UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2015~~2016

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission file number 033-36383

(Exact name of registrant as specified in its charter)



California (State or other jurisdiction of incorporation)	94-2723335 (IRS Employer Identification No.)

7979 Ivanhoe Avenue, Suite 300 La Jolla, California 92037

(Address of principal executive offices, including zip code)

(Registrant’s telephone number, including area code)

For the Nine Months Ended September 30, ~~2015~~2016

PICO Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets - Unaudited

(In thousands, except par value)

PICO Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets - Unaudited

(In thousands, except par value)

PICO Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets - Unaudited

(In thousands, except par value)

The accompanying notes are an integral part of the condensed consolidated financial statements.

PICO Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Income or Loss - Unaudited

(In thousands, except per share data)

PICO Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Income or Loss - Unaudited

(In thousands, except per share data)

PICO Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Income or Loss - Unaudited

(In thousands, except per share data)

The accompanying notes are an integral part of the condensed consolidated financial statements.

PICO Holdings, Inc. and Subsidiaries Condensed Consolidated Statements of Operations and Comprehensive Income or Loss - Unaudited, Continued (In thousands, except per share data)	PICO Holdings, Inc. and Subsidiaries Condensed Consolidated Statements of Operations and Comprehensive Income or Loss - Unaudited, Continued (In thousands, except per share data)												PICO Holdings, Inc. and Subsidiaries Condensed Consolidated Statements of Operations and Comprehensive Income or Loss - Unaudited, Continued (In thousands, except per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014			2016			2015			2016			2015
Other comprehensive income (loss):
Other comprehensive loss:
Net loss	$	(12,438	)	$	(10,441	)	$	(83,060	)	$	(24,436	)	$	(1,857	)	$	(12,438	)	$	(11,424	)	$	(83,060	)
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities, net of deferred income tax and reclassification adjustments	12			(767		)	295			(337		)
Unrealized gain on securities, net of deferred income tax and reclassification adjustments													954			12			1,484			295
Foreign currency translation	(48		)	247			(85		)	245			31			(48		)	57			(85		)
Total other comprehensive income (loss), net of tax	(36		)	(520		)	210			(92		)	985			(36		)	1,541			210
Comprehensive loss	(12,474		)	(10,961		)	(82,850		)	(24,528		)	(872		)	(12,474		)	(9,883		)	(82,850		)
Comprehensive (income) loss attributable to noncontrolling interests	(1,654		)	504			2,373			3,091			(1,043		)	(1,654		)	(1,676		)	2,373
Comprehensive loss attributable to PICO Holdings, Inc.	$	(14,128	)	$	(10,457	)	$	(80,477	)	$	(21,437	)	$	(1,915	)	$	(14,128	)	$	(11,559	)	$	(80,477	)

Net loss per common share – basic and diluted:
Loss from continuing operations	$	(0.11	)	$	(0.24	)	$	(1.51	)	$	(0.75	)	$	(0.13	)	$	(0.11	)	$	(0.48	)	$	(1.51	)
Loss from discontinued agribusiness operations	(0.50		)	(0.20		)	(2.00		)	(0.19		)				(0.50		)	(0.09		)	(2.00		)
Net loss per common share – basic and diluted	$	(0.61	)	$	(0.44	)	$	(3.51	)	$	(0.94	)	$	(0.13	)	$	(0.61	)	$	(0.57	)	$	(3.51	)
Weighted average shares outstanding	23,017			22,770			23,010			22,757			23,068			23,017			23,049			23,010

The accompanying notes are an integral part of the condensed consolidated financial statements.

PICO Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of ~~Shareholders’~~ Equity - Unaudited

Nine Months Ended September 30, ~~2015~~2016 and ~~2014~~2015

(In thousands)



	Shares of Common Stock Issued	Common Stock		Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income		Shares of Treasury Stock		Treasury Stock, at Cost			Noncontrolling Interest			Total
Beginning balance, January 1, 2016	23,116	$	23	$	494,207		$	(151,366	)	$	4,961	78		$	(1,413	)	$	87,592		$	434,004
Stock-based compensation expense				1,730													320			2,050
Exercise of restricted stock units	9																			—
Withholding taxes paid on vested restricted stock units at UCP, Inc.				(26		)											(20		)	(46		)
Changes in ownership of noncontrolling interest				(1,898		)											1,899			1
Acquisition of interests held by noncontrolling owners																	(1,000		)	(1,000		)
Distribution of treasury stock to deferred compensation plan participants				(269		)						(23	)	486						217
Net loss							(13,100		)								1,676			(11,424		)
Unrealized gain on investments, net of deferred income tax of $799 and reclassification adjustments of $278										1,484										1,484
Foreign currency translation										57										57
Ending balance, September 30, 2016	23,125	$	23	$	493,744		$	(164,466	)	$	6,502	55		$	(927	)	$	90,467		$	425,343



	Shares of Common Stock Issued	Common Stock		Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income			Shares of Treasury Stock	Treasury Stock, at Cost			Noncontrolling Interest			Total
Beginning balance, January 1, 2015	23,083	$	23	$	491,662		$	(69,508	)	$	4,717		78	$	(1,413	)	$	86,064		$	511,545
Stock-based compensation expense				2,379													674			3,053
Exercise of restricted stock units	12
Withholding taxes paid on vested restricted stock units at UCP, Inc.				(211		)											(159		)	(370		)
Distribution to noncontrolling interest																	(16		)	(16		)
Net loss							(80,687		)								(2,373		)	(83,060		)
Unrealized gain on investments, net of deferred income tax of $159 and reclassification adjustments of $581										295										295
Foreign currency translation										(85		)								(85		)
Ending balance, September 30, 2015	23,095	$	23	$	493,830		$	(150,195	)	$	4,927		78	$	(1,413	)	$	84,190		$	431,362

Shares of Common
Stock Issued

Common
Stock

Additional Paid-in
Capital
Accumulated Deficit
Accumulated
Other
Comprehensive
Income

Shares of Treasury
Stock

Treasury
Stock, at
Cost

Noncontrolling
Interest
Total
Beginning balance, January 1, 2015 23,083
$ 23
$ 491,662
$ (69,508 ) $ 4,717
78
$ (1,413 ) $ 86,064
$ 511,545
Stock-based compensation expense 2,379
674
3,053
Exercise of restricted stock units 12

Withholding taxes paid on vested restricted stock units at UCP, Inc. (211 ) (159 ) (370 )
Distribution to noncontrolling interest (16 ) (16 )
Net loss (80,687 ) (2,373 ) (83,060 )
Unrealized loss on investments, net of deferred income tax of $159 and reclassification adjustments of $581 295
295
Foreign currency translation (85 ) (85 )
Ending balance, September 30, 2015 23,095
$ 23
$ 493,830
$ (150,195 ) $ 4,927
78
$ (1,413 ) $ 84,190
$ 431,362

Shares of Common
Stock Issued

Common
Stock

Additional Paid-in
Capital
Accumulated Deficit
Accumulated
Other
Comprehensive
Income

Shares of Treasury
Stock

Treasury
Stock, at
Cost

Noncontrolling
Interest
Total
Beginning balance, January 1, 2014 25,821
$ 26
$ 546,307
$ (17,083 ) $ 232
3,073
$ (56,593 ) $ 91,956
$ 564,845
Stock-based compensation expense 4,273
1,540
5,813
Sale of treasury stock (10 ) 223
223
Exercise of restricted stock units 15

Withholding taxes paid on vested restricted stock units at UCP, Inc. (800 ) (817 ) (1,617 )
Net loss (21,345 ) (3,091 ) (24,436 )
Unrealized gain on investments, net of deferred income tax of $186 and reclassification adjustments of $1,813 (337 ) (337 )
Foreign currency translation 245
245
Ending balance, September 30, 2014 25,836
$ 26
$ 549,780
$ (38,428 ) $ 140
3,063
$ (56,370 ) $ 89,588
$ 544,736

The accompanying notes are an integral part of the condensed consolidated financial statements.

PICO Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows - Unaudited

PICO Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows - Unaudited

PICO Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows - Unaudited

The accompanying notes are an integral part of the condensed consolidated financial statements.

PICO Holdings, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

1. Basis of Presentation and Summary of Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements of PICO Holdings, Inc. and subsidiaries (collectively, the “Company” or “PICO”) have been prepared in accordance with the interim reporting requirements of Form 10-Q, pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete consolidated financial statements.

In the opinion of management, all adjustments and reclassifications considered necessary for a fair and comparable presentation of the financial statements presented have been included and are of a normal recurring nature. Operating results presented are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2015.~~2016.

These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2014~~2015 filed with the SEC.

Use of Estimates in Preparation of Financial Statements:

The preparation of condensed consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses for each reporting period. The significant estimates made in the preparation of the Company’s condensed consolidated financial statements relate to the assessment of other-than-temporary impairments, the application of the equity method of accounting, goodwill and intangibles, real estate and water assets, deferred income taxes, stock-based compensation, and contingent liabilities. ~~While management believes that the carrying value of such assets and liabilities are appropriate, it~~It is reasonably possible that actual results could differ from the estimates upon which the carrying values were based.

~~Discontinued Agribusiness Operations:~~Noncontrolling Interest Re-allocation

~~On July 13,~~The Company allocates UCP, Inc. (“UCP”) Class A common stock issued in connection with the vesting of UCP restricted stock units (“RSU”) and stock-based compensation expense between additional paid-in-capital and noncontrolling interest within its condensed consolidated statements of equity. The equity allocations for the UCP, LLC operating partnership are based on the economic and voting interest percentages of the Company and its noncontrolling interest in UCP. Issuances of UCP Class A common stock for UCP RSUs affect the economic and voting interest percentages, which accordingly are adjusted at the end of each issuance period. The economic and voting interest percentages prevailing during the period are used to determine the current period equity allocations for the operating partnership.

Recently Issued Accounting Pronouncements:

In August 2016, the Financial Accounting Standards Board (“FASB”) issued guidance on classification of certain cash receipts and cash payments in the statement of cash flows. The amendments in this update clarify guidance on the following eight specific cash flow issues: debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments or other instruments with coupon rates that are insignificant in relation to the effective interest rate, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of company-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions and separately identifiable cash flows and application of the predominance principle For public business entities, the guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The guidance should be applied using a retrospective transition method to each period presented. The Company is currently evaluating the effect this guidance will have on the consolidated financial statements.

In April 2015, the FASB issued guidance on simplifying the presentation of debt issuance costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. For public business entities, the guidance was effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Entities are to apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. The Company ~~entered into an agreement with CHS Inc. (“CHS”), pursuant~~adopted the guidance effective January 1, 2016. Prior to ~~which~~adoption, the Company ~~sold substantially~~included debt issuance costs in other assets on its condensed consolidated balance sheets. Beginning with the Form 10-Q for the three months ended March 31, 2016, the Company changed its presentation of debt issuance costs for all periods presented and the Company reclassified $1.5 million of debt issuance costs at December 31, 2015 as a direct deduction from the ~~assets used in~~carrying amounts of its ~~agribusiness segment. The sale closed~~debt liabilities both on ~~July 31, 2015. As a result of~~ the ~~transaction, the assets~~condensed consolidated balance sheets and ~~liabilities of the Company’s agribusiness segment qualified as held-for-sale and have been classified as discontinued agribusiness operations~~ in the ~~accompanying~~notes to the condensed consolidated financial statements as of the earliest period presented. Consequently, prior periods presented have been recast from amounts previously reported to reflect the agribusiness segment as discontinued agribusiness operations. The Company recorded a loss on sale of discontinued agribusiness operations of $18.3 million during the nine months ended September 30, 2015. See ~~Note 11 “Discontinued Agribusiness Operations” for additional information.~~statements.

2. Real Estate and Tangible Water Assets

The costs assigned to the various components of real estate and tangible water assets were as follows (in thousands):

Amortization of real estate improvements was approximately $219,000 for each of the three months ended September 30, 2015 and 2014, and was approximately $659,000 for each of the nine months ended September 30, 2015 and 2014.



	September 30, 2016		December 31, 2015
Real estate and improvements held and used, net of accumulated depreciation of $11,996 and $11,778 at September 30, 2016 and December 31, 2015, respectively	$	9,477	$	9,694
Residential real estate and home construction inventories	382,219		362,056
Other real estate inventories completed or under development	5,207		9,971
Tangible water assets	42,498		42,514
Total real estate and tangible water assets	$	439,401	$	424,235

Impairment Losses for the Nine Months Ended September 30, ~~2015:~~2016:

~~There were no material impairment losses recognized on real estate and tangible water assets during~~During the nine months ended September 30, ~~2015.~~2016, the Company recorded an impairment loss of $2.4 million on real estate located in Bakersfield, California, reducing the carrying value to $5.6 million. The Company entered into a contract to sell the remaining lots in the real estate for less than its carrying value at a future date and as a result, the real estate was written down to its fair value, less selling costs. The loss was reported in the condensed consolidated statements of operations and comprehensive income or loss within impairment loss on intangible and long-lived assets and was included in the results of operations of the real estate operations segment.

Impairment Losses for the Year Ended December 31, ~~2014:~~2015:

During ~~2014, certain water rights applications were denied by~~ the ~~New Mexico State Engineer and as a result,~~year ended December 31, 2015, the Company recorded an impairment loss of ~~$3.5 million by writing down~~$923,000 on real estate located in Kern County, California, reducing the ~~project’s capitalized costs~~carrying value to ~~zero.~~$6 million. The loss was reported in the consolidated statements of operations and comprehensive income or loss within impairment loss on intangible and long-lived assets and was included in the results of operations of the real estate operations segment.

During ~~2014,~~the year ended December 31, 2015, the Company ~~decided to sell~~accepted an offer for $3.4 million for real estate owned near Fresno, California. As a ~~property “as-is” as opposed to performing development activities as originally planned and has therefore written down the carrying value~~result, an impairment loss of ~~the asset to the estimated fair value. The Company has~~$274,000 was recorded that reduced the carrying value of the real estate ~~balance~~ to ~~$1.4 million by recording an~~the offer price. The loss was reported in the condensed consolidated statements of operations and comprehensive income or loss within impairment loss on intangible and long-lived assets and was included in the results of ~~$2.9 million.~~operations of the real estate operations segment.

3. Intangible Assets and Goodwill

The Company owns the following intangible assets, which primarily represent indefinite-lived intangible water assets within its water resource and water storage operations segment (in thousands):

Impairment Losses for the Nine Months Ended September 30, ~~2015:~~2016:

There were no impairment losses recognized on intangible assets during the nine months ended September 30, ~~2015.~~2016.

Impairment Losses for the Year Ended December 31, ~~2014:~~2015:

As a result of the Company’s annual review of indefinite-lived intangible assets, using a discounted cash flow model, ~~it was determined that~~ the ~~estimated fair values of other intangible assets of approximately $3.3 million were below the carrying value of $5.6 million, resulting in~~Company recorded an impairment loss of ~~$2.3 million. This~~$269,000, reducing the carrying value to $3 million, which is included in the table above within other, net of accumulated amortization. The loss was recorded in the ~~first such~~consolidated statements of operations and comprehensive income or loss within impairment ~~recorded~~loss on ~~these assets.~~intangible and long-lived assets and was reported in the water resource and water storage operations segment results.

The Company had a goodwill balance of $4.2 million at December 31, 2015. During the three and nine months ended September 30, 2016, the Company recorded an impairment loss of $4.2 million on goodwill related to the Citizens Homes, Inc. (“Citizens”) acquisition due to revised financial forecasts for the Southeast operations as a result of items including weather that delayed new community openings, abandonment of certain opportunities to open new communities as the opportunities did not meet UCP’s underwriting criteria, and lower margins on older communities still in existence from the land purchased as part of the Citizens acquisition. The loss was reported in the Company’s Real Estate operations reducing the balance of the goodwill to zero. The revised forecasts also reduced the contingent consideration liability related to the Citizens acquisition by $2.4 million leaving a balance of $307,000 at September 30, 2016. There were no acquisitions, disposals, or impairments of goodwill during the year ended December 31, 2015.

The Company estimates the fair value of goodwill based on applying the income approach by determining the present value of the estimated future cash flows at a discount rate. When estimating future cash flows, the Company makes various assumptions, including, but not limited to: (i) forecast adjusted pre-tax net income over a ten year period; (ii) weighted average cost of capital; (iii) terminal growth; and (iv) revenue growth and operating profit margin. The risk adjusted discount rate of 14.5% and terminal growth rate of 2.0% were applied to forecast adjusted pre-tax net income.

The cost and carrying value of available-for-sale investments were as follows (in thousands):

~~There were no investments that had a material unrealized loss position as of September 30, 2015 or December 31, 2014.~~



December 31, 2015	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Carrying Value
Debt securities: corporate bonds	$	4,458	$	46	$	(51	)	$	4,453
Marketable equity securities	10,339		7,879		(81		)	18,137
Total available-for-sale investments	$	14,797	$	7,925	$	(132	)	$	22,590

The amortized cost and carrying value of investments in debt securities, by contractual maturity, are shown below. Actual maturity dates may differ from contractual maturity dates because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties (in thousands):

The Company owns corporate bonds and other debt securities, which are purchased based on the maturity and yield-to-maturity of the bond and an analysis of the fundamental characteristics of the issuer. At September 30, ~~2015,~~2016, and December 31, ~~2014,~~2015, there were unrealized losses on certain bonds in the portfolio. The Company does not consider those bonds to be other-than-temporarily impaired because the Company expects to hold, and will not be required to sell, these particular bonds, and it expects to recover the entire amortized cost basis at maturity. There were no impairment losses recorded on debt securities during the three and nine months ended September 30, ~~2015~~2016 and ~~2014.~~2015.

Marketable Equity Securities

The Company’s investment in marketable equity securities ~~was $18.4 million~~ at September 30, ~~2015, and~~2016 principally consisted of common stock of publicly traded small-capitalization companies in the U.S. and select foreign markets. At September 30, ~~2015,~~2016, the Company reviewed its equity securities in an unrealized loss position and concluded certain of such securities were not other-than-temporarily impaired as the declines were not of sufficient duration and severity, and publicly-available financial information, collectively, did not indicate impairment. The primary cause of the loss on those securities was normal market volatility. No material impairment losses were recorded during the three and nine months ended September 30, ~~2015~~2016 and ~~2014.~~2015.

Other Investments

The Company owned the following investments at September 30, 2016 and December 31, 2015 that ~~are~~were not classified as available-for-sale (in thousands):

September 30, 2015 December 31, 2014
Carrying Value Voting Interest Carrying Value Voting Interest
Investment in Synthonics $ 2,170
18.3 % $ 2,170
19.6 %

Investment in Mindjet:
Investment in common stock $ —
19.3 % $ 6,611
15.0 %
Investment in preferred stock 1,312
— % 15,858
13.4 %
$ 1,312
19.3 % $ 22,469
28.4 %
Total $ 3,482
$ 24,639



	Carrying Value		Voting Interest
Investment in Synthonics	$	2,170	18.2	%
Investment in Mindjet	1,312		19.3	%
Total	$	3,482

Investment in Synthonics:

Synthonics, Inc. (“Synthonics”) is a private company co-founded by a former member of the Company’s board of directors. The Company’s investment consists of preferred shares as discussed in Note 9 “Related-Party Transactions.”

Investment in Mindjet:

During the ~~three months ended September 30,~~third quarter of 2015, Mindjet, Inc. (“Mindjet”) raised additional capital from existing shareholders. The Company elected not to participate in the offering and as a result, the Company’s existing investment in preferred stock was converted to common stock at five shares of preferred stock for one share of common stock, and the Company’s investment in convertible debt was converted into nonvoting preferred stock resulting in a decline in the Company’s voting ownership to 19.3%. In addition, the Company lost its right to a board seat. Given the current voting interest and loss of board representation, the Company determined it no longer had significant influence over the operating and financial policies of Mindjet, Inc. (“Mindjet”) and therefore discontinued the equity method of ~~accounting during the third quarter of 2015.~~accounting. The remaining carrying value of the investment, ~~was held at cost~~including a convertible note receivable and associated interest, at September 30, ~~2015. At September 30,~~2016 and December 31, 2015 ~~the Company’s total carrying value in Mindjet~~ was $2.3 million and $2.2 million, ~~comprised of $1.3 million in preferred stock~~respectively. The note and ~~a note~~interest receivable ~~of $851,000 that~~ is expected to be converted into additional preferred stock during ~~the fourth quarter of 2015.~~2016.

~~The Company had~~As a result of previously ~~accounted~~using the equity method of accounting for the investment in common stock, ~~using~~ the ~~equity method of accounting, which resulted in recording~~Company recorded a loss within equity in loss of ~~$1.9 million and $3.4 million~~unconsolidated affiliate in the condensed consolidated statement of operations and comprehensive income or loss ~~for the three~~of $1.9 million and ~~nine months ended September 30, 2015, respectively, and a loss of $410,000 and $1.6~~$3.4 million for the three and nine months ended September 30, ~~2014,~~2015, respectively. The Company’s share of the losses reported by Mindjet during ~~the third quarter of~~ 2015 ~~were~~was allocated to the carrying value of the common stock investment until it reached zero, and then to the preferred stock and convertible debt.

During the three and nine months ended September 30, 2015, the Company recorded a $20.7 million impairment loss on the investment in Mindjet common and preferred shares as the estimated fair value was less than the carrying value due to significantly increased, and continuing operating losses and resulting liquidity issues, actual financial results significantly less than projections, and decreased market conditions that ~~have~~had adversely affected the value of Mindjet. Such loss was recorded in impairment on investments in the condensed consolidated statement of operations and comprehensive income or loss. The fair value of the investment in Mindjet was based on an analysis of the financial and operational aspects of the company, including consideration of 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 debt and equity issued by Mindjet in order to reflect differences in value due to differing liquidation preferences, dividend and voting rights. The fair value approach relied primarily on Level 3 unobservable inputs, whereby expected future cash flows were determined using revenue multiples that included assumptions regarding an entity’s assumptions about risk and uncertainties. The estimates were based upon assumptions believed to be reasonable, but which by their nature are uncertain and unpredictable.

It is reasonably possible that the Company’s ownership percentage in Mindjet will continue to decline as other shareholders fund the ongoing operations with additional equity capital and upon conversion of ~~notes in the fourth quarter of 2015.~~outstanding notes. The Company does not anticipate investing any additional capital into Mindjet.

The carrying value of the Company’s investment in Mindjet is subject to impairment testing at each reporting period, or more frequently if facts and circumstances indicate the investment may be impaired. It is reasonably possible that circumstances may continue to deteriorate which could require the Company to record additional impairment losses on the remaining investment balances.

During the fourth quarter of 2014, the Company recorded a $1.1 million impairment loss on the preferred shares as the estimated fair value of such shares was less than the carrying value. The fair value was determined using a 50/50 weighting of the guideline public company method (market approach) and a discounted cash flow method (income approach).

During 2014, the Company was notified by Mindjet that it was asserting a breach in the representations and warranties made by Spigit, Inc. (“Spigit”) in the September 10, 2013 merger agreement. As part of the notification, Mindjet made a claim against the Mindjet shares held by the former Spigit shareholders, including the Company. A partial settlement was reached by the parties in November 2014 and the Company expects final resolution in 2015. The partial settlement was not material to the Company and was paid in shares of Mindjet. The maximum damages to the Company for the remaining claim is estimated between zero and $1.2 million and any settlement would be paid by the Company in shares of Mindjet. The Company is unable to provide a more meaningful estimate due to the ongoing development of information important to resolving the matter. Consequently, the Company has not accrued any liability related to the claim.

5. Disclosures About Fair Value

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants under current market conditions at the measurement date. The level within the fair value hierarchy in which the fair value measurements are classified include measurements using quoted prices in active markets for identical assets or liabilities (Level 1), quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active (Level 2), and significant valuation assumptions that are not readily observable in the market (Level 3).

Recurring Fair Value Measurements

Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The Company’s policy is to recognize transfers between levels at the end of the reporting period. The following tables set forth the Company’s assets and liabilities that were measured at fair value, on a recurring basis, by level within the fair value hierarchy. During the year ended December 31, 2014, $5.6 million in equity securities were transferred from Level 1 to Level 2 as a result of low trading volume and a wide bid/ask spread. There were no significant transfers from Level 2 to Level 1 during the year ended December 31, 2014. There were no significant transfers between Level 1 and Level 2 during the nine months ended September 30, ~~2015. The Company’s policy is to recognize transfers between levels at~~2016 or during the ~~end of the reporting period.~~year ended December 31, 2015.

At September 30, 2016 (in thousands):



	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, 2016
Assets
Available-for-sale equity securities⁽¹⁾	$	12,611	$	7,859			$	20,470
Available-for-sale debt securities⁽¹⁾	4,400						4,400
Total	$	17,011	$	7,859			$	24,870
Liabilities
Contingent consideration ⁽²⁾					$	307	$	307

At December 31, 2015 (in thousands):

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, 2015
Assets
Available-for-sale equity securities⁽¹⁾
$ 10,479
$ 7,915

$ 18,394
Available-for-sale debt securities⁽¹⁾
$ 4,555

$ 4,555
Liabilities
Contingent Consideration ⁽²⁾

$ 2,707
$ 2,707

~~At December 31, 2014 (in thousands):~~


	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, 2014		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, 2015
Assets
Available-for-sale equity securities ⁽¹⁾	$	10,892	$	11,098			$	21,990	$	10,685	$	7,452			$	18,137
Available-for-sale debt securities⁽¹⁾	$	6,380					$	6,380	4,453						4,453
Total									$	15,138	$	7,452			$	22,590
Liabilities
Contingent Consideration ⁽²⁾					$	3,902	$	3,902
Contingent consideration ⁽²⁾													$	2,707	$	2,707

⁽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⁾ Included in this caption is the contingent consideration arrangement that the Company entered into as part of the acquisition of ~~Citizens Homes, Inc. (“Citizens”).~~Citizens. The contingent consideration arrangement requires the Company to pay up to a maximum of $6 million of additional consideration based upon achievement of various pre-tax net income performance milestones of the new business (“performance milestones”) over a five year period commencing on April 1, 2014. Payout calculations are made based on calendar year performance, except for the sixth payout calculation, which will be calculated based on the achievement of performance milestones from January 1, 2019 through March 25, 2019. Payouts are to be made on an annual basis. The potential undiscounted amount of all future payments that the Company could be required to make under the contingent consideration arrangement is between zero and $6 million. 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. Key assumptions include: (1) ~~forecasted~~forecast adjusted pre-tax net income over the contingent consideration ~~period,~~period; (2) ~~risk-adjusted discount rate reflecting the risk inherent in the forecasted adjusted net income,~~revenue appreciation; (3) ~~risk-free interest rates,~~cost inflation; and (4) ~~volatility~~sales and marketing and general and administrative costs. The estimated revenue appreciation of ~~adjusted net income,~~4.5%, cost inflation of 1.5%, and (5) UCP’s credit spread. The risk adjusted discount rate for adjusted net income was 13.4% plus the applicable risk-free rate resulting in a combined discount rate ranging from 13.2% to 14.1% over the contingent consideration period. The volatility rate of 21.3%sales and ~~a credit spread of 10.7%~~marketing and general and administrative costs were applied to forecast adjusted net income over the contingent consideration period. ~~The change in estimated fair value of the contingent consideration was $1.2 million for the nine months ended September 30, 2015.~~

Non-Recurring Fair Value Measurements

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, 2015, and for the year ended December 31, 2014,~~ by level within the fair value hierarchy.

Nine ~~Months~~months ended September 30, 2016 (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
Goodwill ⁽¹⁾			$	—	$	4,223
Real estate and development costs ⁽²⁾			$	5,645	$	2,397
Real estate and development costs ⁽³⁾			$	1,066	$	191
Oil and gas wells ⁽⁴⁾			$	—	$	201

⁽¹⁾The Company had non-recurring fair value measurements of goodwill discussed in Note 3, “Intangible Assets and Goodwill.”

⁽²⁾The Company had non-recurring fair value measurements of real estate assets discussed in Note 2, “Real Estate and Tangible Water Assets.”

⁽³⁾The Company had non-recurring fair value measurements of real estate assets in its Southeast homebuilding division. The loss was reported in the condensed consolidated statements of operations and comprehensive income or loss within impairment loss on intangible and long-lived assets and was included in the results of operations of the real estate segment.

⁽⁴⁾The Company recorded an impairment loss to write down the value of certain oil and gas wells. The loss was reported in the condensed consolidated statements of operations and comprehensive income or loss within impairment loss on intangible and long-lived assets and was included in the results of operations of the corporate segment.

Year Ended ~~September 30,~~December 31, 2015 (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
Oil and gas wells ⁽¹⁾

$ 2,542
$ (1,816 )
Real estate and development costs ⁽²⁾

$ 3,400
$ (274 )
Real estate and development costs ⁽³⁾

$ 1,326
$ (1,875 )
Investment in unconsolidated affiliate ⁽⁴⁾

$ 2,163
$ (20,696 )



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
Intangible water assets⁽¹⁾			$	3,023	$	269
Oil and gas wells ⁽²⁾			$	2,542	$	1,816
Real estate and development costs ⁽³⁾			$	3,400	$	274
Real estate and development costs ⁽³⁾			$	5,960	$	923
Investments in unconsolidated affiliates ⁽⁴⁾			$	2,163	$	20,696

⁽¹⁾~~During the nine months ended September 30, 2015, the~~ The Company had a non-recurring fair value measurement for intangible assets that resulted in an impairment loss discussed in Note 3, “Intangible Assets and Goodwill.”

⁽²⁾The Company recorded an impairment loss to write down the value of capitalized development costs related to its oil and gas wells. The estimated fair value of the wells was determined using a discounted cash flow model. The loss was reported in the condensed consolidated ~~statement~~statements of operations and comprehensive income or loss within impairment loss on intangible and long-lived assets and was included in the results of operations of the corporate segment.

⁽²⁾ The Company had a non-recurring fair value measurement for real estate and capitalized development costs that resulted in an impairment loss. The loss was reported in the condensed consolidated statement of operations and comprehensive income or loss within impairment loss on intangible and long-lived assets and was included in the results of operations of the real estate segment.

⁽³⁾ The Company had a non-recurring fair value measurement for real estate and capitalized development costs that resulted in an impairment loss. The loss was reported in the condensed consolidated statement of operations and comprehensive income or loss within loss from discontinued agribusiness operations, net of tax and was included in the results of operations of the discontinued agribusiness segment.

⁽⁴⁾ ~~The Company had a non-recurring fair value measurement on its investment in Mindjet that resulted in an impairment loss discussed in~~ ~~Note 4 “Investments.”~~

~~Year Ended December 31, 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
Intangible water assets⁽¹⁾

$ 3,638
$ (2,282 )
Tangible water asset and other assets ⁽²⁾

$ —
$ (3,509 )
Oil and gas wells ⁽³⁾

$ 1,730
$ (4,428 )
Real estate ⁽⁴⁾

$ 1,357
$ (2,865 )
Investments in unconsolidated affiliates equity securities held at cost ⁽⁵⁾

$ 15,858
$ (1,078 )

⁽¹⁾ ~~The Company had a non-recurring fair value measurement for intangible assets that resulted in an impairment loss discussed in~~ ~~Note 3 “Intangible Assets.”~~

⁽²⁾~~The Company had a non-recurring fair value measurement for a tangible water asset that resulted in an impairment loss discussed in~~ ~~Note 2 “Real Estate and Tangible Water Assets~~.”

⁽³⁾Due to the significant decline in crude oil prices during the fourth quarter of 2014, the Company completed an impairment analysis of the oil and gas wells using a discounted cash flow model. Based on the analysis, the Company wrote down the carrying value of oil wells capitalized to their estimated fair value, resulting in an impairment loss for the year ended December 31, 2014.

⁽⁴⁾The Company had a non-recurring fair value ~~measurement~~measurements of a real estate ~~asset~~assets discussed in Note 2, “Real Estate and Tangible Water ~~Assets, Net.~~Assets.”

⁽⁵⁾⁽⁴⁾The Company had a non-recurring fair value measurement of an investment in an unconsolidated ~~affiliates~~affiliate’s equity securities held at cost discussed in Note 4, “Investments.”

Estimated Fair Value of Financial Instruments Not Carried at Fair Value

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The level within the fair value hierarchy in which the fair value measurements are classified include measurements using quoted prices in active markets for identical assets or liabilities (Level 1), quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active (Level 2), and significant valuation assumptions that are not readily observable in the market (Level 3).

As of September 30, ~~2015~~2016 and December 31, ~~2014,~~2015, the fair values of cash and cash equivalents, accounts payable, and accounts receivable approximated their carrying values because of the short-term nature of these assets or liabilities. The estimated fair value of the Company’s investments in unconsolidated affiliates approximated their carrying values. The estimated fair value of the Company's debt was based on cash flow models discounted at the then-current interest rates and an estimate of the then-current spread above those rates at which the Company could borrow, which are Level 3 inputs in the fair value hierarchy. The estimated fair value of certain of the Company’s other investments, which included investments in preferred stock of private companies, cannot be reasonably estimated on a recurring basis.

The following table presents the carrying value and estimated fair value of the Company’s financial instruments which are not carried at fair value (in thousands):


	September 30, 2015				December 31, 2014				September 30, 2016				December 31, 2015
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial assets:
Investments in unconsolidated affiliates equity securities	$	3,482	$	7,986	$	18,028	$	18,028
Investments in unconsolidated affiliates debt securities					$	2,662	$	7,964
Investments in unconsolidated affiliates’ equity securities									$	3,482	$	3,482	$	3,482	$	3,482

Financial liabilities:
Debt	$	170,150	$	176,264	$	135,451	$	150,143	$	157,785	$	167,376	$	155,966	$	166,769

The following table details the Company’s outstanding debt (in thousands):

13At September 30, 2016, and December 31, 2015, the Company’s real estate debt had a weighted average interest rate of 6.5% and 6.4%, respectively.

As of September 30, 2016, and December 31, 2015, the Company had approximately $228.2 million and $232.6 million, respectively, available in loan commitments to draw upon, of which approximately $69.6 million and $75.1 million, respectively, was available.

Debt Provisions, Restrictions, and Covenants on Real Estate Debt:

Certain ~~of UCP’s~~ debt agreements of UCP, Inc. (“UCP”) contain various significant financial covenants, each of which UCP was in compliance with at September 30, ~~2015, as follows.~~2016 and December 31, 2015.

1) Certain of UCP’s real estate debt include provisions that require minimum loan-to-value ratios. During the term of the loan, the lender may require UCP to obtain a third-party written appraisal of the underlying real estate collateral. If the appraised fair value of the collateral securing the loan is below the specified minimum, UCP may be required to make principal payments in order to maintain the required loan-to-value ratios. As of September 30, 2015, the lenders have not requested and UCP has not obtained any such appraisals.

2) The $75 million of senior notes issued in 2014 by UCP limit UCP’s ability to, among other things, incur or guarantee additional unsecured and secured indebtedness (provided that UCP may incur indebtedness so long as UCP’s ratio of indebtedness to its consolidated tangible assets (on a pro forma basis) would be equal to or less than 45% and provided that the aggregate amount of secured debt may not exceed the greater of $75 million or 30% of UCP’s consolidated tangible assets); pay dividends and make certain investments and other restricted ~~payments;~~payments (including purchasing UCP stock); acquire unimproved real property in excess of $75 million per fiscal year or in excess of $150 million over the term of the notes, except to the extent funded with subordinated obligations or the proceeds of equity issuances; create or incur certain liens; transfer or sell certain assets; and merge or consolidate with other companies or transfer or sell all or substantially all of UCP’s consolidated assets.

~~Additionally, the senior notes require UCP to maintain the following significant covenants, each of which UCP was in compliance with at September 30, 2015.~~Other:


1)	Minimum Unlevered Asset Pool: UCP must maintain $50 million of consolidated tangible assets not subject to liens securing indebtedness. At September 30, 2015, UCP’s consolidated tangible assets not subject to liens securing indebtedness was $167.1 million.


2)	~~Minimum Net Worth: UCP must maintain a minimum net worth of $175 million. At September 30, 2015, UCP’s minimum net worth was $236.1 million.~~


3)	~~Minimum Liquidity: UCP must maintain a minimum of $15 million of unrestricted cash and/or cash equivalents. At September 30, 2015, UCP’s unrestricted cash and/or cash equivalents was $22.6 million.~~


4)	~~Decrease in Consolidated Tangible Assets: UCP may not permit decreases in the amount of consolidated tangible assets by more than:~~

~~a) $25~~The Company incurred and capitalized $3.2 million ~~in any fiscal year. For~~and $9.3 million of interest during the three and nine months ended September 30, ~~2015, UCP’s consolidated tangible assets increased $42.6 million.~~

~~b) $50 million at any time. Since October 21, 2014, UCP’s consolidated tangible assets increased $112.5 million.~~

~~Other:~~

As of September 30, 2015, the Company had approximately $92.1 million of unused loan commitments within the real estate operations. As of December 31, 2014, the Company had approximately $87.3 million of unused loan commitments within the real estate operations.

~~The Company capitalized~~2016, respectively, and $3.1 million and $8.5 million of interest during the three and nine months ended September 30, 2015, respectively, related to construction and ~~$701,000~~real estate development costs. Due to debt covenants and ~~$1.6~~other restrictions, the total restricted net assets of the Company’s consolidated subsidiaries were $128.9 million at September 30, 2016.

7. Commitments and Contingencies

The Company leases some of ~~interest during~~its offices under non-cancelable operating leases that expire at various dates through 2021. Rent expense for office space was $469,000 and $1.5 million for the three and nine months ended September 30, ~~2014,~~2016, respectively, ~~related to construction~~ and ~~real estate development costs.~~was $511,000 and $1.7 million for the three and nine months ended September 30, 2015, respectively.

Future minimum payments under all operating leases are as follows (in thousands):

~~7. Commitments and Contingencies~~



Year ended December 31,
2016	$	372
2017	1,230
2018	936
2019	413
2020	213
Thereafter	18
Total	$	3,182

Neither PICO nor its subsidiaries are parties to any potentially material pending legal proceedings.

The Company is subject to various litigation matters that arise in the ordinary course of its business. Because litigation is inherently unpredictable and unfavorable resolutions could occur, assessing contingencies is highly subjective and requires judgments about future events. When evaluating contingencies, the Company may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the presence of complex or novel legal theories, and/or the ongoing discovery and development of information important to the matters. In addition, damage amounts claimed in litigation against the Company may be unsupported, exaggerated or unrelated to possible outcomes, and as such, are not meaningful indicators of the potential liability. The Company regularly reviews contingencies to determine the adequacy of accruals and related disclosures. The amount of ultimate loss may differ from these estimates, and it is possible that ~~cash flows or results of operations~~the financial statements could be materially affected in any particular period by the unfavorable resolution of one or more of these contingencies.

Whether any losses finally determined in any claim, action, investigation, or proceeding could reasonably have a material effect on the Company’s business, financial condition, results of operations, or cash flows will depend on a number of variables, including: the timing and amount of such losses; the structure and type of any remedies; the significance of the impact any such losses, damages or remedies may have on the Company’s condensed consolidated financial statements; and the unique facts and circumstances of the particular matter that may give rise to additional factors.

~~Lease Commitments~~

The Company leases some of its offices under non-cancelable operating leases that expire at various dates through 2020. Rent expense for office space was $511,000 and $1.7 million for the three and nine months ended September 30, 2015, respectively, and was $441,000 and $1.3 million for the three and nine months ended September 30, 2014, respectively.

~~Future minimum payments under all operating leases are as follows (in thousands):~~

Year ended December 31,
2015 $ 400
2016 1,547
2017 1,414
2018 1,289
2019 531
Thereafter 159
Total $ 5,340

8. Accumulated Other Comprehensive Income ~~or Loss~~

The components of accumulated other comprehensive income are as follows (in thousands):


	September 30, 2015			December 31, 2014			September 30, 2016			December 31, 2015
Net unrealized gain on available-for-sale investments	$	5,068		$	4,773		$	6,549		$	5,065
Foreign currency translation	(141		)	(56		)	(47		)	(104		)
Accumulated other comprehensive income	$	4,927		$	4,717		$	6,502		$	4,961

The unrealized gain on available-for-sale investments is net of a deferred income tax liability of ~~$2.7~~$3.5 million at September 30, ~~2015~~2016 and ~~$2.6~~$2.8 million at December 31, ~~2014.~~2015.

The following table reports amounts that were reclassified from accumulated other comprehensive income or loss and included in earnings (in thousands):

⁽²⁾ ~~Amounts reclassified from unrealized gain or loss on foreign exchange are included in other income in the consolidated statement of operations and comprehensive income or loss.~~

9. Related-Party Transactions

Deferred Compensation

AtThe Company has agreements with certain officers and employees to defer compensation into Rabbi Trust accounts held in the name of the Company. The total value of the deferred compensation obligation for all participants at September 30, ~~2015~~2016 and December 31, ~~2014, the Company had~~2015, was $26.7 million and $25.5 million, respectively, and ~~$24.6 million, respectively, recorded as deferred compensation payable to various members~~is included in the accompanying consolidated balance sheets. These totals include a fair value of ~~management~~$653,000 and ~~certain non-employee members~~$805,000 of the ~~board of directors~~Company’s common stock, for each of the ~~Company.~~respective periods, with the balance in various publicly traded equities and bonds.

~~Compensation~~Deferred compensation expense ~~or recovery~~ included in ~~operating~~general, administrative, and other costs in the accompanying condensed consolidated statements of operations and comprehensive income or loss for the three months ended September 30, 2016 and 2015 was $1.8 million and ~~2014 was expense of~~ $90,000, ~~and a recovery of $414,000,~~ respectively and for the nine months ended September 30, 2016 and 2015 ~~and 2014~~ was ~~expense of~~$2.8 million and $1.1 million, respectively. During the three and ~~expense of $600,000, respectively.~~

~~On January 20, 2015,~~nine months ended September 30, 2016, the Company ~~sold equity securities with a cost basis~~distributed 22,644 shares of ~~$2.3 million to certain~~the Company’s common stock out of its deferred compensation Rabbi ~~Trust accounts held by~~Trusts in satisfaction of the ~~Company,~~related liability. The distribution was reported as a reduction of treasury stock in the condensed consolidated statements of equity for the ~~benefit~~nine months ended September 30, 2016.

In connection with the termination of the Company’s ~~President and~~former Chief Executive Officer, John R. Hart, which was effective as of October 12, 2016, the Company will be required to distribute to Mr. Hart his deferred compensation balance in April 2017. At September 30, 2016, Mr. Harts deferred compensation balance was valued at approximately $22.8 million. See Note 12, “Subsequent Events,”for ~~total proceeds of $5 million, which represented the market value of these securities on the date of sale.~~additional information.

Investment in Synthonics

The Company has an investment in preferred stock ~~and an outstanding line~~ of ~~credit with~~ Synthonics, a company co-founded by Mr. Slepicka, formerly a non-employee director of the Company, who is currently the Chairman, Chief Executive Officer and acting Chief Financial Officer of Synthonics. As of September 30, ~~2015,~~2016, the Company had invested $2.2 million for ~~18.3%~~18.2% of the voting interest in Synthonics. ~~In addition,~~Mr. Slepicka resigned as a member of the ~~Company extended a $450,000 line~~Board of ~~credit to Synthonics during 2014, which bears interest at 15% per annum. The outstanding balance and accrued interest was repaid in April 2015.~~Directors effective July 27, 2016.

10. Segment Reporting

PICO is a diversified holding company engaged in the following operating and reportable segments: Water Resource and Water Storage Operations, Real Estate Operations, Corporate, and Discontinued Agribusiness Operations. The accounting policies of the reportable segments are the same as those described in the Company’s ~~2014~~2015 Annual Report on Form 10-K filed with the SEC.

Management analyzes segments using the following information:

Segment assets (in thousands):

Segment revenues and ~~income (loss)~~loss before taxes (in thousands):

11. Discontinued Agribusiness Operations and Other Assets Held for Sale

~~On July 13,~~During the third quarter of 2015, the Company ~~entered into an agreement to sell~~sold substantially all of the assets used in its agribusiness segment to CHS Inc. (“CHS”) for a net selling price of $105.3 million. The transaction closed on July 31, 2015. The selling price was determined primarily as an amount equal to $127 million less an estimated $22 million working capital balance adjustment. The final sale price is subject to change upon final calculation of the working capital balance to be determined within 90 days from the date the sale closed. If the final working capital balance is less than the estimated working capital balance, the Company will pay CHS for the shortfall, however the Company will receive additional proceeds if the final working capital balance is greater than the estimated working capital balance. After repayment of $80.9 million of outstanding debt and $5.9 million in selling and other related costs of the sale, the Company received net proceeds of $18.4 million on the date of close.

The Company was required to deposit $10.2 million of such net proceeds in ~~two separate~~ escrow accounts, $6 million of which ~~is presented within~~secures general indemnification obligations through January 2017, and $4.2 million of which was associated with specified operational matters related to air quality and waste water permit issues (“operational escrow”). The Company resolved the air quality issue and received $2.4 million of the operational escrow amount in October 2015. However, in February 2016, the Company was notified that the relevant regulatory authorities had not approved the waste water permit at the levels required under the sale agreement. Consequently, the remaining $1.8 million of the operational escrow amount was released to CHS in full satisfaction of the matter, resulting in the Company recording the amount as additional loss on the sale of discontinued operations for the nine months ended September 30, 2016. Remaining amounts in escrow are reported as accounts receivable in the table below. The first escrow account required $6 million to secure general indemnification obligations and for refund of any difference in the final working capital balance. Any balance remaining after payment of indemnification claims will be released 18 months from the closing date of the sale. The second escrow account required $4.2 million for specified operational matters (“operational escrow”). Specified amounts of the operational escrow related to proposed amendments to two environmental permits related to plant operations that are in process, but were not received prior to the closing date of the sale. The first matter related to certain waste water issues at the plant that required a deposit of $1.8 million and the second matter relates to plant air quality issues that required a $2.4 million deposit. During October 2015, the air quality issue was resolved and the Company received the entire $2.4 million deposit. In the event that the waste water permit amendment is not approved by the relevant regulatory authorities, the deposit in the operational escrow will be paid to CHS in satisfaction of the matter. Conversely, if the amendment is approved, the entire deposit will be released to the Company. The Company anticipates resolution within the next six months. Such escrowed balances have been recorded at an estimated fair value that reflects the Company’s expectation that the majority of these funds will eventually be released to the Company. However, any amounts paid by out of these escrow accounts to CHS in excess of the estimate will result in additional loss on the sale.

The Company also guaranteed up to $8 million for any indemnification claims in excess of the $6 million general indemnification escrow pursuant to the terms of a guaranty agreement with CHS, which was executed at the closing. This guaranty will remain in force for five years from the date of sale. 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 to CHS in excess of the estimate will result in additional loss on the sale.

During the three and nine months ended September 30, 2015, the Company recorded losses of $1.3 million and $18.3 million, respectively, on the sale of discontinued agribusiness operations. Such losses were included in loss on sale of discontinued agribusiness operations in the accompanying condensed consolidated statement of operations and comprehensive income or loss. Although there are outstanding issues to resolve with respect to this sale as noted above, as of September 30, 2015, the Company does not expect to record any other significant expenses related to the operations or sale of the discontinued agribusiness operations. The assets of the Company’s discontinued agribusiness presented in the table below at September 30, 2015, were comprised primarily of the operational escrowed funds discussed above and cash. Any assets in excess of the resolution of the outstanding matters, and after payment of remaining liabilities, are available to the Company for any corporate purposes.

The Company’s agribusiness segment ~~qualified as held-for-sale at September 30, 2015 and~~ has been classified as discontinued agribusiness operations in the accompanying condensed consolidated financial statements as of the earliest period presented. Consequently, prior periods presented have been recast from amounts previously reported to reflect the agribusiness segment as discontinued agribusiness operations.

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


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014			2016			2015			2016			2015
Revenue and other income:
Sales of canola oil and meal	$	9,600		$	41,144		$	82,267		$	124,963					$	9,600					$	82,267
Other	18			1,453			(50		)	2,417						18						(50		)
Total revenue and other income	9,618			42,597			82,217			127,380						9,618						82,217

Cost of goods sold:
Cost of canola oil and meal sold	(8,738		)	(38,319		)	(79,763		)	(103,501		)				8,738						79,763
Depreciation	(18		)	(2,068		)	(4,360		)	(6,194		)				18						4,360
Other direct costs of production	(1,155		)	(2,828		)	(5,938		)	(8,581		)				1,155						5,938
Total cost of goods sold	(9,911		)	(43,215		)	(90,061		)	(118,276		)				9,911						90,061

Depreciation				(37		)	(95		)	(110		)										95
Impairment loss on intangible and long-lived assets							(1,875		)													1,875
Interest	(428		)	(1,312		)	(3,259		)	(3,964		)				428						3,259
Plant costs and overhead	(9,504		)	(3,254		)	(16,447		)	(9,992		)	$	18		9,504			$	102		16,447
Segment total expenses	(19,843		)	(47,818		)	(111,737		)	(132,342		)	18			19,843			102			111,737
Loss from discontinued agribusiness operations, net of tax	(10,225		)	(5,221		)	(29,520		)	(4,962		)	(18		)	(10,225		)	(102		)	(29,520		)
Loss on sale of discontinued agribusiness operations, net of tax ⁽¹⁾	(1,348		)				(18,251		)
Income (loss) on sale of discontinued agribusiness operations, net of tax													2			(1,348		)	(1,858		)	(18,251		)
Net loss from discontinued agribusiness operations, net of tax	(11,573		)	(5,221		)	(47,771		)	(4,962		)	(16		)	(11,573		)	(1,960		)	(47,771		)
Net (income) loss from discontinued agribusiness operations attributable to noncontrolling interests	(16		)	641			1,730			594						(16		)				1,730
Net loss from discontinued agribusiness operations attributable to PICO Holdings, Inc.	$	(11,589	)	$	(4,580	)	$	(46,041	)	$	(4,368	)	$	(16	)	$	(11,589	)	$	(1,960	)	$	(46,041	)

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

12. Subsequent Events

Termination of PICO’s CEO and Other Related Changes in Executive Management:

On October 10, 2016, John R. Hart’s employment as President and Chief Executive Officer of the Company was terminated, effective as of October 12, 2016.

Mr. Hart will receive the severance benefits set forth in Section 4(b) of his Amended and Restated Employment Agreement with the Company, dated March 11, 2016 and filed with the SEC on March 14, 2016 (the “Employment Agreement”). Such benefits include certain severance and vacation differential payments totaling approximately $10.4 million, certain medical benefits, and immediate vesting of the outstanding RSU and Performance Based Options (“PBO”) previously granted. Mr. Hart was also entitled to the balance of his accrued vacation and personal days valued at $339,000 which was paid to him in October 2016.

The Company will accrue the $10.4 million in severance benefits and vacation differential, remaining stock-based compensation, and related expenses in the fourth quarter of 2016. In accordance with applicable regulations, payment of the severance benefits and vacation differential, stock settlement of the vested RSU, and distribution of Mr. Hart’s deferred compensation balance, will be made to Mr. Hart no earlier than six months and a day after the effective date of the termination.

In connection with Mr. Hart’s termination, the Company’s board of directors appointed Maxim C.W. Webb as President and Chief Executive Officer and to serve as a class III director of the Company, effective as of October 12, 2016, with a term that expires at the Company’s 2017 Annual Meeting of Stockholders, and John T. Perri as Chief Financial Officer. Additionally, each of Mr. Webb and Mr. Perri irrevocably and unconditionally waived their right to receive any bonus payment that would otherwise be payable pursuant to the terms of the Company’s executive bonus plan.

Mr. Hart currently continues to serve as a member of the board of directors of the Company and UCP. However, in October 2016, the Company filed a consent solicitation statement seeking written consents of the shareholders of the Company to remove Mr. Hart as a director of the Company.

In August 2016, the Company entered into a purchase and sale agreement to sell the majority of the assets used in its oil and gas operations effective October 1, 2016 for gross proceeds of $10.2 million. After consideration of liabilities assumed by the buyer and escrow holdback of approximately $587,000 for lease title defects that the Company has the right to cure within one year of the date of sale, cash proceeds to the Company were $9.2 million. The purchase and sale agreement provides for a Company guarantee of $1 million for any indemnification claims made by the buyer within one year of the sale. As the carrying value of the assets sold was reduced significantly in prior periods due to impairment losses and depletion charges, the Company will record a gain on sale before income taxes of $8.6 million during the fourth quarter of 2016 that will be reported within the Company’s corporate segment results.

In October 2016, the Company completed a sale of 32 acres of real estate in Fresno, California for cash of $3.4 million. The transaction did not result in any gain or loss as the real estate was previously written down to the estimated sale price during the year ended December 31, 2015, which is further discussed in Note 2 “Real Estate and Tangible Water Assets.”

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of financial condition and results of operations should be read together with the Unaudited Condensed Consolidated Financial Statements and accompanying Notes included elsewhere in this report, and the Consolidated Financial Statements and accompanying Notes included in our Annual Report on Form 10-K for the year ended December 31, ~~2014.~~2015.

Note About “Forward-Looking Statements”

This Quarterly Report on Form 10-Q (including the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section) contains “forward-looking statements,” as defined in Section 21E of the United States Securities Exchange Act of 1934, as amended, regarding our business, financial condition, results of operations, and prospects, including, without limitation, statements about our expectations, beliefs, intentions, anticipated developments, and other information concerning future matters. Words such as “may,” “will,” “could,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “should,” “target,” “projects,” “contemplates,” “predicts,” “potential,” “continue,” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements in this Quarterly Report on Form 10-Q. Although forward-looking statements in this Quarterly Report on Form 10-Q reflect the good faith judgment of our management, such statements can only be based on current expectations and assumptions. Consequently, forward-looking statements are inherently subject to risks and uncertainties, and the actual results and outcomes could differ from what is expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those discussed under the headings “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2014,~~2015, in “Item 1A: Risk Factors” of Part II of this Quarterly Report on Form 10-Q, and in other filings made from time to time with the United States Securities and Exchange Commission (“SEC”) after the date of this Quarterly Report on Form 10-Q. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to (and we expressly disclaim any obligation to) revise or update any forward-looking statement, whether as a result of new information, subsequent events, or otherwise (except as may be required by law), in order to reflect any event or circumstance which may arise after the date of this Quarterly Report on Form 10-Q. Readers are urged to carefully review and consider the various disclosures made in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K and other filings with the SEC.

Business Strategy and Goals

PICO Holdings, Inc. is a diversified holding company. In this Quarterly Report, PICO and its subsidiaries are collectively referred to as “PICO,” “the Company,” or by words such as “we” and “our.” We seek to build and operate businesses where we believe significant value can be created from the development of unique assets and to acquire businesses which we identify as undervalued and where our management participation in operations can aid in the recognition of the business’s fair value, as well as create additional value.

Our objective is to maximize long-term shareholder ~~value and~~value. Currently, we believe the highest potential return to ~~manage our operations~~shareholders is from a return of capital. As we monetize assets, rather than reinvest the proceeds, we intend to ~~achieve~~return capital back to shareholders through a ~~superior return on net assets over the long term,~~stock repurchase program or by other means such as opposed to short-term earnings. We own and operate several diverse businesses and assets. Our portfolio of businesses is designed to provide a mix of revenues and income from both long-term assets that may require several years to develop and monetize and shorter-term operations that should generate recurring revenue each quarter.special dividends.

As of September 30, ~~2015,~~2016, our business was separated into the following segments:

As of September 30, ~~2015,~~2016, our major consolidated subsidiaries were (wholly–owned unless noted):

Results of Operations — Three and Nine Months Ended September 30, ~~2015~~2016 and ~~2014~~2015

Overview of Economic Conditions, Other Recent Events, and Impact on Results of Operations

The economic environment and housing slow-down in the U.S. between 2007 and 2011 significantly decreased the rate of growth in the Southwest and the demand for our water and real estate assets in certain markets. Numerous factors can affect the performance of an individual market. However, we believe that trends in employment, housing inventory, affordability, interest rates, and home prices have a particularly significant impact. We expect that these market trends will have an impact on our operating performance. Trends in housing inventory, home affordability, employment, interest rates and home prices are the principal factors that affect our revenue and many of our costs and expenses. For example, when these trends are favorable, we expect our revenue, as well as our related costs and expenses, to generally increase; conversely, when these trends are negative, we expect our revenue and cost of sales to generally decline, although in each case the impact may not be immediate. There has been a recovery and improvement in the housing markets from levels seen during the slow-down (with seasonal fluctuations) which has led to increased levels of real estate development activity in the past two to three years, and we believe that a continuation of the housing recovery will lead to increased demand for our real estate, and intangible and tangible water assets (which are held in our real estate segment and water resource and water storage ~~segment), respectively.~~segment, respectively). Individual markets continue to experience varying results, as local home inventories, affordability, and employment factors strongly influence each local market and any deterioration in the markets in which we operate has the potential to cause additional impairment losses on our real estate and water assets.

The focus of our operations is building long-term shareholder value. Our revenues and results of operations can and do fluctuate widely from period to period. For example, we recognize revenue from the sale of real estate and water assets when specific transactions close, and as a result, sales of real estate and water assets for any individual quarter are not necessarily indicative of revenues for future quarters or the full financial year.

~~Significant Transactions During the Third Quarter of 2015:~~

~~Discontinued Agribusiness Operations~~

On July 13, 2015, we signed an agreement to sell substantially all of the assets of our agribusiness segment. The sale closed on July 31, 2015. As a result of the transaction, the assets and liabilities of the agribusiness segment have been classified as discontinued agribusiness operations in our condensed consolidated financial statements as of the earliest period presented. Consequently, the discussion and analysis that follows reflect the agribusiness segment as discontinued agribusiness operations. For the nine months ended September 30, 2015, we recorded a loss of $18.3 million on the sale of our discontinued agribusiness operations. See ~~Note 11 “Discontinued Agribusiness Operations” for additional information.~~

PICO Holdings, Inc. Shareholders’ Equity (in thousands):

The decrease in our shareholders’ equity was primarily due to the comprehensive loss of ~~$80.5~~$11.6 million incurred during the nine ~~month~~months ended September 30, 2015. The two most significant transactions that contributed to the loss for the period were the losses recorded on the sale of our discontinued agribusiness operations, and the loss on our investment in Mindjet.2016.

Total Assets and Liabilities (in thousands):

Total assets decreased during the nine ~~month~~months ended September 30, ~~2015 primarily~~2016 due to ~~decreases~~a decrease in ~~three significant balances, offset by an increase in real estate and water assets. During the period, assets~~cash of ~~our discontinued agribusiness operations, investments, and cash declined by a total of $190.3 million. Reported assets in our discontinued agribusiness operations declined $138.5~~$18.5 million ~~primarily due to the sale of such operations. Our reported investments declined by $29.2 million primarily due to the impairment loss on our investment in Mindjet. In addition, our other operations~~ used ~~$22.5 million of cash~~primarily to purchase real estate and pay overhead ~~expenses.~~expenses, and a decrease in goodwill of $4.2 million resulting from an impairment loss recorded due to revised financial forecasts for the Southeast operations, related to the Citizens Homes, Inc. (“Citizens”) acquisition were revised. These decreases were partially offset by an increase in real estate and water assets of ~~$60.8~~$15.2 million ~~primarily~~and other increases in investments due to appreciation of the ~~acquisition~~portfolio and ~~development of real estate in UCP.~~ notes and other receivables.

Total liabilities ~~decreased~~increased during the nine months ended September 30, ~~2015~~2016 primarily due to ~~a $93.5 million decrease in our liabilities in our discontinued agribusiness operations, offset by~~ the following:

Results of Operations

~~Our results of operations were as follows (in thousands):~~

The majority of our recurring revenue was generated in our real estate operation, which records revenue from the sale of residential homes and lots. Our revenue from real estate operations increased during the three ~~and nine~~ months ended September 30, ~~2015~~2016 as the result of a significant increase in the ~~number~~average price of homes sold ~~period-over-period. Our corporate segment recorded an impairment loss of $20.7 million on our total investment in Mindjet which reduced revenues significantly~~period over period, and increased during the nine months ended September 30, ~~2015.~~2016 as the result of an increase in the number of homes sold and a significant increase in the average price of homes sold period-over-period.

~~Income (Loss) from Continuing Operations Before Income Taxes~~Costs and ~~Equity in Loss of Unconsolidated Affiliates~~Expenses

The majority of our costs and expenses were related to cost of real estate and water assets sold. The increase in ~~our year-over-year results from continuing operations before income taxes~~costs and ~~equity in loss of unconsolidated affiliates from a loss during~~expenses for the three ~~months~~and nine month ended September 30, ~~2014 to income for the three months ended September 30, 2015~~2016 was ~~due to increased sales~~primarily from an increase in ~~both~~cost of real estate sold in our real estate ~~operations and our water resource and water storage operations. The loss for the nine months ended increased year-over-year primarily~~segment due to the increased number of homes sold year-over-year, and a ~~$20.7~~$4.2 million ~~impairment~~ loss on ~~our investment in Mindjet, offset by increased income from both our real estate operations and our water resource and water storage operations.~~impairment of goodwill.

We continued to record a full valuation allowance on our net deferred tax assets ~~however,~~and as a result there were minimal income taxes reported during each of the three and nine months ended September 30, 2016 and three months ended September 30, 2015. During the nine months ended September 30, 2015, we ~~also~~ recorded a $2.9 million income tax benefit ~~during the nine months ended September 30, 2015~~ primarily due to the reversal of a taxable temporary difference related to our investment in Mindjet. Such temporary difference reversed during the period due to the impairment loss recorded on the investment. No such benefit was recorded during the three and nine months ended September 30, ~~2014 and as a result of recording a full valuation allowance on our net deferred tax assets, there was a minimal income tax benefit reported during 2014.~~2016.

~~Equity in Loss of Unconsolidated Affiliates~~Discontinued Agribusiness Operations

~~For~~Our discontinued agribusiness loss decreased significantly for the three and nine months ended September 30, 2016 as compared to the three and nine months ended September 30, 2015. The losses reported in 2015 included loss on discontinued operations of $10.2 million and $29.5 million for the three and nine months ended September 30, 2015, ~~we recorded a~~respectively, and loss on sale of discontinued operations of $1.3 million and $18.3 million for the three and nine months ended September 30, 2015, respectively. The only material loss in 2016 was additional loss on sale of discontinued agribusiness operations of $1.9 million, ~~and $3.4 million, respectively,~~primarily related to the resolution of a waste water permit issue in the ~~statement~~first quarter of operations within equity in loss of unconsolidated affiliate. The losses in 2015 were significantly higher than 2014 due to declining revenue and increased interest expense at Mindjet during 2015. At September 30, 2015, we no longer had significant influence over Mindjet and will account for the remaining $2.2 million investment using the cost method.2016.

Noncontrolling Interests

Noncontrolling interests reported net income of $1 million and $1.7 million for the three months ended September 30, 2016 and 2015, respectively, and net income of $1.7 million and a net loss of ~~$504,000 for the three months ended September 30, 2015 and 2014, respectively, and a net loss of~~ $2.4 ~~million and $3.1~~ million for the nine months ended September 30, ~~2015~~2016 and ~~2014,~~2015, respectively. The majority of the income during the three months ended September 30, 2016 and 2015, and nine months ended September 30, 2016 was from income reported by UCP. Of the loss reported during the nine months ended September 30, 2015, $1.7 million was attributable to our discontinued agribusiness operations and ~~2014,~~ $555,000 ~~and $2.2 million, respectively,~~ was attributable to the loss reported by UCP. ~~During the nine months ended September 30, 2015, $1.7 million of the loss was attributable to discontinued agribusiness operations.~~

Comprehensive Income or Loss

~~Our reported~~We report comprehensive income or loss as well as net income or loss ~~of $14.1 million, or $0.61 per share, for~~from the ~~three months ended September 30, 2015, was comprised~~condensed consolidated statements of ~~a $2.5 million loss, or $0.11 per share, from continuing~~ operations and ~~an $11.6 million loss,~~comprehensive income or ~~$0.50 per share, from our discontinued agribusiness operations~~loss. Comprehensive income measures changes in equity, and includes unrealized items which ~~was due to~~are not recorded in the ~~combination~~condensed consolidated statements of $10.2 million in operating losses allocated to us, with the balance allocated to noncontrolling interest, and a $1.3 million loss recorded on the sale of our discontinued agribusiness operations. During the three months ended September 30, 2014 we reported a net loss of $9.9 million, or $0.44 per share, which was comprised of a $5.4 million loss, or $0.24 per share, from continuing operations and a net loss of $4.6 million, or $0.20 per share, allocated to us from our discontinued agribusiness operations.

Similarly, our reported net loss of $80.7 million, or $3.51 per share, for the nine months ended September 30, 2015, was comprised of a $34.6 million loss, or $1.51 per share, from continuing operations and a $46 million loss, or $2.00 per share, from our discontinued agribusiness operations which was due to the combination of a $27.8 million loss allocated to us, and an $18.3 million loss recorded on the sale of our discontinued agribusiness operations. During the nine months ended September 30, 2014 we reported a net loss of $21.3 million, or $0.94 per share. The net loss was comprised of $17 million in loss, or $0.75 per share, from continuing operations, and a loss of $4.4 million, or $0.19 per share, allocated to us from our discontinued agribusiness operations.

Water Resource and Water Storage Operations

Historically, our water resource and water ~~resource~~storage segment revenue and results have been ~~volatile.~~volatile and infrequent. Since the date ~~of closing~~a transaction closes generally determines the accounting period in which ~~the~~any sales revenue and cost of sales are recorded, our reported ~~revenue~~revenues and income ~~or loss~~in this segment fluctuate from period to period, depending on the dates when specific transactions close. Consequently, revenue in any one year is not necessarily indicative of likely revenue in future years.

We did not consummate any significant sales of real estate and water assets in the three or nine months ended September 30, 2016. Revenue in these periods consisted primarily of lease income and option fees. During the third quarter of 2015, we sold 258 acres of real estate and approximately 774 acre-feet of water rights in the Harquahala Valley area of Arizona for cash proceeds of $3.4 million, which generated a gross margin of $2.4 million. ~~We did not generate any significant sales of real estate and water assets during the three or nine months ended September 30, 2014.~~

~~The increase in cost of real estate and water assets sold was the result of the sale noted above. Apart from the increase in cost of real estate and water assets sold, our total~~Total expenses remained consistent ~~year-over-year~~ for both the three and nine month periods year-over-year with overhead being the most significant cost reported during the periods. ~~Such costs decreased during the nine months ended September 30, 2015, primarily due to reductions in benefit expense.~~ Overhead costs consisted primarily of salaries and benefits, professional fees, office rent and insurance. The cost of real estate and water assets sold decreased year-over-year for both the three and nine month periods due to the aforementioned significant sale of 258 acres of real estate and approximately 774 acre-feet of water rights in the Harquahala Valley area of Arizona.

Project expenses ~~consist~~consisted of costs related to the ~~development~~ongoing maintenance of ~~existing water resources, such as maintenance~~our assets, and professional fees. Project costs are expensed as appropriate and fluctuate from period to period depending on activity in our ~~water resource~~various projects. ~~Project~~Historically, project expenses principally related to:

During the nine months ended September 30, 2016 our Arizona Recharge Facility was fully depreciated, reducing our annual operation and maintenance expense related to the site by approximately $1 million annually, of which $879,000 was depreciation. In general, we expect project costs to decrease year-over-year as our assets are essentially fully developed. However, one-time unexpected costs could be incurred occasionally. During the nine months ended September 30, 2016 project expenses increased primarily due to one-time maintenance and legal charges related to our Arizona Recharge Facility and associated water credits, which we do not expect to recur in the future.

If we fail to generate revenue, incur additional expenses beyond expectations, continue to report operating losses, or if expected prices for our water assets fall, we could be required to record additional impairment losses on our real estate, tangible and intangible water assets owned in this segment.

Real Estate Operations

As of September 30, ~~2015,~~2016, our businesses in the real estate operations segment were primarily conducted through our 56.9% owned subsidiaries UCP, Inc. and UCP, LLC, and its homebuilding and land development operations in California, Washington State, North Carolina, South Carolina, and Tennessee.

During the three and nine months ended September 30, ~~2015,~~2016, the overall U.S. housing market continued to show signs of improvement, driven by factors such as ~~decreasing~~continued supply and demand imbalance, low mortgage rates and employment growth. Individual markets continue to experience varying results, as local home inventories, affordability and ~~high home affordability.~~employment factors strongly influence local markets.

Additionally, we believe that seasonal factors affect the broader housing market as well as our markets (see “Seasonality” in the “Liquidity and Capital Resources” section below). Individual markets continue to experience varying results, as local home inventories, home affordability, and employment factors strongly influence each local market.

~~Numerous factors can~~Homebuilding and land development are local businesses. As a result, we expect local market conditions will affect ~~the performance of an individual~~our community count, revenue and operating performance. Local market ~~however, we believe that~~ trends in employment, housing inventory, home affordability, interest rates, and home prices have a particularly significant impact. We expect that these market trends will have an impact on our operating performance and community count. Trends in housing inventory, home affordability, employment, interest rates and home prices are the principal factors that ~~affect~~impact our ~~revenues~~revenue and ~~many of~~ our ~~costs and~~revenue-related expenses. For example, when these trends are favorable, we expect our revenues from homebuilding and land development, as well as ~~our related costs and~~the expenses that vary with revenue, to generally increase; conversely, when these trends are negative, we expect our revenue and ~~costs and~~ expenses that vary with revenue to generally decline, although in each case the impact may not be ~~immediate.~~immediate or directly proportional. When trends are favorable, we would expect to increase our community count by opening additional communities and expanding existing communities; conversely, when these trends are negative, we would expect to reduce or maintain our community count or decrease the pace at which we open additional communities and expand existing communities.

Owned and Controlled Lots

The following tables present certain information with respect to our owned or controlled lots, which are pursuant to purchase or option contracts:

Our wholly-owned subsidiary, Bedrock Land Development, Inc. (“Bedrock”) also owns real estate in Fresno, California that is tentatively approved for the development of 167 lots. Bedrock is not a part of UCP’s operations.

Summary Results of UCP Revenue and Gross Margin for Homes and Lots

In the following discussion, gross margin is defined as sale of real estate less cost of real estate sold, and gross margin percentage is defined as gross margin divided by sale of real estate.

Third Quarter Segment Revenue and Gross Margin

The year-over-year third quarter increase in total segment revenue was primarily attributable to the following combination of factors:

The gross margin percentage of homes sold ~~increased slightly~~decreased in the third quarter of ~~2015~~2016 as compared to ~~2014~~the same period in 2015 primarily due to ~~decreased cost of sales. The decreased cost~~higher costs of home sales, which was ~~primarily~~ attributable to a change in the mix of selling communities period-over-period, as our current portfolio of selling communities had a relatively ~~lower~~higher cost basis than the homes sold during ~~2014, despite higher interest costs.~~the third quarter of 2015.

The lower gross margin in lot sales for the three months ended September 30, 2016, as compared to the same period in 2015, was the result of a land sale in Bakersfield, California of 65 lots that were impaired, and written down to fair value, in the prior quarter. Although there were no finished lot sales during the third quarter of 2015, ~~as compared to 197 lots sold during the third quarter of 2014,~~ we did recognize revenue and the associated cost of goods sold as a result of partially satisfying certain performance obligations related to a land sale from a prior ~~period. As such,~~period and we were able to recognize a portion of previously deferred ~~revenue of $1.1 million during the third quarter of 2015.~~

Third quarter 2015 operating expenses remained consistent in total year-over-year. Sales and marketing expense increased due to the increase in the number of homes delivered. Offsetting this increase was a decrease in general and administrative expense, which was largely the result of a decrease in restricted stock unit expense due to the full vesting of awards granted in connection with UCP’s initial public offering in 2013.revenue.

Nine Months Segment Revenue and Gross Margin

The increase in ~~the~~ first nine months ~~year-over-year~~year-over year total segment revenue was primarily attributable to the following combination of factors:

The gross margin percentage of homes sold induring the ~~first~~ nine months ~~of 2015~~ended September 30, 2016 increased ~~slightly~~ from the ~~first~~ nine months ~~of 2014,~~ended September 30, 2015 primarily due ~~to decreased cost of sales attributable~~ to a change in the mix of selling communities as our current portfolio of selling communities had a ~~relatively lower cost basis~~higher ASP than the ~~homes~~selling communities we sold during the ~~2014 period, despite higher interest costs.~~2015 period.

~~The~~For the nine months ended September 30, 2016, our lot sales gross margin percentage ~~of lots sold in the first nine months of 2015 increased~~decreased, as compared to the same period in ~~2014, which was~~2015, primarily ~~attributable~~due to an impairment charge during the ~~decreased cost~~second quarter of 2016. This land ~~sold during 2015 resulting from a lower cost basis~~sale closed in the ~~lots sold during~~third quarter of 2016 and, as a result of the ~~2015 period.~~previous impairment, did not result in a significant gross margin.

~~Operating expenses for~~During the nine months ended September 30, ~~2015, increased year-over year~~2016, UCP recorded an impairment loss of $2.4 million on real estate located in Bakersfield, California, reducing the carrying value to $5.6 million and recorded an impairment loss of $191,000 on real estate located in Charlotte, North Carolina.

UCP’s homebuilding backlog (homes under sales contracts that have not yet closed at the end of the relevant period) at September 30, 2016 was $157.2 million as compared to a backlog of $120.8 million at September 30, 2015. Sales contracts relating to homes in backlog may be canceled by the purchaser for a number of reasons. Accordingly, backlog may not be indicative of future segment revenue.

Operating expenses increased in total year-over-year during the nine months ended September 30, ~~2014.~~2016. This increase ~~was partially~~is primarily attributable to an increase in ~~sales~~the cost of real estate and ~~marketing related expenses~~water assets sold due to an increase in the number of homes delivered and an increase in the average ~~number~~selling price of ~~selling communities. These increases also led to~~homes sold. Additionally, there was an increase in impairment losses from the ~~headcount~~write off of ~~sales and marketing personnel and the related increase~~our goodwill. The year-over-year decrease in ~~payroll expenses.~~

~~Not part of the UCP results~~operating expenses for the ~~nine~~three months ended September 30, ~~2014, but included~~2016 was primarily related to the reduction in ~~our real estate segment results of operations~~the contingent consideration liability related to the Citizens assets, which was ~~a $2.9 million impairment loss~~partially offset by increases in salaries and bonus expenses recorded ~~on undeveloped property owned in California. There were no material impairment losses recorded in this segment~~ during the ~~nine months ended September 30, 2015.~~period.

If we report significant or sustained operating losses in the future, or if market conditions deteriorate, we could be required to record impairment losses on our real estate ~~assets and goodwill.~~assets.

UCP’s homebuilding backlog (homes under sales contracts that have not yet closed at the end of the relevant period) at September 30, 2015 was $120.8 million as compared to a backlog of $38.9 million at September 30, 2014. Sales contracts relating to homes in backlog may be canceled by the purchaser for a number of reasons. Accordingly, backlog may not be indicative of future segment revenue.

~~From time to time, we make~~The corporate segment consists of cash, fixed-income securities and equity securities, our investments in ~~small businesses, typically venture capital-type situations, which are reported in~~Mindjet and Synthonics, the assets, liabilities and the results of operations of our corporate segment until they meet the requirements for separate segment reporting. Currently, the primary investments in small businesses that we own are Mindjet, a privately held company that sells and licenses software; Mendell Energy, LLC (“Mendell”), a wholly owned oil and gas venture, Mendell, and other parent company assets and liabilities which ~~primarily owns~~are not contained in other segments, including the assets and ~~operates oil and gas leases in~~liabilities of the ~~Wattenberg Field in Colorado; and Synthonics, a pre-clinical stage biopharmaceutical company.~~

~~In addition, the segment includes the results from a portfolio of equity securities in publicly traded companies, the results of~~ deferred compensation ~~investment assets~~trusts held ~~in trust~~ for the benefit of certain officers and non-employee ~~directors and the corresponding and offsetting deferred compensation liabilities, and corporate overhead expenses.~~directors. Revenue ~~consists of~~includes sales from our ~~share of revenue generated from sale of~~ oil and gas ~~interest earned on cash balances and securities~~operations, and realized gains or losses on the sale or impairment of securities and can vary considerably from year to year. The segment results above do not include our share of the income or loss from any investments we ~~account~~accounted for using the equity ~~method.~~method during the respective years presented.

The expenses recorded in this segment primarily consist of ~~operating expenses from our consolidated small business and~~ parent company costs which are not allocated to our other segments, for example, salaries and benefits, directors’ fees, shareholder costs, rent for our head office, stock-based compensation expense, ~~and~~ deferred compensation ~~expense.~~expense, and expenses related to the operations of our oil and gas venture, which consists primarily of our administrative service agreement for the management and administration of the oil and gas wells.

Corporate segment results can fluctuate due to one or more individually significant revenue or expense items which occur irregularly, ~~or infrequently,~~ for example, realized gains or losses on the sale of investments, or which can change significantly from period to period, such as foreign currency gains or losses. Consequently, the corporate segment results are not typically comparable from year to year.

Deferred Compensation Revenue and Expense

The participants in the deferred compensation plan bear the risk of the investment return on the deferred compensation assets, similar to a defined contribution plan such as a 401(k) plan. The investment income and realized gains or losses from the deferred compensation assets are recorded as revenue in the period that they are earned, and a corresponding and offsetting cost or benefit is recorded as deferred compensation expense or recovery. The change in net unrealized appreciation or depreciation in the deferred compensation assets is charged to compensation expense. Once the deferred compensation has been distributed, over the lifetime of the assets, the revenue and deferred compensation expense equal and there is no net effect on segment results.

The year-over-year ~~decrease~~increase in segment revenue for the nine months ended September 30, 2016 was primarily due to the $20.7 million impairment loss on our investment in Mindjet recorded during the second quarter of ~~2015. After recording our share of Mindjet’s~~ 2015, while there was no corresponding loss ~~our remaining carrying value of equity securities and notes receivable was approximately $2.2 million at September 30, 2015.~~in the current year.

During the third and fourth quarter of 2015 Mindjet raised additional capital in a private offering to existing shareholders. We elected to not participate in the offering and consequently, our existing investment in preferred stock was converted five-for-one into common stock and our convertible debt security of $2.7 million was converted into shares of nonvoting preferred stock. As a result, our voting ownership percentage dropped to below 20%, and we are no longer entitled to a board seat. As such, we have discontinued the equity method of accounting and as of September 30, 2015, we account for our investment in Mindjet under the cost method.

Included in other income was revenue from our oil and gas operations that ~~decreased during both~~increased to $320,000 from $243,000 for the three months ended September 30, 2016 and ~~nine month periods year-over-year. We recorded oil~~2015, respectively, and ~~gas revenue of~~to $1.1 million from $731,000 ~~and $2.5 million~~ for the nine months ended September 30, ~~2015~~2016 and ~~2014,~~2015, respectively. The ~~decline~~increase in revenue year-over-year was primarily due to ~~lower~~significantly higher production volumes of oil and gas, ~~and to a lesser extent~~which was partially offset by lower market prices.



Large accelerated filer ¨	Accelerated filer x	Non-accelerated filer ¨	Smaller reporting company ¨



		Page No.

Part I: Financial Information

Item 1:	Condensed Consolidated Financial Statements (Unaudited)	1

	Condensed Consolidated Balance Sheets as of September 30, ~~2015~~2016 and December 31, ~~2014~~2015	1

	Condensed Consolidated Statements of Operations and Comprehensive Income or Loss for the Three and Nine Months Ended September 30, ~~2015~~2016 and ~~2014~~2015	2

	Condensed Consolidated Statements of ~~Shareholders’~~ Equity for the Nine Months Ended September 30, ~~2015~~2016 and ~~2014~~2015	4

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2015~~2016 and ~~2014~~2015	5

	Notes to the Condensed Consolidated Financial Statements	6

Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2021

Item 3:	Quantitative and Qualitative Disclosure About Market Risk	3635

Item 4:	Controls and Procedures	36

Part II: Other Information

Item 1:	Legal Proceedings	36

Item 1A:	Risk Factors	3736

Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	4745

Item 3:	Defaults Upon Senior Securities	4746

Item 4:	Mine Safety Disclosures	4746

Item 5:	Other Information	4746

Item 6:	Exhibits	4847

Signatures		4948

PICO Holdings, Inc. and Subsidiaries Condensed Consolidated Balance Sheets - Unaudited (In thousands, except par value)	PICO Holdings, Inc. and Subsidiaries Condensed Consolidated Balance Sheets - Unaudited (In thousands, except par value)						PICO Holdings, Inc. and Subsidiaries Condensed Consolidated Balance Sheets - Unaudited (In thousands, except par value)

	September 30, 2015			December 31, 2014			September 30, 2016			December 31, 2015
Assets
Cash and cash equivalents	$	40,154		$	62,677		$	37,953		$	56,462
Investments ($22,949 and $28,370 measured at fair value at September 30, 2015 and December 31, 2014, respectively)	26,431			55,671
Investments ($24,870 and $22,590 measured at fair value at September 30, 2016 and December 31, 2015, respectively)							28,352			26,072
Real estate and tangible water assets, net	447,180			386,350			439,401			424,235
Property, plant and equipment, net of $5,487 and $4,742 of accumulated depreciation at September 30, 2015, and December 31, 2014, respectively	4,715			4,224
Intangible assets, net	126,835			126,612			126,919			126,533
Other assets	16,483			16,356			16,996			19,990
Assets held-for-sale	14,028			152,554			10,900			8,793
Total assets	$	675,826		$	804,444		$	660,521		$	662,085

Liabilities and shareholders’ equity
Liabilities and equity
Debt	$	170,150		$	135,451		$	157,785		$	155,966
Accounts payable and accrued expenses	35,991			24,591			36,553			34,458
Deferred compensation	25,461			24,584			26,744			25,493
Other liabilities	11,804			13,685			13,193			11,556
Liabilities held-for-sale	1,058			94,588			903			608
Total liabilities	244,464			292,899			235,178			228,081

Commitments and contingencies

Common stock, $0.001 par value; authorized 100,000 shares, 23,095 issued and 23,017 outstanding at September 30, 2015, and 23,083 issued and 23,005 outstanding at December 31, 2014	23			23
Common stock, $0.001 par value; authorized 100,000 shares, 23,125 issued and 23,070 outstanding at September 30, 2016, and 23,116 issued and 23,038 outstanding at December 31, 2015							23			23
Additional paid-in capital	493,830			491,662			493,744			494,207
Accumulated deficit	(150,195		)	(69,508		)	(164,466		)	(151,366		)
Accumulated other comprehensive income	4,927			4,717			6,502			4,961
Treasury stock, at cost (common shares: 78 at September 30, 2015 and December 31, 2014)	(1,413		)	(1,413		)
Treasury stock, at cost (common shares: 55 and 78 at September 30, 2016 and December 31, 2015, respectively)							(927		)	(1,413		)
Total PICO Holdings, Inc. shareholders’ equity	347,172			425,481			334,876			346,412
Noncontrolling interest in subsidiaries	84,190			86,064			90,467			87,592
Total equity	431,362			511,545			425,343			434,004
Total liabilities and equity	$	675,826		$	804,444		$	660,521		$	662,085

PICO Holdings, Inc. and Subsidiaries Condensed Consolidated Statements of Operations and Comprehensive Income or Loss - Unaudited (In thousands, except per share data)	PICO Holdings, Inc. and Subsidiaries Condensed Consolidated Statements of Operations and Comprehensive Income or Loss - Unaudited (In thousands, except per share data)												PICO Holdings, Inc. and Subsidiaries Condensed Consolidated Statements of Operations and Comprehensive Income or Loss - Unaudited (In thousands, except per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014			2016			2015			2016			2015
Revenues and other income:
Sale of real estate and water assets	$	77,044		$	56,742		$	175,718		$	146,168		$	95,816		$	77,044		$	247,009		$	175,718
Impairment on investments							(20,696		)
Other income	1,047			2,416			3,501			6,963
Impairment loss on investment in unconsolidated affiliate																						(20,696		)
Other income, net													892			1,047			2,445			3,501
Total revenues and other income	78,091			59,158			158,523			153,131			96,708			78,091			249,454			158,523

Cost of sales:
Cost of sales and expenses:
Cost of real estate and water assets sold	60,626			46,604			142,566			119,260			78,977			60,626			202,157			142,566

Expenses:
Operating and other costs	14,986			16,649			47,034			47,320
General, administrative, and other													10,098			10,168			34,867			33,661
Sales and marketing													4,963			4,818			14,061			13,373
Impairment loss on intangible and long-lived assets	727						2,090			2,865			4,615			727			7,012			2,090
Depreciation and amortization	653			894			1,649			2,126			302			653			1,193			1,649
Total cost of sales and expenses	76,992			64,147			193,339			171,571			98,955			76,992			259,290			193,339
Income (loss) from continuing operations before income taxes and equity in loss of unconsolidated affiliates	1,099			(4,989		)	(34,816		)	(18,440		)	(2,247		)	1,099			(9,836		)	(34,816		)
Provision (benefit) for federal, foreign, and state income taxes	22			(179		)	(2,949		)	(535		)
Benefit (provision) for federal and state income taxes													406			(22		)	372			2,949
Equity in loss of unconsolidated affiliate	(1,942		)	(410		)	(3,422		)	(1,569		)				(1,942		)				(3,422		)
Loss from continuing operations	(865		)	(5,220		)	(35,289		)	(19,474		)	(1,841		)	(865		)	(9,464		)	(35,289		)
Loss from discontinued agribusiness operations, net of tax	(10,225		)	(5,221		)	(29,520		)	(4,962		)	(18		)	(10,225		)	(102		)	(29,520		)
Loss on sale of discontinued agribusiness operations, net of tax	(1,348		)				(18,251		)
Income (loss) on sale of discontinued agribusiness operations, net of tax													2			(1,348		)	(1,858		)	(18,251		)
Net loss from discontinued agribusiness operations, net of tax	(11,573		)	(5,221		)	(47,771		)	(4,962		)	(16		)	(11,573		)	(1,960		)	(47,771		)
Net loss	(12,438		)	(10,441		)	(83,060		)	(24,436		)	(1,857		)	(12,438		)	(11,424		)	(83,060		)
Net (income) loss attributable to noncontrolling interests	(1,654		)	504			2,373			3,091			(1,043		)	(1,654		)	(1,676		)	2,373
Net loss attributable to PICO Holdings, Inc.	$	(14,092	)	$	(9,937	)	$	(80,687	)	$	(21,345	)	$	(2,900	)	$	(14,092	)	$	(13,100	)	$	(80,687	)

PICO Holdings, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows - Unaudited (In thousands)	PICO Holdings, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows - Unaudited (In thousands)						PICO Holdings, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows - Unaudited (In thousands)

	Nine Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2016			2015
Operating activities:
Cash used in operating activities - continuing operations	$	(58,060	)	$	(80,271	)	$	(17,798	)	$	(58,060	)
Cash used in operating activities - discontinued agribusiness operations	(17,462		)	(2,228		)	(508		)	(17,462		)
Net cash used in operating activities	(75,522		)	(82,499		)	(18,306		)	(75,522		)

Investing activities:
Purchases of investments	(1,782		)	(9,995		)	(1,136		)	(1,782		)
Proceeds from sale of investments	7,055			21,954			623			7,055
Proceeds from maturity of investments	1,343						18			1,343
Purchases of property, plant and equipment	(1,999		)	(3,806		)	(249		)	(1,999		)
Cash used in the acquisition of consolidated subsidiaries				(14,006		)
Increase in restricted cash							(650		)
Other investing activities, net	79			(209		)	667			79
Cash provided by (used in) investing activities - continuing operations	4,696			(6,062		)	(727		)	4,696
Cash provided by (used in) investing activities - discontinued agribusiness operations	100,098			(4,919		)
Cash provided by investing activities - discontinued agribusiness operations							8			100,098
Net cash provided by (used in) investing activities	104,794			(10,981		)	(719		)	104,794

Financing activities:
Repayment of debt	(174,533		)	(75,218		)	(105,488		)	(174,533		)
Proceeds from debt							106,663			125,294
Payment of withholding taxes on exercise of restricted stock units	(370		)	(1,619		)	(46		)	(370		)
Debt issuance costs	(698		)				(113		)	(698		)
Proceeds from debt	125,294			86,583
Proceeds from the sale of treasury stock				223
Purchases of stock of consolidated subsidiary							(1,000		)
Distribution to noncontrolling interests	(16		)							(16		)
Cash provided by (used in) financing activities	(50,323		)	9,969			16			(50,323		)

Effect of exchange rate changes on cash				1,621
Decrease in cash and cash equivalents	(21,051		)	(81,890		)	(19,009		)	(21,051		)
Cash and cash equivalents, beginning of the period	62,978			138,039			57,400			62,978
Cash and cash equivalents, end of the period	41,927			56,149			38,391			41,927
Less cash and cash equivalents of discontinued agribusiness operations at the end of the period	1,773			482			438			1,773
Cash and cash equivalents of continuing operations, end of the period	$	40,154		$	55,667		$	37,953		$	40,154

Supplemental cash flow information:
Refunds of federal, foreign, and state income taxes	$	(72	)	$	(1,991	)
Payments (refunds) of federal and state income taxes							$	187		$	(72	)
Interest paid, net of amounts capitalized (primarily in discontinued agribusiness operations)	$	3,295		$	3,604					$	3,295
Non-cash investing and financing activities:
Unpaid liability incurred for development costs	$	1,332								$	1,332
Distribution of debt and equity securities in satisfaction of deferred compensation liability (including 22,644 shares of treasury stock)							$	856
Issuance of common stock for vested restricted stock units	$	680		$	4,349		$	274		$	680
Fair value of assets acquired in Citizens acquisition				$	20,259
Cash paid for acquisition of consolidated subsidiaries				$	(14,006	)
Contingent consideration and liabilities assumed in Citizens acquisition				$	6,253



	Shares of Common Stock Issued	Common Stock		Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income			Shares of Treasury Stock	Treasury Stock, at Cost			Noncontrolling Interest			Total
Beginning balance, January 1, 2015	23,083	$	23	$	491,662		$	(69,508	)	$	4,717		78	$	(1,413	)	$	86,064		$	511,545
Stock-based compensation expense				2,379													674			3,053
Exercise of restricted stock units	12
Withholding taxes paid on vested restricted stock units at UCP, Inc.				(211		)											(159		)	(370		)
Distribution to noncontrolling interest																	(16		)	(16		)
Net loss							(80,687		)								(2,373		)	(83,060		)
Unrealized loss on investments, net of deferred income tax of $159 and reclassification adjustments of $581										295										295
Foreign currency translation										(85		)								(85		)
Ending balance, September 30, 2015	23,095	$	23	$	493,830		$	(150,195	)	$	4,927		78	$	(1,413	)	$	84,190		$	431,362


September 30, 2015	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Carrying Value
September 30, 2016										Cost		Gross Unrealized Gains		Gross Unrealized Losses			Carrying Value
Debt securities: corporate bonds	$	4,608	$	42	$	(95	)	$	4,555	$	4,331	$	91	$	(22	)	$	4,400
Marketable equity securities	10,545		7,988		(139		)	18,394		10,463		10,052		(45		)	20,470
Total available-for-sale investments	$	15,153	$	8,030	$	(234	)	$	22,949	$	14,794	$	10,143	$	(67	)	$	24,870



•	Water Resource and Water Storage Operations;
•	Real Estate Operations;
•	Corporate; and
•	Discontinued Agribusiness Operations.



•	Vidler Water Company, Inc. (“Vidler”) which acquires and develops water resources and water storage operations in the southwestern United States, with assets and operations in Nevada, Arizona, Colorado and New Mexico; and
•	UCP, Inc. (“UCP”), a 56.9% owned subsidiary which is a homebuilder and land developer in markets located in California, ~~and Puget Sound area of~~ Washington State, North Carolina, South Carolina and Tennessee.


	September 30, 2015		December 31, 2014		Change			September 30, 2016		December 31, 2015		Change
Shareholders’ equity	$	347,172	$	425,481	$	(78,309	)	$	334,876	$	346,412	$	(11,536	)
Shareholders’ equity per share	$	15.08	$	18.50	$	(3.42	)	$	14.52	$	15.04	$	(0.52	)


Thousands of dollars	Three Months Ended September 30,									Nine Months Ended September 30,									Three Months Ended September 30,								Nine Months Ended September 30,
	2015			2014			Change			2015			2014			Change			2016			2015		Change			2016			2015			Change
Revenue and other income:
Sale of real estate and water assets	$	3,373		$	992		$	2,381		$	3,797		$	1,196		$	2,601		$	476		$	3,373	$	(2,897	)	$	607		$	3,797		$	(3,190	)
Other	95			95			—			394			268			126			77			95		(18		)	206			394			(188		)
Total revenue and other income	3,468			1,087			2,381			4,191			1,464			2,727			553			3,468		(2,915		)	813			4,191			(3,378		)

Cost of sales and expenses:
Cost of real estate and water assets sold	(946		)	(470		)	(476		)	(1,197		)	(717		)	(480		)	252			946		(694		)	316			1,197			(881		)
Interest expense				(5		)	5						(16		)	16
Depreciation and amortization	(256		)	(274		)	18			(781		)	(825		)	44			37			256		(219		)	316			781			(465		)
Overhead	(1,079		)	(1,300		)	221			(3,339		)	(4,060		)	721
Project expenses	(353		)	(169		)	(184		)	(781		)	(811		)	30
Overhead expense																			1,040			1,079		(39		)	3,345			3,339			6
Project expense																			253			353		(100		)	1,099			781			318
Segment total expenses	(2,634		)	(2,218		)	(416		)	(6,098		)	(6,429		)	331			1,582			2,634		(1,052		)	5,076			6,098			(1,022		)
Income (loss) before income taxes	$	834		$	(1,131	)	$	1,965		$	(1,907	)	$	(4,965	)	$	3,058
Loss before income taxes																			$	(1,029	)	$	834	$	(1,863	)	$	(4,263	)	$	(1,907	)	$	(2,356	)



•	~~the operation and maintenance of the Vidler Arizona Recharge Facility;~~
•	~~certain costs related to intangible water rights in the Tule Desert groundwater basin and the Dry Lake Valley (both part of the Lincoln County, Nevada agreement); and~~
•	~~certain costs for water resource development in Nevada and New Mexico.~~


	As of September 30, 2015			As of September 30, 2016
	Owned	Controlled⁽¹⁾	Total	Owned	Controlled⁽¹⁾	Total
West	4,153	415	4,568	3,879	303	4,182
Southeast	941	728	1,669	1,041	820	1,861
Total	5,094	1,143	6,237	4,920	1,123	6,043


	As of December 31, 2014			As of December 31, 2015
	Owned	Controlled⁽¹⁾	Total	Owned	Controlled⁽¹⁾	Total
West	4,410	469	4,879	3,869	415	4,284
Southeast	1,033	456	1,489	882	712	1,594
Total	5,443	925	6,368	4,751	1,127	5,878



•	~~our water~~Water resource and water storage operations segment held cash of ~~$313,000;~~$373,000.
•	~~our real~~Real estate operations segment held cash of ~~$22.6 million;~~$27.6 million.
•	~~our corporate~~Corporate segment held cash of ~~$17.2~~$9.9 million and marketable equity and debt securities with a market value of ~~$18.4~~$20.5 million and ~~$4.6~~$4.4 million, respectively. ~~Included in those totals are $2.6 million in cash, $17.5 million in equities, and $4.6 million in debt~~The securities ~~that~~ are held in deferred compensation rabbi trusts accounts that will be used to pay the related and offsetting deferred compensation liabilities although such assets could be used to pay creditors if ~~needed; and~~needed. We expect to distribute a portion of the deferred compensation balance in April 2017 having a value of approximately $22.8 million at September 30, 2016. See Note 12, “Subsequent Events” for additional information.
•	~~our discontinued~~Discontinued agribusiness operations segment held cash of ~~$1.8 million.~~$438,000.



Gross sales price	$	105,293
Less debt repayment	(80,941		)
	24,352
Selling and other costs	(5,949		)
Net proceeds	18,403
Operational Escrow	(10,225		)
	8,178
Cash in the business not part of the sale	4,218
Total unrestricted and available cash	$	12,396



Exhibit Number			Description
2.1			Asset Purchase Agreement dated July 13, 2015, by and between PICO Northstar Hallock, LLC and CHS Hallock, LLC. ⁽¹⁾
~~3(i)~~3.1			Amended and Restated Articles of Incorporation of ~~PICO.~~PICO Holdings, Inc. ⁽²⁾
~~3(ii)~~3.2			Certificate of Amendment of Amended and Restated Articles of Incorporation of PICO Holdings, Inc.⁽⁵⁾
3.3			Amended and Restated ~~By-laws~~By laws of ~~PICO.~~PICO Holdings, Inc.⁽³⁾
3.4			Amendment to Amended and Restated Bylaws of PICO Holdings, Inc. ⁽⁵⁾
4.1			Indenture, dated October 21, 2014, among UCP, Inc., the guarantors named therein, and Wilmington Trust, National Association, as trustee. ⁽⁴⁾
~~10.1~~			~~Guaranty, dated July 31, 2015, between PICO Holdings, Inc. and CHS Hallock, LLC.~~ ⁽⁵⁾
~~10.2~~			~~Restrictive Covenant Agreement, dated July 31, 2015, between CHS Hallock, LLC and PICO Holdings, Inc.~~ ⁽⁵⁾
31.1			Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2			Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1			Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).
32.2			Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).
101.INS			XBRL Instance Document
101.SCH			XBRL Taxonomy Extension Schema Document
101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF			XBRL Taxonomy Extension Definition Linkbase Document
101.LAB			XBRL Taxonomy Extension Label Linkbase Document
101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document



⁽¹⁾	Incorporated by reference to Form 8-K filed with the SEC on July 17, 2015.
⁽²⁾	Incorporated by reference to the Quarterly Report on Form 10-Q ~~(No. 033-36383)~~ filed with the ~~Securities and Exchange Commission~~SEC on November 7, 2007.
⁽³⁾	Incorporated by reference to ~~the Current Report on~~ Form 8-K ~~(No. 033-36383)~~ filed with the ~~Securities and Exchange Commission~~SEC on May 19, 2009.
⁽⁴⁾	Incorporated by reference to Form 8-K filed with the SEC on October 24, 2014.
⁽⁵⁾	Incorporated by reference to Form 8-K filed with the SEC on ~~August 6, 2015.~~July 13, 2016.



		PICO HOLDINGS, INC.


Date:	November ~~6, 2015~~1, 2016	By: /s/ ~~Maxim C. W. Webb~~John T. Perri
		~~Maxim C. W. Webb~~John T. Perri
		~~Executive Vice President,~~ Chief Financial Officer
		~~Treasurer, and Secretary~~
		(Principal Financial Officer and Authorized Signatory)