Vidler is working on further sales of Harquahala Valley ground water to both industrial users and communities and developers in the Phoenix metropolitan area who need to secure further water to support expected growth.
In 1999, Vidler filed an application for approximately 2,000 acre-feet of water rights near Sandy Valley, Nevada. In June 2002, the Nevada State Engineer awarded Vidler 415 acre-feet of the water rights. Vidler has filed an appeal regarding the balance of the water applied for.
There have been no changes in key actuarial assumptions during 2000, 2001, and 2002. See "Critical Accounting Policies" and "Risk Factors."
Following is a description of what we believe to be the critical accounting policies affecting our Company, and how we apply these policies.
During 2002, revenues were reduced by charges for other-than-temporary impairment in three unrelated equity securities of $4.1 million. The other-than-temporary impairment charges were calculated as the difference between the investment's original basis and the current carrying value (i.e., market value).
Total expenses in 2002 were $24.4 million, compared to $18.2 million in 2001, and $25.8 million in 2000. The largest expense item in each of the past three years was the cost of land and water rights sold -- $9.7 million in 2002, compared to $7.6 million in 2001, and $4 million in 2000. The increase in expenses in 2002 from 2001 is primarily attributable to reduced favorable development in the claims reserves of the run off insurance operations. Favorable reserve development is recorded as a reduction in expenses.
- - a $1.2 million loss before taxes from Business Acquisitions and Financing. This was primarily comprised of an $8.7 million realized gain on the sale of AOG common stock and options, which was more than offset by parent company overhead of $6.6 million and $4.1 million in impairment charges for other-than-temporary declines in the market value of investments. Such other-than-temporary charges do not affect shareholders' equity, or book value per share; and
In addition, Vidler sold 7 acres of unimproved land near West Wendover, Nevada for $500,000, which contributed $83,000 to gross margin.
Vidler recorded a segment loss of $897,000 in 2002, compared to segment income of $5 million in 2001, and a segment loss of $4.9 million in 2000.
- - a $312,000 charge for other-than-temporary impairment of our investment in Solpower Corporation. Solpower is a development stage company, which was one of the final Alternative Investments discussed in Item 1. Given the duration of the decline in value in this stock and the absence of factors indicating otherwise, we determined that the decline is other-than- temporary. Accordingly, we recorded a charge to reduce the basis of the investment to zero at December 31, 2002. None of the other-than-temporary impairments affect shareholders' equity or book value per share.
The 2001 segment loss includes investment income and other revenues of $2.3 million, which were more than offset by the $3 million in provisions for other-than-temporary impairment in investments, the $2.5 million SFAS No. 133 loss, the $500,000 MKG realized loss, the $1.5 million equity share of investees' losses, and segment expenses of $10.1 million. Segment expenses include parent company overhead of $4.8 million, SISCOM expenses of $1.7 million, and a $270,000 expense related to the Swiss Franc loan to Global Equity SA discussed in the previous paragraph. In 2001, segment expenses also included a $2.3 million provision against loans to Dominion Capital Pty. Ltd. See Item 3, "Legal Proceedings."
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.
We have audited the accompanying consolidated balance sheets of PICO Holdings, Inc. and its subsidiaries (collectively "the Company") as of December 31, 2002 and 2001, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
The deferred tax asset valuation allowance as of December 31, 2001 related primarily to the net operating loss carryforwards (NOL's) of Global Equity, a Canadian company. Global Equity is subject to rules that limit the ability to utilize their NOL's. Due to these limitations and the uncertainty of future taxable income, these NOL's were written off against the existing valuation allowance in 2002. Deferred tax assets and liabilities, the recorded valuation allowance, and federal income tax expense in future years can be significantly affected by changes in circumstances that would influence management's conclusions as to the ultimate realization of deferred tax assets.
This segment contains businesses, interests in businesses, and other parent company assets.