PICO reported net income of $19.5 million, or $0.60 per share for 1997, compared with net income of $24.3 million, or $0.87 per share during 1996, and $15.7 million, or $0.57 per share in 1995. Per share amounts are expressed as basic earnings per share. Net income for 1997 included income from discontinued operations of approximately $456,000, net of federal income taxes and minority interests. Shares outstanding and per share calculations for 1995 have been adjusted for comparison purposes to reflect the November 20, 1996 merger between Physicians and the Citation Insurance Group. Year-to-year comparisons are somewhat distorted as a result of the inclusion of Sequoia beginning August 1, 1995 and the addition of the Citation group effective November 20, 1996. Sequoia contributed net income of $2.8 million to PICO's 1997 consolidated income, $1.5 million to 1996 and a post-acquisition net loss of $2.5 million to 1995. Citation's added $1.1 million to 1997 consolidated net income and $675,000 to 1996, following the Merger. GEC's operations added a net loss of $6.1 million to consolidated income for 1997.
The breakdown of pre-tax operating income from portfolio investing operations follows:
As these subsidiaries of the Company were not part of the consolidated group until 1997, prior years' results are not included with those of the Company. Revenues from continuing operations included in the consolidated financial statements of the Company from land, water and mineral rights generated by Vidler and NLRC were $2.5 million. Revenues include land sales; lease of land, principally for grazing purposes; water sales and leasing and other income. Income from continuing operations before taxes and minority interests included in the consolidation amounted to approximately $12,000.
In November 1996, Physicians purchased a $2.5 million convertible debenture from PC Quote. On May 5, 1997, PICO agreed to provide a line of credit to PC Quote. The initial credit was for $1 million with repayment due September 30, 1997. The credit has since been increased to $2,250,000 with repayment due April 30, 1998.
In our opinion, based on our audit and the report of the other auditors, the 1997 consolidated financial statements present fairly, in all material respects, the consolidated financial position of PICO Holdings, Inc. and subsidiaries as of December 31, 1997, and the consolidated results of their operations and their cash flows for the year ended December 31, 1997, in conformity with generally accepted accounting principles.
PICO HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
Sequoia, acquired August 1, 1995, writes property and casualty insurance (primarily light commercial and multi-peril) in California (Note 3).
CLM is an inactive California insurance agency which placed insurance with California insurers, including Sequoia.
The Company periodically evaluates whether events or circumstances have occurred that may affect the estimated useful life or the recoverability of long-lived assets. Impairment of long-lived assets is triggered when the estimated future undiscounted cash flows (excluding interest charges) do not exceed the carrying amount. If the events or circumstances indicate that the remaining balance may be permanently impaired, such potential impairment will be measured based upon the difference between the carrying amount and the fair value of such assets determined using the estimated future discounted cash flows (excluding interest charges) generated from the use and ultimate disposition of the respective long-lived asset.
The Company accounted for the allocation of the purchase price and the net assets of CIC's workers' compensation line of business in accordance with the EITF 87-11 guidance stated above. Accordingly, the net assets related to CIC's workers' compensation line of business as of December 31, 1996 are reflected on a single line item in the accompanying balance sheet as Net Assets of Acquired Business Held for Sale. The fair value assigned to such net assets was based upon management's estimate of the proceeds from the sale of CIC's workers' compensation line of business of approximately $7.7 million less the estimated loss from operations for such line of business during the expected holding period of November 1996 through April 1997 of approximately $0.5 million.
Equity securities as of December 31, 1996 include certain warrants to purchase the common stock of a publicly traded company. The estimated fair value of such warrants is their intrinsic value based on the quoted market price of the underlying common stock of the investee company. The estimated fair value and cost of such warrants were $14,530,957 and $240,000, respectively, as of December 31, 1996. The warrants were converted in 1997.
The major classifications of property and equipment are as follows at December 31:
Had compensation cost for the Company's stock-based compensation plans been determined consistent with SFAS No. 123, the Company's net income and net income per common share would approximate the pro forma amounts below for the years ended December 31:
6) Loss and loss adjustment expense reserves and unearned premiums are reported net of the impact of reinsurance for statutory accounting purposes.
The Company's operations are organized into five principal segments: portfolio investing; surface, water, geothermal and mineral rights; property & casualty insurance; MPL (Note 1) and other. As a result of the acquisition in August 1997 of the majority ownership in GEC and management's strategic initiatives, the surface, water, geothermal and mineral rights activities of the Company and GEC have been disclosed as a reportable segment in this annual report. Other operations include Summit's investment management services and the Company's real estate development and other activities. Portfolio investing for 1997 includes the portfolio investing activities of GEC.
- CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS: The carrying amounts of cash and cash equivalents and short-term investments approximate their estimated fair values.
The Company computes earnings per common share for each quarter independently of earnings per share for the year. The sum of the quarterly earnings per share may not equal the earnings per share for the year because of: (i) transactions affecting the weighted average number of shares outstanding in each quarter; and (ii) the uneven distribution of earnings during the year.