In 2001, Lincoln/Vidler reached conditional agreement to sell an electricity-generating company between 6,700 and 9,000 acre-feet of water, at $3,300 per acre-foot, for a new power plant to be located in southern Lincoln County on a site which was to be acquired from Nevada Land. Due to the unprecedented instability in the energy market and capital market conditions affecting the electricity sector, the electricity-generating company decided not to move forward with the project. Recognizing that a permitted site with permitted water rights will have value once the energy market stabilizes, Vidler purchased the project for $50,000 in February 2003. Energy companies and utilities are currently reviewing the project.
Vidler intends to charge customers a fee based on the amount of water "recharged," and then an additional fee when the water is "recovered." The revenues generated from this asset will depend on the quantity of water which the AWBA, and private users, store at the facility. The quantity of water stored will depend on a number of factors, including the availability of water and available storage capacity at publicly owned facilities.
The net reduction in reserves of approximately $6.7 million was primarily due to a decrease in claims severity; Physicians reduced its reserve for IBNR claims by approximately $6.9 million, which was partially offset by a $218,000 increase in the provision for unallocated loss adjustment expense which effectively recognizes the cost of handling Physicians' claims over the remaining run off.
Since it is almost eight years since Physicians wrote its last policy, and the direct IBNR claims reserve at December 31, 2003 is $15.2 million ($9.9 million net of reinsurance), it is conceivable that further favorable development could be recorded in future years if claims trends remain favorable, particularly claims severity. However, given that favorable development of $6.7 million was recognized in 2003, there is less potential for favorable development in future years than there has been in the past. In addition, we caution (1) that claims can be reported until 2017, and (2) against over-emphasizing claims count statistics -- for example, the last claims to be resolved by a "run off" insurance company could be the most complex and the most severe.
Currently, the workers' compensation claims are being handled by a third-party administrator.
- - Physicians, $19.6 million. Physicians wrote its last policy in 1995. However, under current law, claims can be made until 2017 for events which allegedly occurred during the periods when we provided insurance coverage to medical professionals.
In the case of investments where we have the ability to exercise significant influence over the company we have invested in, we apply the equity method under Accounting Principles Board ("APB") Opinion No. 18, "The Equity Method of Accounting for Investments in Common Stock."
PICO reported a net loss of $3.2 million, or $0.26 per diluted share in 2003, compared with net income of $5.9 million, or $0.48 per diluted share in 2002, and net income of $5.1 million, or $0.41 per diluted share, in 2001.
Vidler generated total revenues of $16.8 million in 2003, compared to $13.8 million in 2002, and $18 million in 2001.
- - the sale of approximately 37,500 acres of land and the related water rights at Big Springs Ranch in Elko County, Nevada. This transaction added $2.8 million to revenues and $505,000 to gross margin.
In this segment, investment income includes interest on cash and short-term fixed-income securities, and dividends from partially owned businesses. Investment income totaled $2.1 million in 2003, $2.5 million in 2002, and $1.9 million in 2001. Investment income fluctuates depending on the level of cash and temporary investments, the level of interest rates, and the dividends paid by partially owned businesses.
Although "run off" insurance companies no longer write policies, earned premiums can still arise, for example from policies which were still in force when the company went into "run off,", or related to reinsurance. Our insurance companies have purchased reinsurance from specialized insurance companies to limit our potential losses on the insurance coverage we have provided to our policyholders. There are various types of reinsurance contracts, including "swing rated" contracts, where the premium we pay is adjusted retroactively based on the actual loss experience on the block of business which was reinsured. Under GAAP, if we need to pay for additional reinsurance this is recorded as a reduction in earned premiums, and if reinsurance premiums are returned to us, this is recorded as an increase in earned premiums.
During the period from May 15, 2003 (commencement of consolidation) to December 31, 2003 , HyperFeed generated $1.4 million in revenues. Service revenues were $1.4 million and the costs of service were $1 million, resulting in gross margin of $332,000. After the deduction of $4.6 million in other operating expenses, HyperFeed generated a loss before taxes of $4.3 million.
In the first three months of 2003 prior to its sale, Sequoia Insurance Company generated income of $2.4 million after-tax, which is included in the "Income from discontinued operations, net of tax" line in the Consolidated Statement of Operations for 2003.
To the Board of Directors and Stockholders of HyperFeed Technologies, Inc.:
In July 2003, the Company adopted a Stock Appreciation Rights Plan whereby all stock options outstanding were exchanged for stock appreciation rights. These rights are not considered common stock equivalents for purposes of earnings per share because no common shares of the Company are issued when a SAR is exercised (the benefit is paid in cash). Consequently, there are no longer any common stock equivalents to consider for purposes of the weighted average shares outstanding for diluted earnings per share and therefore, basic and diluted shares outstanding will now be identical.
At December 31, 2003, the Company owns 28.3% of Accu Holding AG, a Swiss corporation. PICO lacks the ability to exercise significant influence based on consideration of a number of factors and therefore accounts for the holding using SFAS No. 115. In 2003 and 2002, the Company recorded other-than-temporary impairments of $823,000 and $2.2 million, respectively, due to the extent and duration of the decline of Accu's stock price. At December 31, 2003, Accu's market value is $3.1 million.
Notes receivable, primarily from the sale of real estate and water assets ($9.3 million of which are due by December 31, 2004), have a weighed average interest rate of 7.4% and a weighted average life to maturity of approximately 3 years at December 31, 2003.
Depreciation expense was $1.1 million, $456,000, and $598,000 in 2003, 2002, and 2001, respectively.
Global Equity S.A, the Company's wholly owned Swiss domiciled subsidiary has made a commitment to Accu Holding AG to participate with other shareholders of Accu in raising capital which is expected to occur in 2004. The maximum commitment for Global Equity is $1.9 million (2.3 million CHF).
Under Citation's interpretation of the applicable law, the Citation 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 the Citation 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 CNIC and 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 assume workers' compensation claims and allocated claims expenses.
On March 27, 2000, PICO sold 3,333,333 shares of common stock to PICO Equity Investors, LP ("PEI") in a rights offering. PEI is managed by PICO Equity Investors Management, LLC, which is owned by three of PICO's current directors (including PICO's chairman of the board and PICO's president and chief executive officer). PICO Equity Investors will exercise all voting and investment decisions with respect to these shares for up to 10 years. There is no monetary compensation for management of either partnership.
The Company entered into an agreement with its president and chief executive officer, and certain other officers and Directors to defer compensation into Rabbi Trust accounts held in the name of the Company. The total value of the Rabbi
In this segment, revenues come from premiums earned on policies written and investment income on the assets held by the insurance companies. As expected during the run-off process, the bulk of this segment's revenues come from investment income. Investments directly related to the insurance operations are included within those segments. The assets of Sequoia, reported as discontinued operations for all periods presented, are included within the Insurance Run Off segment in those years as the equity of the discontinued operations was owned by Physicians. Sequoia was sold on March 31, 2003.
PICO seeks to acquire businesses which are undervalued based on fundamental analysis -- that is, the assessment of what the company is worth, based on the private market value of its assets, and/or earnings and cash flow. The Company has acquired businesses and interests in businesses through the purchase of private companies and shares in public companies, both directly through participation in financings and from open market purchases. The business must have special qualities, such as unique assets, a potential catalyst for change, or it is in an industry with attractive characteristics. When buying a company, the
Company has a long term horizon, typically 5 years or more; however, the Company is prepared to sell if the price received exceeds the return; the Company expects to earn if held.