Disclosures About Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2014

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis

At September 30, 2014 (in thousands):



Assets	Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at September 30, 2014
Available-for-sale equity securities⁽¹⁾	$	14,306	$	16,405			$	30,711
Available-for-sale debt securities⁽¹⁾	$	6,686	$	1,901			$	8,587
Readily marketable inventory ⁽²⁾	$	9,479	$	4,792			$	14,271
Derivative instruments ⁽³⁾	$	914	$	1,816			$	2,730
Liabilities
Derivative instruments ⁽³⁾	$	687	$	1,653			$	2,340
Contingent Consideration ⁽⁴⁾					$	4,644	$	4,644

At December 31, 2013 (in thousands):



Assets	Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)	Balance at December 31, 2013
Available-for-sale equity securities ⁽¹⁾	$	26,177	$	15,231		$	41,408
Available-for-sale debt securities⁽¹⁾	$	9,172				$	9,172
Readily marketable inventory ⁽²⁾	$	2,396	$	5,292		$	7,688
Derivative instruments ⁽³⁾	$	346	$	2,108		$	2,454
Liabilities
Derivative instruments ⁽³⁾	$	436	$	936		$	1,372

⁽¹⁾ Where there are quoted market prices that are readily available in an active market, securities are classified as Level 1 of the valuation hierarchy. Level 1 available-for-sale investments are valued using quoted market prices multiplied by the number of shares owned and debt securities are valued using a market quote in an active market. All Level 2 available-for-sale securities are one class because they all contain similar risks and are valued using market prices and include securities where the markets are not active, that is where there are few transactions, or the prices are not current or the prices vary considerably over time. Inputs include directly or indirectly observable inputs such as quoted prices. Level 3 available-for-sale securities would include securities where valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

⁽²⁾ Readily marketable inventory comprises commodity inventories that are reported at fair value based on commodity exchange quotations. Canola seed inventories are valued based on the quoted market price multiplied by the quantity of inventory and are classified as Level 1. Canola oil and meal inventories are classified as Level 2 because the inputs are directly observable, such as the quoted market price of the corresponding soybean commodity.

⁽³⁾ Included in this caption are three types of agricultural commodity derivative contracts: swaps, exchange traded futures, and forward commodity purchase and sale contracts. The exchange traded futures contracts are valued based on quoted prices in active markets multiplied by the number of contracts and are classified as Level 1. The swaps are classified as Level 2 because the inputs are directly observable, such as the quoted market prices for relevant commodity futures contracts. The swaps are valued based on the difference of the arithmetic average of the quoted market price of the relevant underlying multiplied by the notional quantities, and the arithmetic average of the prices specified in the instrument multiplied by the notional quantities. Forward commodity purchase and sale contracts classified as derivatives are valued using quantitative models that require the use of multiple inputs including quoted market prices and various other assumptions including time value. These contracts are categorized as Level 2 and are valued based on the difference between the quoted market price and the price in the contract multiplied by the undelivered notional quantity deliverable under the contract.

⁽⁴⁾Included in this caption is the contingent consideration that the Company entered into as part of the acquisition of Citizens. The estimated fair value of the contingent consideration was estimated based on applying the income approach and a weighted probability of achievement of the performance milestones. The estimated fair value of the contingent consideration was calculated by using a Monte Carlo simulation model. The fair value of the contingent consideration was then estimated as the arithmetic average of all simulation paths. The model was based on forecast adjusted net income over the contingent consideration period. The measurement is based on significant inputs that are not observable in the market, which are defined as Level 3 inputs.

Fair Value Measurements on a Non-Recurring Basis

The following tables set forth the Company’s non-financial assets that were measured at fair value on a non-recurring basis for the nine months ended September 30, 2014, and for the year ended December 31, 2013, by level within the fair value hierarchy.

Nine Months Ended September 30, 2014 (in thousands):



Asset Description	Quoted Prices In Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)		Total Loss Recorded During the Nine Months Ended September 30, 2014
Real estate⁽¹⁾			$	1,357	$	(2,865	)

⁽¹⁾The Company had a non-recurring fair value measurement of real estate assets with a carrying value of $4.2 million that was written down to its estimated fair value of $1.4 million resulting in an impairment charge of $2.9 million, which was included in earnings for the nine months ended September 30, 2014. There was no impairment loss recorded for the three months ended September 30, 2014. The impairment was recorded based on the estimated sales price the Company expects to receive upon the sale of this real estate. The impairment loss relates to a property which is not part of UCP’s results of operations nor is it included in UCP’s inventory of lots.

Year Ended December 31, 2013 (in thousands):



Asset Description	Quoted Prices In Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)		Total Gain (Loss) Recorded During the Year Ended December 31, 2013
Intangible asset (exclusive right to use infrastructure and associated water credits)⁽¹⁾			$	83,897	$	(993	)
Real estate ⁽²⁾			$	3,674	$	(417	)
Investment in unconsolidated affiliate ⁽³⁾			$	28,679	$	21,181

⁽¹⁾The Company had a non-recurring fair value measurement for an intangible asset with a carrying amount of $84.9 million that was written down to its estimated fair value of $83.9 million resulting in an impairment charge of $993,000, which was included in earnings for December 31, 2013. The implied fair value was calculated using a discounted cash flow model that incorporated a wide range of assumptions including current asset pricing, price escalation, discount rates, absorption rates, timing of sales, and costs. Given the decline in market prices for similar assets, increases in interest rates, and extended timing of expected absorptions, the Company adjusted its assumptions and judgments in the model from original projections.

⁽²⁾ The Company had a non-recurring fair value measurement of real estate assets with a carrying value of $4.1 million that was written down to its estimated fair value of $3.7 million resulting in an impairment charge of $417,000, which was included in earnings for December 31, 2013. The impairment was recorded based on the estimated sales price the Company expects to receive upon the sale of this real estate. The impairment loss relates to a property which is not part of UCP’s results of operations nor is it included in UCP’s inventory of lots.

⁽³⁾ The Company had a non-recurring fair value measurement as a result of the merger transaction between Spigit and Mindjet. The transaction resulted in the deconsolidation of Spigit and the recording of the Company’s common and preferred stock investment in Mindjet at fair value on the date of the transaction. The transaction resulted in a gain of approximately $21.2 million before income taxes. The fair value of the investment in Mindjet was based on analysis of the financial and operational aspects of the company, including consideration of a discounted cash flow analysis which incorporated a contemporary forecast of the merged Mindjet/Spigit entity going forward. Also considered was a guideline public company analysis which compared business enterprise value-to-revenue ratios for comparable public companies to current revenue metrics for the company. Determination of the business enterprise value based on the foregoing was then considered in an analysis of the distribution of equity value to the various classes of equity held by PICO in order to reflect differences in value due to differing liquidation, dividend and voting rights. The fair value approach relied primarily on Level 3 unobservable inputs, whereby expected future cash flows were discounted using a rate that includes assumptions regarding an entity’s average cost of debt and equity, incorporated expected future cash flows based on internal business plans, and applied certain assumptions about risk and uncertainties. The estimates were based upon assumptions believed to be reasonable, but which by nature are uncertain and unpredictable.

Fair Value of Financial Instruments

The following table presents the carrying value and estimated fair value of the Company’s financial instruments which are not carried at fair value at September 30, 2014 and December 31, 2013 (in thousands):



	September 30, 2014				December 31, 2013
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial assets:
Investments in unconsolidated affiliates held at cost	$	19,302	$	19,302	$	19,380	$	19,380

Financial liabilities:
Debt	$	147,895	$	157,981	$	136,767	$	145,924

Notional Amounts of Open Derivative Positions

The following tables summarize the notional amount of open derivative positions at September 30, 2014, and December 31, 2013:

September 30, 2014

Exchange Traded

Non-Exchange Traded

(Short)⁽¹⁾

Long⁽¹⁾

(Short)⁽¹⁾

Long⁽¹⁾

Unit of Measure

Futures

Agricultural Commodities

(64,749

)

51,024

Tons

Natural Gas

520,000

MMBtus⁽²⁾

Forwards

(147,586

)

55,208

Tons

December 31, 2013

Exchange Traded

Non-Exchange Traded

(Short)⁽¹⁾

Long⁽¹⁾

(Short)⁽¹⁾

Long⁽¹⁾

Unit of Measure

Futures

Agricultural Commodities

(23,038

)

34,380

Tons

Natural Gas

460,000

MMBtus⁽²⁾

Forwards

(132,428

)

30,367

Tons

Swaps

75,000

Tons

⁽¹⁾ Exchange and non-exchange traded futures, forwards, and swaps are presented on a gross (short) and long position basis.

⁽²⁾ Million Metric British Thermal Units.

Effect of Derivative Instruments on the Consolidated Statements of Operations and Comprehensive Income or Loss

The table below summarizes the effect of derivative instruments on the condensed consolidated statements of operations and comprehensive income or loss (in thousands):



	Gain (Loss) Recognized in Income on Derivatives
		Three Months Ended September 30,						Nine Months Ended September 30,
	Location	2014			2013			2014			2013
Futures	Cost of canola oil and meal sold	$	99		$	5,592		$	900		$	(2,458	)
Forwards	Cost of canola oil and meal sold	488			(49		)	(478		)	329
Swaps	Cost of canola oil and meal sold	(61		)	784			(3,840		)	(353		)
		$	526		$	6,327		$	(3,418	)	$	(2,482	)

Futures⁽¹⁾	Other income	$	1,397					$	1,950

⁽¹⁾Represents derivative transactions classified as trading.

- Definition

Tabular disclosure of the fair value measurement of assets using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets) and gains or losses recognized in other comprehensive income (loss), and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs), by class of asset.

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- Definition

Tabular disclosure of the fair value of financial instruments, including financial assets and financial liabilities, and the measurements of those instruments, assets, and liabilities.

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