One of the constraints on actually beginning to lease water to customers is the requirement for the water to be conveyed ("wheeled") through the Central Arizona Project Aqueduct ("CAP"). Vidler anticipates negotiating a "wheeling contract" which would allow it to transport water to end-users within Arizona through the Central Arizona Project.
In June 1997, the Financial Accounting Standards Board established standards for disclosure of comprehensive income, which PICO adopted in 1998. As the name suggests, comprehensive income includes more than just the income reported in the statement of operations. For PICO, it also includes foreign currency translation and the change in unrealized investment gains and losses on available for sale securities. In 1999, PICO recorded a comprehensive loss of $7 million. The 1999 comprehensive loss included the $8.8 million net loss, as discussed above, and a $1.6 million decrease due to foreign currency translation. Included in 1999 comprehensive loss was an offsetting unrealized gain of $3.3 million from the increase in value of investments, principally HyperFeed warrants. The 1999 comprehensive loss of $7 million compares to a $11.2 million loss in 1998, which included an $8.2 million net loss, $39,000 in net unrealized investment gains and a loss in accumulated foreign currency translation of $3 million. Comprehensive income for 1997 was $4.3 million, which included $19.6 million in net income (principally due $21.4 million in realized gains from the sale of PICO's investment in Resource America, Inc., before tax), a $13.2 million unrealized depreciation of investments , and a loss in accumulated foreign currency reserve of $2.2 million.
Physicians Insurance Company of Ohio's and The Professionals Insurance Company's assets are not designated on an individual security basis as belonging either to the Medical Professional Liability Insurance or the Other Strategic Holdings business segment. Consequently, Physicians' invested assets produce income in both the Medical Professional Liability Insurance and Other Strategic Holdings segments. All of Professionals' revenues and pre-tax income are assigned to the Medical Professional Liability Insurance segment. However, all investment income and realized investment gains generated by Physicians from assets in excess of those needed to support the medical professional liability claims are allocated to the Other Strategic Holdings segment. See Note 19 of Notes to the Consolidated Financial Statements, "Segment Reporting."
As a result of ceasing to write medical professional liability insurance, Physicians' operating cash flows are negative and should continue to be negative for the foreseeable future. Positive cash flows from other sources within Physicians, primarily reinsurance recoveries and the sale of invested assets, may partially or fully offset uses of cash. Major cash outflows will likely include the funding of claims and loss adjustment expenses, investment purchases, and operating costs.
In addition to the risks and uncertainties discussed in the preceding sections of "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in this document, the following risk factors should be considered carefully in evaluating PICO and its business. The statements contained in this Form 10-K that are not purely historical are forward-looking statements within the meaning of Section 27A of the Exchange Act, including statements regarding our expectations, beliefs, intentions, plans or strategies regarding the future. All forward looking statements included in this document are based on information available to us on the date thereof, and we assume no obligation to update any such forward-looking statements.
OUR CHARTER DOCUMENTS MAY INHIBIT A TAKEOVER, PREVENTING YOU FROM RECEIVING A PREMIUM ON YOUR SHARES
Net re-estimated liability before discount - latest Net re-estimated discount - latest
The Company's primary subsidiaries as of December 31, 1999 are as follows:
At December 31, 1999, the Company's investment in HyperFeed consisted of 2,370,000 shares of common stock, representing 15% of the common shares outstanding; 4,786,538 shares of preferred stock, representing a 23% diluted voting interest; and an additional 4,055,195 common stock warrants which on a diluted basis would represent an additional 17% voting interest. The common and preferred stock are presented using the equity method of accounting for investments in common stock as prescribed by APB No. 18, and have a combined carrying value of $2.8 million at December 31, 1999. The difference between the carrying value of the investment and the underlying equity in the net assets or liabilities of HyperFeed is considered goodwill and is being amortized over 10 years on a straight-line basis. At December 31, 1999, the common stock warrants are carried in accordance with SFAS No. 115 at an estimated fair value of $15.4 million, prior to $3.8 million in deferred tax, using the Black Scholes option-pricing model. The pre-tax unrealized gain on the warrants is $11.3 million.
Pursuant to direction by the Board of Directors in the last quarter of 1997, management is in the process of terminating the CIG ESOP. No contributions were made to the plan in 1999, 1998 or 1997.
Reserves for unpaid losses and loss adjustment expenses on MPL and property and casualty business represent management's estimate of ultimate losses and loss adjustment expenses and fall within an actuarially determined range of reasonably expected ultimate unpaid losses and loss adjustment expenses.