Discontinued Operations and Assets and Liabilities Held-for-Sale

Real Estate:

On April 10, 2017, UCP entered into a merger agreement with Century whereby each outstanding share of UCP common stock was converted into $5.32 in cash and 0.2309 of a newly issued share of Century common stock representing 9% of Century’s common stock outstanding. The transaction closed on August 4,2017 and as a result the Company will deconsolidate UCP as of the closing date. The common shares the Company received in the transaction are subject to an initial 60 day lock-up restriction which also includes any constructive disposition during these periods. After the initial lock-up period, the Company is permitted to sell or transfer approximately 1.3 million of its Century shares every 50 days with the lock-up restrictions ending 210 days after the close.

The assets and liabilities of UCP qualified as held-for-sale at June 30, 2017 and have been classified as discontinued operations as of the earliest period presented. Consequently, prior periods presented have been recast from amounts previously reported in the Company’s real estate segment to reflect the business as discontinued operations. The Company recorded an impairment loss of $11.4 million during the six months ended June 30, 2017, to write down the assets to their fair values as determined by the value of the transaction as of June 30, 2017 as presented in the table below (in thousands, except per share amounts).



	Shares and Per Share Amounts		Totals
Shares of UCP owned by the Company	10,402
Cash expected to be received	$	5.32	$	55,338
Shares of Century common stock expected to be received (0.2309 per share of UCP owned)	2,402
Value of Century common stock received (priced as of June 30, 2017)	$	24.80	$	59,565
Total consideration expected to be received (priced as of June 30, 2017)			$	114,903
Transaction cost paid by the Company			$	(190	)
Carrying value of UCP at June 30, 2017 adjusted for tax distributions of $4.7 million received in conjunction with the closing			$	(126,118	)
Impairment loss on assets classified as held-for-sale			$	(11,405	)

Agribusiness:

In February 2017, the Company received the final $6 million that had been held in escrow for general indemnification claims related to the sale of its discontinued agribusiness operations. The Company guaranteed up to $8 million for any indemnification claims in excess of the $6 million general indemnification escrow pursuant to the terms of the sale. This guaranty will remain in force until July 31, 2020. The guaranty has been recorded at estimated fair value that reflects the Company’s expectation that no significant amounts will be paid out under the guaranty. However, any amounts paid by the Company in excess of the estimate will result in additional loss on the sale.

The following table presents the details of the Company’s results from discontinued operations included in the condensed consolidated statement of operations and comprehensive income or loss (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Revenue and other income from discontinued real estate operations:
Sales of real estate	$	113,252		$	82,837		$	207,751		$	151,063
Other	38			22			486			49
Total revenue and other income	113,290			82,859			208,237			151,112

Cost of sales and expenses from discontinued real estate operations:
Cost of real estate sold	91,440			66,596			168,568			123,116
General, administrative, and other	10,158			7,468			18,373			14,935
Sales and marketing	6,219			4,666			11,368			9,096
Impairment loss on long-lived assets				2,397			102			2,397
Total cost of sales and expenses	107,817			81,127			198,411			149,544
Income before income taxes	5,473			1,732			9,826			1,568
Provision for federal and state income taxes	969						1,491
Net income from discontinued real estate operations	4,504			1,732			8,335			1,568
Net loss from discontinued agribusiness operations, net of tax	(70		)	(44		)	(13		)	(84		)
Net income from discontinued operations, net of tax	4,434			1,688			8,322			1,484
Impairment loss on assets classified as held-for-sale, net of tax	(4,257		)				(11,405		)
Income (loss) on sale of discontinued agribusiness operations, net of tax				(10		)	2			(1,859		)
Net income (loss) from discontinued operations, net of tax	177			1,678			(3,081		)	(375		)
Net (income) loss from discontinued operations attributable to noncontrolling interests	(1,405		)	(680		)	(2,796		)	(620		)
Net income (loss) from discontinued operations attributable to PICO Holdings, Inc.	$	(1,228	)	$	998		$	(5,877	)	$	(995	)

The following table presents the details of the Company’s assets and liabilities classified as held-for-sale in the condensed consolidated balance sheets (in thousands):



	June 30, 2017			December 31, 2016
Real estate assets held-for-sale:
Cash and cash equivalents	$	30,510		$	40,931
Real estate	392,347			373,207
Accounts receivable	6,962			5,628
Other assets	14,290			14,418
Valuation allowance on assets held-for-sale	(11,215		)
Real estate assets held-for-sale	432,894			434,184
Agribusiness assets held-for-sale				6,505
Total assets held-for-sale	$	432,894		$	440,689

Real estate liabilities held-for-sale:
Debt, net	$	159,565		$	160,994
Account payable and accrued expenses	35,294			34,025
Other liabilities	15,493			12,271
Real estate liabilities held-for-sale	210,352			207,290
Agribusiness liabilities held-for-sale				276
Total liabilities held-for-sale	$	210,352		$	207,566

The following table presents the details of the Company’s condensed consolidated statements of operations and comprehensive income or loss recast to present the results of UCP as a discontinued operation (in thousands, except per share data):



	Year Ended December 31,
	2016			2015			2014
Revenues and other income:
Sale of real estate and water assets	$	633		$	3,856		$	1,220
Impairment loss on investment in unconsolidated affiliate	(2,170		)	(20,696		)	(1,078		)
Other income, net	9,471			4,472			1,077
Total revenues and other income	7,934			(12,368		)	1,219

Cost of sales and expenses:
Cost of real estate and water assets sold	326			1,239			738
General, administrative, and other	32,830			20,027			24,156
Impairment loss on intangible and long-lived assets	201			2,085			10,219
Depreciation and amortization	865			1,660			2,385
Total cost and expenses	34,222			25,011			37,498
Loss from continuing operations before income taxes and equity in loss of unconsolidated affiliates	(26,288		)	(37,379		)	(36,279		)
Benefit for federal and state income taxes	1,135			2,961			2,450
Equity in loss of unconsolidated affiliate				(3,422		)	(2,076		)
Loss from continuing operations	(25,153		)	(37,840		)	(35,905		)
Income (loss) from discontinued operations, net of tax	13,899			(24,310		)	(23,700		)
Loss on sale or impairment loss on classification of assets as held-for-sale, net of tax	(1,775		)	(18,729		)
Net income (loss) from discontinued operations, net of tax	12,124			(43,039		)	(23,700		)
Net loss	(13,029		)	(80,879		)	(59,605		)
Net (income) loss attributable to noncontrolling interests	(8,836		)	(979		)	7,180
Net loss attributable to PICO Holdings, Inc.	$	(21,865	)	$	(81,858	)	$	(52,425	)



	Year Ended December 31,
	2016			2015			2014
Other comprehensive income (loss):
Net loss	$	(13,029	)	$	(80,879	)	$	(59,605	)
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities, net of deferred income tax and reclassification adjustments	1,671			292			(2,093		)
Foreign currency translation	29			(48		)	6,578
Total other comprehensive income, net of tax	1,700			244			4,485
Comprehensive loss	(11,329		)	(80,635		)	(55,120		)
Comprehensive (income) loss attributable to noncontrolling interests	(8,836		)	(979		)	7,180
Comprehensive loss attributable to PICO Holdings, Inc.	$	(20,165	)	$	(81,614	)	$	(47,940	)

Net income (loss) per common share – basic and diluted:
Loss from continuing operations	$	(1.09	)	$	(1.76	)	$	(1.34	)
Income (loss) from discontinued operations	0.14			(1.80		)	(0.96		)
Net loss per common share – basic and diluted	$	(0.95	)	$	(3.56	)	$	(2.30	)
Weighted average shares outstanding	23,054			23,014			22,802