of this Form 10-K and the consolidated financial statements and the related notes thereto included elsewhere in this document.
Vidler has agreed to purchase 822.29 acre-feet of permitted water rights in Meadow Valley, which is located in Lincoln County. The agreement went into escrow in March 2001. Vidler is in discussions to commercially utilize these water rights by supplying the water to an industrial user through the joint venture with Lincoln County.
Vidler has not stored water for customers at the facility yet, but the company has been recharging water for its own account since 1998, when the pilot plant was constructed. Vidler purchased the water from the CAP, and intends to resell this water at an opportune time. At December 31, 2001, Vidler had recharged approximately 4,800 acre-feet of water at the facility.
PICO reported net income of $4.8 million, or $0.39 per diluted share in 2001, compared with a net loss of $9.5 million, or $0.82 per diluted share, in 2000, and a net loss of $6.8 million, or $0.76 per diluted share, in 1999. The weighted average number of shares outstanding in 2001 and 2000 increased as a result of the rights offering in March 2000.
Water Rights and Water Storage - ------------------------------ - - Vidler generated $17.8 million in revenues and a $5 million pre-tax profit. The principal contributors to segment income were $2.3 million from the sale of land and related water rights in the Harquahala Valley Irrigation District, and $5.7 million in pre-tax gains from the sale of part of Vidler's interest in the Semitropic water storage facility;
In 2000, after underwriting expenses of $2.6 million, which included a $1.1 million net increase in reserves, segment income of $768,000 was recorded. In addition, reserves increased by $7.5 million due to the elimination of reserve discount included in the cumulative effect of change in accounting principle. The elimination of discounting did not affect the segment in 2000, but resulted in a $5 million after-tax charge to income, which is shown in the "Cumulative Effect of Change in Accounting Principle" line in our Consolidated Statement of Operations. See Note 21 of Notes to Consolidated Financial Statements, "Cumulative Effect of Change in Accounting Principle." Until December 31, 1999, we discounted our medical professional liability claims reserves to reflect the fact that some claims will not be paid until future years, but funds from the corresponding premiums can be invested in the meantime. In each quarter until December 31, 1999, a portion of this discount was removed and recognized as an expense called "reserve discount accretion." From January 1, 2000, we ceased discounting our reserves to be consistent with the accounting treatment in our statutory financial statements, where discounting was not permitted after December 31, 1999.
We invest in businesses that we believe are undervalued or that will benefit from additional capital, restructuring of operations or improved competitiveness through operational efficiencies.
specific aspects of its operations. The formula does not address all of the risks associated with the operations of an insurer. The formula is intended to provide a minimum threshold measure of capital adequacy by individual insurance company and does not purport to compute a target level of capital. Companies which fall below the threshold will be placed into one of four categories: Company Action Level, where the insurer must submit a plan of corrective action; Regulatory Action Level, where the insurer must submit such a plan of corrective action, the regulator is required to perform such examination or analysis the Superintendent of Insurance considers necessary and the regulator must issue a corrective order; Authorized Control Level, which includes the above actions and may include rehabilitation or liquidation; and Mandatory Control Level, where the regulator must rehabilitate or liquidate the insurer. All companies' risk-based capital results as of December 31, 2001 exceed the Company Action Level.
The liabilities for unpaid losses and loss adjustment expenses of Physicians, Sequoia, and Citation were $98.4 million at December 31, 2001, $121.5 million at December 31, 2000, and $139.1 million at December 31, 1999, net of discount on medical professional liability insurance reserves in 1999, and before reinsurance reserves, which reduce net unpaid losses and loss adjustment expenses. Of those amounts, the liabilities for unpaid loss and loss adjustment expenses of prior years decreased by $10.4 million in 2001, and increased by $8.6 million in 2000, and $16.3 million in 1999. The 2000 increase included $7.5 million of accumulated discount on reserves that was expensed as a result of our decision to discontinue discounting reserves effective January 1, 2000. See Note 21 of Notes to Consolidated Financial Statements, "Cumulative Effect of Change in Accounting Principle." These changes to prior years' reserves were due to the following:
On July 14, 1995, Physicians and Professionals entered into an Agreement for the Purchase and Sale of Certain Assets with Mutual Assurance, Inc. This transaction closed on August 28, 1995. Pursuant to the agreement, Physicians and Professionals sold their professional liability insurance business and related liability insurance business for physicians and other health care providers.
Physicians Insurance Company of Ohio ("Physicians"). Prior to selling its book of medical professional liability ("MPL") insurance business in 1995, Physicians engaged in providing MPL insurance coverage to physicians and surgeons, primarily in Ohio. On August 28, 1995, Physicians entered into an agreement with Mutual Assurance, Inc. ("Mutual") pursuant to which Physicians sold its recurring MPL insurance business to Mutual. Physicians is in "run off."
Cash and cash equivalents include highly liquid debt instruments purchased with original maturities of three months or less.
In August 2001, the FASB adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement supersedes SFAS NO. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of" and defines an impairment as "the condition that exists when the carrying amount of a long-lived asset (asset group)
Due in one year or less $19,272,532 $19,308,867 Due after one year through five years 41,193,744 41,903,362 Due after five years 34,885,901 35,010,015 Mortgage participation interests 4,673,000 4,673,000 ------------------- ------------------ $100,025,177 $100,895,244 =================== ==================
2001 2000 --------------- --------------- NLRC: Land and related mineral rights and water rights $ 45,249,039 $ 42,799,043 --------------- ---------------
PICO Holdings 2001 Stock Option Agreements. PICO is authorized to issue 46,223 shares of common stock pursuant to awards granted in individual non-qualified stock option agreements. In August 2001, PICO granted a total of 46,223 non-qualified stock options to three employees of the Company. The exercise price for all these non-statutory stock options is $15.00 per share. One-third of these stock options vested in August 2001, one-third will vest in August 2002, and the remaining one-third will vest in August 2003. All of these non-statutory stock options expire in August 2021.
Segment performance is measured by revenues and segment profit before tax. In addition, assets identifiable with segments are disclosed as well as capital expenditures, and depreciation and amortization. The Company has operations and investments both in the U.S. and abroad. Information by geographic region is also similarly disclosed.