were unusually high. This principally represented two
significant items:
- - Physicians recorded a $3.6 million benefit from favorable development in
our medical professional liability claims reserves. The reserve reduction
was booked after actuarial analysis concluded that Physicians' reserves
against claims were significantly greater than the actuary's projections
of future claims payments, due to continued favorable trends in the
"severity" of claims. This was more than offset by;
- - A $7.5 million provision against a reinsurance recoverable previously
recorded by Citation, after Fremont Indemnity Corporation went into
liquidation in July 2003. Citation has commenced legal action to recover
the deposits reported as held by Fremont for Citation's insureds; however,
the ultimate outcome cannot be accurately predicted.
PHYSICIANS INSURANCE COMPANY OF OHIO
During the second quarter of 2004, Physicians generated total revenues of
$436,000, including realized gains of $9,000. Operating and underwriting
expenses were $99,000, resulting in income before taxes of $337,000. During the
second quarter of 2003, total revenues were $361,000. Regular operating and
underwriting expenses were exceeded by a $3.6 million reserve reduction,
resulting in income before taxes of $3.9 million.
For the first half of 2004, Physicians generated total revenues of
$943,000, including realized gains of $214,000. Operating and underwriting
expenses were $382,000, resulting in income before taxes of $561,000. During the
first half of 2003, total revenues were $531,000. Regular operating and
underwriting expenses were exceeded by a $3.6 million reserve reduction,
resulting in income before taxes of $3.7 million.
At June 30, 2004, Physicians' loss and loss adjustment reserves were $18
million, net of reinsurance, compared to $18.6 million at March 31, 2004, and
$19.6 million at December 31, 2003. Reserves decreased by $1.6 million during
the first half, due to the payment of $1.6 million in losses and loss adjustment
expenses. No unusual trends in claims were noted during the quarter.
PHYSICIANS INSURANCE COMPANY OF OHIO -- LOSS AND LOSS ADJUSTMENT EXPENSE
RESERVES
JUNE 30, 2004 MARCH 31, 2004 DECEMBER 31, 2003
-------------------------------------------------
Direct Reserves $22.0 million $22.6 million $23.6 million
Ceded Reserves (4.0) (4.0) (4.0)
------------- ------------- -------------
NET MEDICAL PROFESSIONAL LIABILITY INSURANCE RESERVES $18.0 million $18.6 million $19.6 million
============= ============= =============
CITATION INSURANCE COMPANY
During the second quarter of 2004, Citation generated revenues of
$487,000, including realized gains of $191,000. After operating and underwriting
expenses of $141,000, Citation reported income before taxes of $346,000. In the
second quarter of 2003, Citation generated revenues of $397,000, operating and
underwriting expenses were $7.7 million, and Citation reported a loss before
taxes of $7.3 million.
For the first half of 2004, Citation generated revenues of $852,000,
including realized gains of $218,000. After operating and underwriting expenses
of $204,000, Citation reported income before taxes of $648,000. In the first
half of 2003, Citation generated revenues of $785,000, operating and
underwriting expenses were $7.8 million, and Citation reported a loss before
taxes of $7 million.
At June 30, 2004, Citation's insurance claims reserves were $22.1
million, net of reinsurance, consisting of $11.6 million in net property and
casualty insurance reserves and $10.5 million in workers' compensation reserves.
Citation's insurance claims reserves, net of reinsurance, totaled $23 million at
March 31, 2004, and $23.8 million at December 31, 2003.
17
Reserves decreased by $1.7 million during the first half, primarily due
to the payment of approximately $1.8 million in direct losses (i.e., claims) and
loss adjustment expenses, partially offset by the recovery of approximately
$111,000 from reinsurance companies.
CITATION INSURANCE COMPANY -- LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES
JUNE 30, 2004 MARCH 31, 2004 DECEMBER 31, 2003
-------------------------------------------------
PROPERTY & CASUALTY INSURANCE
Direct Reserves $13.0 million $14.0 million $14.8 million
Ceded Reserves (1.4) (1.5) (1.5)
------------- ------------- -------------
Net Property & Casualty Insurance Reserves $11.6 million $12.5 million $13.3 million
============= ============= =============
WORKERS' COMPENSATION INSURANCE
Direct Reserves $21.9 million $22.1 million $22.4 million
Ceded Reserves (11.4) (11.6) (11.9)
------------- ------------- -------------
Net Workers' Compensation Insurance Reserves $10.5 million $10.5 million $10.5 million
============= ============= =============
TOTAL RESERVES $22.1 million $23.0 million $23.8 million
============= ============= =============
HYPERFEED TECHNOLOGIES, INC.
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------------------------------------
2004 2003 2004 2003
-------------------------- --------------------------
REVENUES:
Service $ 1,417,000 $ 105,000 $ 2,255,000 $ 105,000
Investment Income 1,000 2,000 8,000 2,000
Other
----------- ----------- ----------- -----------
Segment Total Revenues $ 1,418,000 $ 107,000 $ 2,263,000 $ 107,000
EXPENSES:
Cost of service $ (458,000) $ (208,000) $ (922,000) $ (208,000)
Depreciation and amortization (201,000) (166,000) (415,000) (166,000)
Other (2,268,000) (687,000) (5,088,000) (687,000)
----------- ----------- ----------- -----------
Segment Total Expenses $(2,927,000) $(1,062,000) $(6,425,000) $(1,062,000)
----------- ----------- ----------- -----------
SEGMENT LOSS BEFORE TAXES AND MINORITY INTEREST $(1,509,000) $ (955,000) $(4,162,000) $ (955,000)
=========== =========== =========== ===========
During the second quarter of 2004, HyperFeed generated $1.4 million in
revenues. Service revenues were $1.4 million and the costs of service were
$458,000, resulting in gross margin of $959,000. After the deduction of $2.5
million in other operating expenses, HyperFeed generated a segment loss before
taxes and minority interest of $1.5 million. For more information, please refer
to HyperFeed's 10-Q for the second quarter of 2004, which should be filed with
the SEC on or before August 9, 2004, the contents of which are not incorporated
into this 10-Q.
During the first half of 2004, HyperFeed generated $2.3 million in
revenues. Service revenues were $2.3 million and the costs of service were
$922,000, resulting in gross margin of $1.3 million. After the deduction of $5.5
million in other operating expenses, HyperFeed generated a segment loss before
taxes and minority interest of $4.2 million.
In May 2003, PICO acquired a direct controlling financial interest in
HyperFeed, through direct ownership of a majority voting interest. HyperFeed
became a separate reporting segment from May 15, 2003. For the second quarter
and first half of 2003, representing the period from May 15, 2003 through June
30, 2003, the HyperFeed segment recorded revenues of $107,000, expenses of $1.1
million, and a loss before taxes and minority interest of $955,000.
See the "Business Acquisitions and Financing" segment analysis for the
impact of HyperFeed in the second quarter and first half of 2003, for the period
from January 1, 2003 through May 14, 2003.
DISCONTINUED OPERATIONS
Discontinued operations consist of:
- - Sequoia Insurance Company. PICO closed on the sale of Sequoia in March 31,
2003; and
- - Two businesses sold by HyperFeed -- its retail trading business sold in
the second quarter of 2003, and its consolidated market data feed
customers sold in the fourth quarter of 2003.
18
In 2004, the discontinued operations of HyperFeed generated an after-tax
loss of $37,000 in the second quarter, and income of $14,000 after-tax in the
first half.
In the second quarter of 2003, the discontinued operations of HyperFeed
generated after-tax income of $383,000. In addition, $324,000 in after-tax gains
were recorded on the sale of discontinued operations.
In the first six months of 2003, income from discontinued operations was
$2.8 million after-tax, consisting of $2.4 million earned by Sequoia in the
three months of 2003 that PICO owned Sequoia, and $383,000 from the discontinued
businesses of HyperFeed. In addition, we recorded after-tax gains on the
disposal of discontinued operations of $805,000 in the first half of 2003,
consisting of $443,000 from the sale of Sequoia, and $362,000 from HyperFeed's
sale of PCQuote.com.
LIQUIDITY AND CAPITAL RESOURCES -- THREE AND SIX MONTHS ENDED JUNE 30, 2004 AND
2003
PICO's assets primarily consist of our operating subsidiaries, holdings in
other public companies, marketable securities, and cash and cash equivalents. On
a consolidated basis, the Company had $17.6 million in cash and cash equivalents
at June 30, 2004, compared to $15.2 million at March 31, 2004, and $24.3 million
at December 31, 2003.
In addition to cash and cash equivalents, at June 30, 2004 the
consolidated group held fixed-income securities with a market value of $41.9
million and equities with a market value of $117.4 million.
Our cash flow fluctuates depending on the requirements of our operating
subsidiaries for capital, and activity in our insurance company investment
portfolios. Our primary sources of funds include cash balances, cash flow from
operations, the sale of holdings, and -- potentially -- the proceeds of
borrowings or offerings of equity and debt. We endeavor to ensure that funds are
always available to take advantage of new acquisition opportunities.
In broad terms, the cash flow profile of our principal operating
subsidiaries is:
- - As commercial use of Vidler's water assets increases, we expect that
Vidler will generate free cash flow as receipts from leasing water or
storage capacity, and the proceeds from selling land and water rights,
begin to overtake maintenance capital expenditure, financing costs, and
operating expenses. As water lease and storage contracts are signed, we
anticipate that Vidler may be able to monetize some of the contractual
revenue streams, which could potentially provide another source of funds;
- - Nevada Land is actively selling land which has reached its highest and
best use, and is not part of PICO's long-term utilization plan for the
property. Nevada Land's principal sources of cash flow are the proceeds of
cash sales, and collections of principal and interest on sales contracts
where Nevada Land has provided vendor financing. These receipts and other
revenues exceed Nevada Land's operating costs, so Nevada Land is
generating strong positive cash flow;
- - As its "run off" progresses, Physicians is obtaining funds to pay
operating expenses and claims from the maturity of fixed-income
securities, the realization of investments, and recoveries from
reinsurance companies;
- - At this stage of its "run off," investment income more than covers
Citation's regular operating expenses. The funds required to pay claims
are coming from the sale or maturity of fixed-income securities in
Citation's investment portfolio, and recoveries from reinsurance
companies; and
- - HyperFeed finances its operations from its own cash and cash equivalents
balances on a stand-alone basis. At June 30, 2004, HyperFeed had
approximately $363,000 in cash and cash equivalents, and $200,000 in
borrowings.
The Departments of Insurance in Ohio and California prescribe minimum
levels of capital and surplus for insurance companies, and set guidelines for
insurance company investments. Typically, PICO's insurance subsidiaries
structure the maturity of fixed-income securities to match the projected pattern
of claims payments. When interest rates are at very low levels, to insulate the
capital value of the bond portfolios against a decline in value which would be
brought on by a future increase in interest rates, the bond portfolios may have
a shorter duration than the projected pattern of claims payments. It is possible
that fixed-income and equity securities may occasionally need to be sold at
unfavorable times when the bond market, the stock market, or prices of
individual securities are depressed.
As shown in the Condensed Consolidated Statements of Cash Flow, cash and
cash equivalents decreased by $6.7 million in the first half of 2004, compared
to a decrease of $3.1 million in the first half of 2003.
19
During the first half of 2004, cash of $7.5 million was used in Operating
Activities, including $623,000 of cash used in discontinued operations of
HyperFeed. Operating cash flows include the collection of $2.3 million of
principal on collateralized notes receivable related to Vidler's sale of assets
at Big Springs Ranch and West Wendover in 2003. A principal payment of $2.3
million was received in July 2004, and the remaining principal of $4.6 million
is scheduled to be repaid by the end of 2004.
In the first half of 2003, cash of $7.7 million was used, including $1.1
million of cash used in the operating activities of discontinued operations. The
principal uses of cash in 2004 and 2003 include operating expenses at Vidler,
the payment of claims by Citation and Physicians, and group overhead.
Investing Activities used $1.8 million of cash in the first half of 2004,
compared to $5.1 million of cash generated in the first half of 2003. In 2004,
the sale and maturity of fixed-income securities exceeded new purchases,
providing a $9.8 million net cash inflow. The principal investing cash outflows
in 2004 were the net investment of $9.2 million in stocks, and $1.3 million to
purchase the minority shareholdings in Vidler Water Company and SISCOM Inc. The
cash inflow in 2003 principally resulted from the sale of Sequoia for gross
proceeds of approximately $43.1 million, less a $17.9 million dividend of common
stocks and debt securities received. The remaining 2003 Investing Activity cash
flow items primarily resulted from the net investment of $2.7 million in stocks
and the net investment of $17.1 million in fixed-income securities. This
represented routine activity in the investment portfolios of our insurance
subsidiaries and the temporary investment of funds held by non-insurance group
companies.
Financing Activities provided $2.5 million in the first half of 2004,
principally due to a $2.4 million increase in Swiss franc borrowings to fund
additional purchases of stocks in Switzerland. In the first half of 2003,
Financing Activities used cash of $136,000.
At June 30, 2004, PICO had no significant commitments for future capital
expenditures.
SHARE REPURCHASE PROGRAM
In October 2002, PICO's Board of Directors authorized the repurchase of up
to $10 million of PICO common stock. The stock purchases may be made from time
to time at prevailing prices through open market or negotiated transactions,
depending on market conditions, and will be funded from available cash.
As of June 30, 2004, no stock had been repurchased under this
authorization.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
PICO's balance sheets include a significant amount of assets and
liabilities the fair values of which are subject to market risk. Market risk is
the risk of loss arising from adverse changes in market interest rates or
prices. PICO currently has interest rate risk as it relates to its fixed
maturity securities and mortgage participation interests, equity price risk as
it relates to its marketable equity securities, and foreign currency risk as it
relates to investments denominated in foreign currencies. Generally, PICO's
borrowings are short to medium term in nature and therefore the carrying amounts
approximate fair value. At June 30, 2004, PICO had $41.9 million of fixed
maturity securities and mortgage participation interests, $117.4 million of
marketable equity securities that were subject to market risk, of which $60.6
million were denominated in foreign currencies, primarily Swiss francs. PICO's
investment strategy is to manage the duration of the portfolio relative to the
duration of the liabilities while managing interest rate risk.
PICO uses two models to report the sensitivity of its assets and
liabilities subject to the above risks. For its fixed maturity securities, and
mortgage participation interests, PICO uses duration modeling to calculate
changes in fair value. For its marketable equity securities, PICO uses a
hypothetical 20% decrease in the fair value to analyze the sensitivity of its
market risk assets and liabilities. For investments denominated in foreign
currencies, PICO uses a hypothetical 20% decrease in the local currency of that
investment. Actual results may differ from the hypothetical results assumed in
this disclosure due to possible actions taken by management to mitigate adverse
changes in fair value and because the fair value of securities may be affected
by credit concerns of the issuer, prepayment rates, liquidity, and other general
market conditions. The sensitivity analysis duration model produced a loss in
fair value of $1.2 million for a 100 basis point decline in interest rates on
its fixed-maturity securities and mortgage participation interests. The
hypothetical 20% decrease in fair value of PICO's marketable equity securities
produced a loss in fair value of $23.5 million that would impact the unrealized
appreciation in shareholders' equity, net of the related tax effect. The
hypothetical 20% decrease in the local currency of PICO's foreign denominated
investments produced a loss of $9.6 million that would impact the foreign
currency translation in shareholders' equity.
20
ITEM 4: CONTROLS AND PROCEDURES
Under the supervision of and with the participation of our management,
including our principal executive officer and principal financial officer, we
evaluated the effectiveness of our disclosure controls and procedures, as such
term is defined under Rules 13a-15(e) promulgated under the Securities Exchange
Act of 1934, as amended. Based on this evaluation, our principal executive
officer and principal financial officer concluded that our disclosure controls
and procedures were effective as of the end of the period covered by this
quarterly report.
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
The Company is subject to various litigation that arises in the ordinary
course of its business. Based upon information presently available, management
is of the opinion that such litigation will not have a material adverse effect
on the consolidated financial position, results of operations or cash flows of
the Company.
ITEM 2: CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES
ISSUER PURCHASES OF EQUITY SECURITIES
- ---------------------------------------------------------------------------
(a) Total number of (b) Average Price Paid per
Period shares purchased Share
- ---------------------------------------------------------------------------
4/1/04 - 4/30/04 1,336 $16.91
5/1/04 - 5/31/04
6/1/04 - 6/30/04
Note: Shares listed above are part of a deferred compensation plan for certain
directors and officers of PICO Holdings, Inc. These deferred compensation plans
are not part of a publicly announced plan and the maximum number of shares to
repurchase is unknown since the election to defer their compensation can be
increased or decreased at any time by the participating directors and officers.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5: OTHER INFORMATION
None
21
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit
Number Description
- ------ -----------
+ 3.1 Amended and Restated Articles of Incorporation of PICO.
++ 3.2 Amended and Restated By-laws of PICO.
21. Subsidiaries of PICO. See Note 1 of Notes To Consolidated Financial Statements, "Nature of Operations
and Significant Accounting Policies" in Registrant's Annual Report on Form 10-K for 2003, filed with the
SEC on March 10, 2004.
31.1. Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2. Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1. Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2. Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
- ---------------------------------
+ Incorporated by reference to exhibit of same number filed with Form 8-K
dated December 4, 1996.
++ Filed as Appendix to the prospectus in Part I of Registration Statement on
Form S-4 (File No. 333-06671).
(b) REPORTS ON FORM 8-K
None.
22
PICO HOLDINGS, INC. AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PICO HOLDINGS, INC.
Dated: August 4, 2004 By: /s/ Maxim C. W. Webb
--------------------------------------------
Maxim C. W. Webb
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
23