Prospectus 2.6 million shares
Filed
persuant to Rule 424 (b)(2)
Registration
No.
333-134296
PROSPECTUS
PICO
Holdings, inc.
2,600,000
shares of Common Stock
The
shareholders of PICO Holdings, Inc. listed within this prospectus are selling
shares of PICO common stock under this prospectus. The selling shareholders
are
offering all of the 2,600,000 shares represented by this prospectus. We
will not receive any of the proceeds from the sale of shares by the selling
shareholders. Our common stock is traded on The NASDAQ National Market under
the
symbol “PICO.” On June 2, 2006, the last reported sale price for our common
stock on The NASDAQ National Market was $32.42 per share.
The
shares of our common stock or interests therein may be sold from time to time
by
the selling shareholders directly to one or more purchasers (including pledgees)
or through brokers, dealers or underwriters who may act solely as agents or
who
may acquire shares as principals, at market prices prevailing at the time of
sale, at prices related to such prevailing market prices, at negotiated prices,
or at fixed prices, which may be changed. See “Plan of Distribution” in this
prospectus. We may also describe the plan of distribution for any particular
offering of these securities in any prospectus supplement. If any brokers,
dealers or underwriters are involved in the sale of any securities in respect
of
which this prospectus is being delivered, we will disclose their names and
the
nature or our arrangements with them in a prospectus
supplement.
Investing
in our common stock involves risks. See “Risk Factors” beginning on
page 3.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION
HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
________________
The
date
of this prospectus is June 5, 2006.
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SPECIAL
NOTE REGARDING FORWARD
LOOKING STATEMENTS..............................................................................................................................................................................................................................................................................................................................................................
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PROSPECTUS
SUMMARY............................................................................................................................................................................................................................................................................................................................................................
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RISK
FACTORS...............................................................................................................................................................................................................................................................................................................................................................................
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USE OF
PROCEEDS.........................................................................................................................................................................................................................................................................................................................................................................
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PLAN OF
DISTRIBUTION.............................................................................................................................................................................................................................................................................................................................................................
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SELLING
SHAREHOLDERS...........................................................................................................................................................................................................................................................................................................................................................
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LEGAL
MATTERS..........................................................................................................................................................................................................................................................................................................................................................................
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EXPERTS...........................................................................................................................................................................................................................................................................................................................................................................................
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INCORPORATION BY
REFERENCE.............................................................................................................................................................................................................................................................................................................................................
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WHERE YOU CAN FIND MORE
INFORMATION....................................................................................................................................................................................................................................................................................................................
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This
prospectus and the documents incorporated by reference into it contain
“forward-looking statements” within the meaning of the private securities
litigation reform act of 1995. Specifically, without limitation, forward-looking
statements include statements regarding our business, financial condition,
results of operations, and prospects, including statements about our
expectations, beliefs, intentions, anticipated developments, and other
information concerning future matters. Words such as “expects,” “anticipates,”
“intends,” “plans,” “believes,” “seeks,” “estimates,” 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 prospectus.
Although
forward-looking statements in this prospectus and in the documents incorporated
by reference into this prospectus, represent the good faith judgment of our
management, such statements can only be based on facts and factors currently
known by us. Consequently, forward-looking statements are inherently subject
to
risks and uncertainties, and the actual results and outcomes could differ from
those discussed in or anticipated 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 heading “risk factors”
and elsewhere in our filings with the securities and exchange commission that
are incorporated by reference into this prospectus. Readers are urged not to
place undue reliance on these forward-looking statements, which speak only
as of
the date of this prospectus. We undertake no obligation to revise or update
any
forward-looking statement in order to reflect any event or circumstance which
may arise after the date of this prospectus. Readers are urged to carefully
review and consider the various disclosures made in this prospectus and our
filings with the Securities and Exchange Commission, which attempt to advise
interested parties of the risks and factors which may affect our business,
financial condition, results of operations, and prospects.
The
items in the following summary are described in more detail in this prospectus
or in the documents incorporated or deemed incorporated by reference herein
or
therein. This summary provides an overview of selected information and does
not
contain all of the information that you should consider. Therefore, you should
also read the more detailed information in this prospectus and the documents
incorporated by reference herein or therein. All references to “PICO,” “we,”
“us,” “our,” and similar terms refer to PICO Holdings, Inc. and its subsidiaries
on a consolidated basis.
Our
Company
PICO
Holdings, Inc. is a diversified holding company. PICO seeks to acquire
businesses and interests in businesses which we identify as undervalued based
on
fundamental analysis--that is, our assessment of what the business is worth,
based on the private market value of its assets, earnings, and cash flow. We
prefer long-established businesses, with a history of operating successfully
through industry cycles, recessions and geo-political disruptions, in basic,
“old economy” industries. Typically, the business will be generating free cash
flow and have a low level of debt, or, alternatively, strong interest coverage
ratios or the ability to realize surplus assets. As well as being undervalued,
the business must have special qualities such as unique assets, a potential
catalyst for change, or be in an industry with attractive economics. We are
also
interested in acquiring businesses and interests in businesses where there
is
significant unrecognized value in land and other tangible assets.
We
have
acquired businesses and interests in businesses by the acquisition of private
companies, and the purchase of shares in public companies, both directly through
participation in financing transactions and through open market purchases.
When
we buy a business or an interest in a business, we have a long-term horizon,
typically 5 years or more. Selected acquisitions may become core operations;
however, we are prepared to sell businesses if the price received exceeds the
return we expect to earn if we retain ownership. We expect that most of our
businesses and interests in businesses will eventually be sold to other
companies in the same industry seeking to expand or gain economies of scale.
Our
objective is to generate superior long-term growth in shareholders’ equity, as
measured by book value per share. Over time, we anticipate that most of our
net
income and growth in shareholders’ equity will come from realized gains on the
sale of businesses and interests in businesses, as opposed to ongoing operating
earnings. Consequently, we anticipate that PICO’s earnings will fluctuate from
year to year, and that the results for any one year are not necessarily
indicative of our future performance.
Our
business is separated into five major operating segments:
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Water
Resource and Water Storage
Operations;
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Real
Estate Operations in Nevada;
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Business
Acquisitions and Financing;
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Insurance
Operations in “Run Off”; and
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HyperFeed
Technologies, Inc.
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Our
Business Acquisitions & Financing segment contains businesses, interests in
businesses, and other parent company assets. Each of these business segments
is
discussed in greater detail in the information incorporated by reference into
this prospectus.
Currently
our major consolidated subsidiaries are:
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Vidler
Water Company, Inc., referred to as Vidler, which develops and owns
water
rights and water storage operations in the southwestern United States,
primarily in Nevada and Arizona;
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Nevada
Land & Resource Company, LLC, referred to as Nevada Land, which owns
approximately 753,000 acres of land in Nevada, and the mineral rights
and
water rights related to the land
owned;
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Citation
Insurance Company, which is “running off” its historical property &
casualty and workers' compensation loss reserves;
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Physicians
Insurance Company of Ohio, which is “running off” its medical professional
liability loss reserves;
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Global
Equity AG, which holds our interest in Jungfraubahn Holding AG;
and
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HyperFeed
Technologies, Inc., referred to as HyperFeed, which became a subsidiary
in
2003. HyperFeed is a leading provider of ticker plant technologies,
data
distribution, smart order routing, and managed data services to the
financial community.
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The
address of our main office is 875 Prospect Street, Suite 301, La Jolla,
California 92037, and our telephone number is (858) 456-6022.
PICO
was
incorporated in 1981 and began operations in 1982. The company was known as
Citation Insurance Group until a reverse merger with Physicians Insurance
Company of Ohio on November 20, 1996. After the reverse merger, the former
shareholders of Physicians owned approximately 80% of Citation Insurance Group,
the Board of Directors and management of Physicians replaced their Citation
counterparts, and Citation Insurance Group changed its name to PICO Holdings,
Inc. You should be aware that some data on Bloomberg and other information
services pre-dating the reverse merger relates to the old Citation Insurance
Group only, and does not reflect the performance of Physicians Insurance Company
of Ohio prior to the merger.
The
Offering
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Common
stock offered by the Selling Shareholders
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2,600,000 shares
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Use
of proceeds
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We
will not receive any of the proceeds from the sale of shares by the
selling shareholders.
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NASDAQ
National Market symbol
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PICO
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The
following information sets forth factors that could cause our actual results
to
differ materially from those contained in forward-looking statements we have
made in this prospectus and those we may make from time to time. Before making
an investment decision, you should carefully consider the following risks,
together with other matters described in this prospectus or incorporated herein
by reference, including our consolidated financial statements and related notes.
If any of the following risks occur, our business, financial condition or
operating results could be harmed. In such case, the trading price of our
securities could decline, perhaps significantly. The risks described below
are
not the only ones we face. Additional risks not presently known to us, or that
we currently deem immaterial, may also impair our business operations. As a
result of any of these risks, our business could be harmed, the trading price
of
our common stock could decline and you may lose all or part of your investment.
The documents incorporated by reference may update or supplement these risk
factors from time to time.
The
following information sets forth factors that could cause our actual results
to
differ materially from those contained in forward-looking statements we have
made in this registration
statement and those we may make from time to time. You should carefully consider
the following risks, together with other matters described in this Form S-3
or
incorporated herein by reference in evaluating our business and prospects.
If
any of the following risks occurs, our business, financial condition or
operating results could be harmed. In such case, the trading price of our
securities could decline, in some cases significantly. The risks described
below
are not the only ones we face. Additional risks not presently known to us,
or
that we currently deem immaterial, may also impair our business operations.
For
a more detailed discussion of the factors that could cause actual results to
differ, see the Risk Factors section in
our
Annual Report on Form 10-K filed with the Securities and Exchange Commission
on
March 10, 2006.
Variances
in physical availability of water, along with environmental and legal
restrictions and legal impediments, could impact profitability from our water
rights.
The
water
rights held by us and the transferability of these rights to other uses and
places of use are governed by the laws concerning water rights in the states
of
Arizona, Colorado and Nevada. The volumes of water actually derived from the
water rights applications or permitted rights may vary considerably based upon
physical availability and may be further limited by applicable legal
restrictions. As a result, the amounts of acre-feet anticipated from the water
rights applications or permitted rights do not in every case represent a
reliable, firm annual yield of water, but in some cases describe the face amount
of the water right claims or management’s best estimate of such entitlement.
Legal impediments may exist to the sale or transfer of some of these water
rights, which in turn may affect their commercial value. If we were unable
to
transfer or sell our water rights, we may lose some or all of our value in
our
water rights acquisitions.
Water
we
lease or sell may be subject to regulation as to quality by the United States
Environmental Protection Agency acting pursuant to the federal Safe Drinking
Water Act. While environmental regulations do not directly affect us, the
regulations regarding the quality of water distributed affects our intended
customers and may, therefore, depending on the quality of our water, impact
the
price and terms upon which we may in the future sell our water
rights.
Our
future water revenues are uncertain and depend on a number of factors, which
may
make our revenue streams and profitability volatile.
We
engage
in various water rights acquisitions, management, development, and sale and
lease activities. Accordingly, our long-term future profitability will primarily
be dependent on our ability to develop and sell or lease water and water rights,
and will be affected by various factors, including timing of acquisitions,
transportation arrangements, and changing technology. To the extent we possess
junior or conditional water rights, such rights may be subordinated to superior
water right holders in periods of low flow or drought.
In
addition to the risk of delays associated with receiving all necessary
regulatory approvals and permits, we may also encounter unforeseen technical
difficulties which could result in construction delays and cost increases with
respect to our water resource and water storage development
projects.
Our
profitability is significantly affected by changes in the market price of water.
In the future, water prices may fluctuate widely as demand is affected by
climatic, demographic and technological factors.
Our
water activities may become concentrated in a limited number of assets, making
our growth and profitability vulnerable to fluctuations in local economies
and
governmental regulations.
In
the
future, we anticipate that a significant amount of Vidler’s revenues and asset
value will come from a limited number of assets, including our water rights
in
Nevada and Arizona and the Vidler Arizona Recharge Facility. Although we
continue to acquire and develop additional water assets, in the foreseeable
future we anticipate that our revenues will still be derived from a limited
number of assets, primarily located in Arizona and Nevada.
Our
water sales may meet with political opposition in certain locations, thereby
limiting our growth in these areas.
The
transfer of water rights from one use to another may affect the economic base
of
a community and will, in some instances, be met with local opposition. Moreover,
certain of the end users of our water rights, namely municipalities, regulate
the use of water in order to manage growth. If we are unable to effectively
transfer water rights, our liquidity will suffer and our revenues would
decline.
The
fair values of our real estate and water assets are linked to external growth
factors.
The
real
estate and water assets we hold have fair values that are significantly affected
by the growth in population and the general state of the local economies where
our real estate and water assets are located, primarily in the states of Arizona
and Nevada.
In
certain circumstances, we finance sales of real estate and water assets, and
we
secure such financing through deeds of trust on the property, which are only
released once the financing has been fully paid off.
Purchasers
of our real estate and water assets may default on their financing obligations
and the fair value of the secured property may be affected by the factors noted
above. Accordingly, such defaults and declines in market values may have an
adverse effect on our business, financial condition, and the results of
operations and cash flows.
If we
do not successfully locate, select and manage acquisitions and investments,
or
if our acquisitions or investments otherwise fail or decline in value, our
financial condition could suffer.
We
invest
in businesses that we believe are undervalued or that will benefit from
additional capital, restructuring of operations or improved competitiveness
through operational efficiencies. If a business in which we invest fails or
its
fair value declines, we could experience a material adverse effect on our
business, financial condition, the results of operations and cash flows.
Additionally, our failure to successfully locate, select and manage acquisition
and investment opportunities could have a material adverse effect on our
business, financial condition, the results of operations and cash flows. Such
business failures, declines in fair values, and/or failure to successfully
locate, select and manage acquisitions or investments could result in an
inferior return on shareholders’ equity. We could also lose part or all of our
capital in these businesses and experience reductions in our net income, cash
flows, assets and shareholders’ equity.
Failure
to successfully manage newly acquired companies could adversely affect our
business.
Our
management of the operations of acquired businesses requires significant
efforts, including the coordination of information technologies, research and
development, sales and marketing, operations, and finance. These efforts result
in additional expenses and involve significant amounts of management’s time. To
successfully manage newly acquired companies, we must, among other things,
continue to attract and retain key management and other personnel. The diversion
of the attention of management from the day-to-day operations, or difficulties
encountered in the integration process, could have a material adverse effect
on
our business, financial condition, and the results of operations and cash flows.
If we fail to integrate acquired businesses into our operations successfully,
we
may be unable to achieve our strategic goals and the value of your investment
could suffer.
Our
acquisitions may not achieve expected rates of return, and we may not realize
the value of the funds we invest.
We
will
continue to make selective acquisitions, and endeavor to enhance and realize
additional value to these acquired companies through our influence and control.
You will be relying on the experience and judgment of management to locate,
select and develop new acquisition and investment opportunities. Any acquisition
could result in the use of a significant portion of our available cash,
significant dilution to you, and significant acquisition-related charges.
Acquisitions may also result in the assumption of liabilities, including
liabilities that are unknown or not fully known at the time of the acquisition,
which could have a material adverse effect on us.
We
do not
know of any reliable statistical data that would enable us to predict the
probability of success or failure of our acquisitions and investments, or to
predict the availability of suitable investments at the time we have available
cash. We may not be able to find sufficient opportunities to make this business
strategy successful. Additionally, when any of our acquisitions do not achieve
acceptable rates of return or we do not realize the value of the funds invested,
we may write-down the value of such acquisitions or sell the acquired businesses
at a loss. We have made a number of acquisitions in the past that have been
highly successful, and we have also made acquisitions that have lost either
part
or all of the capital invested. Our ability to achieve an acceptable rate of
return on any particular investment is subject to a number of factors which
are
beyond our control, including increased competition and loss of market share,
quality of management, cyclical or uneven financial results, technological
obsolescence, foreign currency risks and regulatory delays.
We
may make acquisitions and investments that may yield low or negative returns
for
an extended period of time, which could temporarily or permanently depress
our
return on shareholders’ equity.
We
generally make acquisitions and investments that tend to be long term in nature.
We acquire businesses that we believe to be undervalued or may benefit from
additional capital, restructuring of operations or management or improved
competitiveness through operational efficiencies with our existing operations.
We may not be able to develop acceptable revenue streams and investment returns.
We may lose part or all of our investment in these assets. The negative impacts
on cash flows, income, assets and shareholders’ equity may be temporary or
permanent. We make acquisitions for the purpose of enhancing and realizing
additional value by means of appropriate levels of shareholder influence and
control. This may involve restructuring of the financing or management of the
entities in which we invest and initiating or facilitating mergers and
acquisitions. These processes can consume considerable amounts of time and
resources. Consequently, costs incurred as a result of these acquisitions and
investments may exceed their revenues and/or increases in their values for
an
extended period of time until we are able to develop the potential of these
acquisitions and investments and increase the revenues, profits and/or values
of
these acquisitions. Ultimately, however, we may not be able to develop the
potential of these assets that we originally anticipated.
We
may not be able to sell our investments when it is advantageous to do so and
we
may have to sell these investments at a discount to fair
value.
No
active
market exists for some of the companies in which we invest. We acquire stakes
in
private companies that are not as liquid as investments in public companies.
Additionally, some of our acquisitions may be in restricted or unregistered
stock of U.S. public companies. Moreover, even our investments for which there
is an established market are subject to dramatic fluctuations in their market
price. These illiquidity factors may affect our ability to divest some of our
acquisitions and could affect the value that we receive for the sale of such
investments.
Our
acquisitions of and investments in foreign companies subject us to additional
market and liquidity risks which could affect the value of our
stock.
We
have
acquired, and may continue to acquire, shares of stock in foreign public
companies. Typically, these foreign companies are not registered with the SEC
and regulation of these companies is under the jurisdiction of the relevant
foreign country. The respective foreign regulatory regime may limit our ability
to obtain timely and comprehensive financial information for the foreign
companies in which we have invested. In addition, if a foreign company in which
we invest were to take actions which could be deleterious to its shareholders,
foreign legal systems may make it difficult or time-consuming for us to
challenge such actions. These factors may affect our ability to acquire
controlling stakes, or to dispose of our foreign investments, or to realize
the
full fair value of our foreign investments. In addition, investments in foreign
countries may give rise to complex cross-border tax issues. We aim to manage
our
tax affairs efficiently, but given the complexity of dealing with domestic
and
foreign tax jurisdictions, we may have to pay tax in both the U.S. and in
foreign countries, and we may be unable to offset any U.S. tax liabilities
with
foreign tax credits. If we are unable to manage our foreign tax issues
efficiently, our financial condition and the results of operations and cash
flows could be adversely affected.
If
we underestimate the amount of insurance claims, our financial condition could
be materially misstated and our financial condition could
suffer.
Our
insurance subsidiaries may not have established reserves that are adequate
to
meet the ultimate cost of losses arising from claims. It has been, and will
continue to be, necessary for our insurance subsidiaries to review and make
appropriate adjustments to reserves for claims and expenses for settling claims.
Inadequate reserves could have a material adverse effect on our business,
financial condition, and the results of operations and cash flows. Inadequate
reserves could cause our financial condition to fluctuate from period to period
and cause our financial condition to appear to be better than it actually is
for
periods in which insurance claims reserves are understated. In subsequent
periods when we discover the underestimation and pay the additional claims,
our
cash needs will be greater than expected and our financial results of operations
for that period will be worse than they would have been had our reserves been
accurately estimated originally.
The
inherent uncertainties in estimating loss reserves are greater for some
insurance products than for others, and are dependent on various factors
including:
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the
length of time in reporting claims;
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the
diversity of historical losses among claims;
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the
amount of historical information available during the estimation
process;
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the
degree of impact that changing regulations and legal precedents may
have
on open claims; and
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the
consistency of reinsurance programs over time.
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Because
medical malpractice liability, commercial property and casualty, and workers’
compensation claims may not be completely paid off for several years, estimating
reserves for these types of claims can be more uncertain than estimating
reserves for other types of insurance. As a result, precise reserve estimates
cannot be made for several years following the year for which reserves were
initially established.
During
the past several years, the levels of the reserves for our insurance
subsidiaries have been very volatile. We have had to significantly increase
and
decrease these reserves in the past several years.
Furthermore,
we have reinsurance agreements on all of our insurance books of business with
reinsurance companies. We base the level of reinsurance purchased on our direct
reserves on our assessment of the overall direct underwriting risk.
We
attempt to ensure that we have acceptable net risk, but it is possible that
we
may underestimate the amount of reinsurance required to achieve the desired
level of net claims risk.
In
addition, while we carefully review the credit worthiness of the companies
we
have reinsured part, or all, of our initial direct underwriting risk with,
our
reinsurers could default on amounts owed to us for their portion of the direct
insurance claim. Our insurance subsidiaries, as direct writers of lines of
insurance, have ultimate responsibility for the payment of claims, and any
defaults by reinsurers may result in our established reserves not being adequate
to meet the ultimate cost of losses arising from claims.
Significant
increases in the reserves may be necessary in the future, and the level of
reserves for our insurance subsidiaries may be volatile in the future. These
increases or volatility may have an adverse effect on our business, financial
condition, and the results of operations and cash flows.
State
regulators could require changes to our capitalization and/or to the operations
of our insurance subsidiaries, and/or place them into rehabilitation or
liquidation.
Beginning
in 1994, Physicians and Citation became subject to the provisions of the
Risk-Based Capital for Insurers Model Act which has been adopted by the National
Association of Insurance Commissioners for the purpose of helping regulators
identify insurers that may be in financial difficulty. The Model Act contains
a
formula which takes into account asset risk, credit risk, underwriting risk
and
all other relevant risks. Under this formula, each insurer is required to report
to regulators using formulas which measure the quality of its capital and the
relationship of its modified capital base to the level of risk assumed in
specific aspects of its operations. The formula does not address all of the
risks associated with the operations of an insurer. The formula is intended
to
provide a minimum threshold measure of capital adequacy by individual insurance
company and does not purport to compute a target level of capital. Companies
which fall below the threshold will be placed into one of four categories:
Company Action Level, where the insurer must submit a plan of corrective action;
Regulatory Action Level, where the insurer must submit such a plan of corrective
action, the regulator is required to perform such examination or analysis the
Superintendent of Insurance considers necessary and the regulator must issue
a
corrective order; Authorized Control Level, which includes the above actions
and
may include rehabilitation or liquidation; and Mandatory Control Level, where
the regulator must rehabilitate or liquidate the insurer. All companies’
risk-based capital results as of December 31, 2005 exceed the Company Action
Level.
If
we are required to register as an investment company, then we will be subject
to
a significant regulatory burden.
At
all
times we intend to conduct our business so as to avoid being regulated as an
investment company under the Investment Company Act of 1940. However, if we
were
required to register as an investment company, our ability to use debt would
be
substantially reduced, and we would be subject to significant additional
disclosure obligations and restrictions on our operational activities. Because
of the additional requirements imposed on an investment company with regard
to
the distribution of earnings, operational activities and the use of debt, in
addition to increased expenditures due to additional reporting responsibilities,
our cash available for investments would be reduced. The additional expenses
would reduce income. These factors would adversely affect our business,
financial condition, and the results of operations and cash flows.
We
are directly impacted by international affairs, which directly exposes us to
the
adverse effects of any foreign economic or governmental
instability.
As
a
result of global investment diversification, our business, financial condition,
the results of operations and cash flows may be adversely affected by:
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exposure
to fluctuations in exchange rates;
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the
imposition of governmental
controls;
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the
need to comply with a wide variety of foreign and U.S. export
laws;
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political
and economic instability;
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trade
restrictions;
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changes
in tariffs and taxes;
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volatile
interest rates;
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changes
in certain commodity prices;
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exchange
controls which may limit our ability to withdraw money;
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the
greater difficulty of administering business overseas; and
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general
economic conditions outside the United States.
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Changes
in any or all of these factors could result in reduced market values of
investments, loss of assets, additional expenses, reduced investment income,
reductions in shareholders’ equity due to foreign currency fluctuations and a
reduction in our global diversification.
Because
our operations are diverse, analysts and investors may not
be able to evaluate us adequately, which may negatively influence our share
price.
PICO
is a
diversified holding company with operations in real estate and related water
rights and mineral rights; water resource development and water storage;
insurance operations in run-off; and business acquisitions and financing. Each
of these areas is unique, complex in nature, and difficult to understand. In
particular, the water resource business is a developing industry within the
western United States with very little historical data, very few experts and
a
limited following of analysts. Because we are complex, analysts and investors
may not be able to adequately evaluate our operations and PICO in total. This
could cause them to make inaccurate evaluations of our stock, or to overlook
PICO in general. These factors could have a negative impact on the trading
volume and price of our stock.
Fluctuations
in the market price of our common stock may affect your ability to sell your
shares.
The
trading price of our common stock has historically been, and is expected to
be,
subject to fluctuations. The market price of the common stock may be
significantly impacted by:
|
·
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quarterly
variations in financial performance and condition;
|
|
·
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shortfalls
in revenue or earnings from levels forecast by securities
analysts;
|
|
·
|
changes
in estimates by such analysts;
|
|
·
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product
introductions;
|
|
·
|
our
competitors’ announcements of extraordinary events such as
acquisitions;
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·
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litigation;
and
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·
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general
economic conditions.
|
Our
results of operations have been subject to significant fluctuations,
particularly on a quarterly basis, and our future results of operations could
fluctuate significantly from quarter to quarter and from year to year. Causes
of
such fluctuations may include the inclusion or exclusion of operating earnings
from newly acquired or sold operations. On June 2, 2006, the closing price
of our common stock on the NASDAQ National Market was $32.42 per share, compared
to $15.67 at December 31, 2003. On a quarterly basis between these two dates,
closing prices have ranged from a high of $35.24 to a low of $15.67.
Statements
or
changes in opinions, ratings, or earnings estimates made by brokerage firms
or
industry analysts relating to the markets in which we do business or relating
to
us specifically could result in an immediate and adverse effect on the market
price of our common stock.
We
may not be able to retain key management personnel we need to succeed, which
could adversely affect our ability to make sound investment
decisions.
We
rely
on the services of several key executive officers. If they depart, it could
have
a significant adverse effect. Messrs. Langley and Hart, our Chairman and
CEO, respectively, are key to the implementation of our strategic focus, and
our
ability to successfully develop our current strategy is dependent upon our
ability to retain the services of Messrs. Langley and Hart.
We
use estimates and assumptions in preparing financial statements in
accordance with accounting principles generally accepted in the United States
of
America.
The
preparation of our financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts
of
assets and liabilities, disclosure of contingent liabilities at the date of
financial statements and the reported amount of revenues and expenses during
the
reporting period. We regularly evaluate our estimates, which are based on
historical experience and on various other assumptions that are believed to
be
reasonable under the circumstances. The result of these evaluations forms the
basis for making judgments about the carrying values of assets and liabilities
and the reported amount of revenues and expenses that are not readily apparent
from other sources. The carrying values of assets and liabilities and the
reported amount of revenues and expenses may differ by using different
assumptions. In addition, in future periods, in order to incorporate all known
experience at that time, we may have to revise assumptions previously made
which
may change the value of previously reported assets and liabilities. This
potential subsequent change in value may have a material adverse effect on
our
business, financial condition, and the results of operations and cash
flows.
Repurchases
of our common stock could have a negative effect on our cash flows and our
stock
price.
Our
Board
of Directors has authorized the repurchase of up to $10 million of our common
stock. The stock purchases may be made from time to time at prevailing prices
though open market, or negotiated transactions, depending on market conditions,
and will be funded from available cash resources of the company. Such a
repurchase program may have a negative impact on our cash flows, and could
result in market pressure to sell our common stock.
Future
changes in financial accounting standards may cause adverse unexpected revenue
fluctuations and affect our reported results of
operations.
A
change
in accounting standards could have a significant effect on our reported results
and may even affect our reporting transactions completed before the change
is
effective. New accounting pronouncements and varying interpretations of
pronouncements have occurred and may occur in the future. Changes to existing
rules or the questioning of current practices may adversely affect our reported
financial results of the way we conduct our business.
Compliance
with changing regulation of corporate governance and public disclosure may
result in additional expenses.
Changing
laws, regulations and standards relating to corporate governance and public
disclosure, SEC regulations and NASDAQ Stock Market rules, are creating
uncertainty for companies such as ours. These new or changed laws, regulations
and standards are subject to varying interpretations in many cases due to their
lack of specificity, and as a result, their application in practice may evolve
over time as new guidance is provided by regulatory and governing bodies, which
could result in continuing uncertainty regarding compliance matters and higher
costs necessitated by ongoing revisions to disclosure and governance practices.
We are committed to maintaining high standards of corporate governance and
public disclosure. As a result, our efforts to comply with evolving laws,
regulations and standards have resulted in, and are likely to continue to result
in, increased general and administrative expenses and a diversion of management
time and attention from revenue-generating activities to compliance activities.
In particular, our efforts to comply with Section 404 of the Sarbanes-Oxley
Act
of 2002 and the related regulations regarding our required assessment of our
internal controls over financial reporting and our external auditors’ audit of
that assessment has required the commitment of substantial financial and
managerial resources. We expect these efforts to require the continued
commitment of significant resources. Further, our board members, chief executive
officer, and chief financial officer could face an increased risk of personal
liability in connection with the performance of their duties. As a result,
we
may have difficulty attracting and retaining qualified board members and
executive officers, which could harm our business. If our efforts to comply
with
new or changes laws, regulations, and standards differ from the activities
intended by regulatory or governing bodies due to ambiguities related to
practice, our reputation could be harmed.
Absence
of dividends could reduce our attractiveness to investors.
Some
investors favor companies that pay dividends, particularly in market downturns.
We have never declared or paid any cash dividends on our common stock. We
currently intend to retain any future earnings for funding growth and,
therefore, we do not currently anticipate paying cash dividends on our common
stock.
We
may need additional capital in the future to fund the growth of our business,
and financing may not be available.
We
currently anticipate that our available capital resources and operating income
will be sufficient to meet our expected working capital and capital expenditure
requirements for at least the next 12 months. However, we cannot assure you
that
such resources will be sufficient to fund the long-term growth of our business.
We may raise additional funds through public or private debt or equity
financings if such financings become available on favorable terms, but such
financing may dilute our stockholders. We cannot assure you that any additional
financing we need will be available on terms favorable to us, or at all. If
adequate funds are not available or are not available on acceptable terms,
we
may not be able to take advantage of unanticipated opportunities or otherwise
respond to competitive pressures. In any such case, our business, operating
results or financial condition could be materially adversely
affected.
Litigation
may harm our business or otherwise distract our
management.
Substantial,
complex or extended litigation could cause us to incur large expenditures and
distract our management. For example, lawsuits by employees, stockholders or
customers could be very costly and substantially disrupt our business. Disputes
from time to time with such companies or individuals are not uncommon, and
we
cannot assure that that we will always be able to resolve such disputes out
of
court or on terms favorable to us.
THE
FOREGOING FACTORS, INDIVIDUALLY OR IN AGGREGATE, COULD MATERIALLY ADVERSELY
AFFECT OUR OPERATING RESULTS AND CASH FLOWS AND FINANCIAL CONDITION AND COULD
MAKE COMPARISON OF HISTORIC OPERATING RESULTS AND CASH FLOWS AND BALANCES
DIFFICULT OR NOT MEANINGFUL.
We
will not receive
any proceeds from sales of the shares.
The
shares of our common stock covered by the registration statement, of which
this
prospectus is a part, are being offered on behalf of the selling shareholders,
which as used herein includes donees, pledgees, transferees or other
successors-in-interest disposing of shares of our common stock or interests
therein received after the date of this prospectus from a selling shareholder
as
a gift, pledge, partnership distribution or other transfer. We will not receive
any proceeds from the sale of shares of our common stock covered by the
registration statement, of which this prospectus is a part, or interests
therein. The shares of our common stock or interests therein may be sold from
time to time by the selling shareholders directly to one or more purchasers
(including pledgees) or through brokers, dealers or underwriters who may act
solely as agents or who may acquire shares as principals, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, at negotiated prices, or at fixed prices, which may be changed. The
shares of our common stock may be sold by one or more of, or a combination
of,
the following methods, to the extent permitted by applicable law:
| · |
a
block trade in which the selling shareholder’s broker or dealer will
attempt to sell the shares as agent, but may position and resell
all or a
portion of the block as a principal to facilitate the
transaction;
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| · |
a
broker or dealer may purchase the common stock as a principal and
then
resell the common stock for its own account pursuant to this
prospectus;
|
| · |
an
exchange distribution in accordance with the rules of the applicable
exchange;
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| · |
ordinary
brokerage transactions and transactions in which the broker solicits
purchasers;
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| · |
privately
negotiated transactions;
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| · |
by
pledge to secure debts or other
obligations;
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| · |
put
or call transactions;
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to
cover hedging transactions;
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underwritten
offerings; or
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| · |
any
other legally available means.
|
To
the
extent required, this prospectus may be amended or supplemented from time to
time to describe a specific plan of distribution. If the plan of distribution
involves an arrangement with a broker-dealer for the sale of shares through
a
block trade, special offering, exchange distribution or secondary distribution
or a purchase by a broker or dealer, the supplement will disclose:
| ·
|
the
name of the selling shareholder and of the participating
broker-dealer(s);
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·
|
the
number of shares involved;
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| ·
|
the
price at which the shares were
sold;
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| ·
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the
commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable;
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| ·
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that
such broker-dealer(s) did not conduct any investigation to verify
the
information set out or incorporated by reference in this prospectus;
and
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| · |
other
facts material to the transaction.
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In
effecting sales, broker-dealers engaged by the selling shareholders may arrange
for other broker-dealers to participate in the resales.
The
selling shareholders may enter into hedging transactions with broker-dealers
in
connection with distributions of the shares or otherwise. In these transactions,
broker-dealers may engage in short sales of the shares in the course of hedging
the positions they assume with the selling shareholders. The selling
shareholders may also sell shares short and redeliver the shares to close out
such short positions. The selling shareholders may enter into options or other
transactions with broker-dealers that require the delivery to the broker-dealer
of the shares. The broker-dealer may then resell or otherwise transfer such
shares pursuant to this prospectus. The selling shareholders also may loan
or
pledge the shares to a broker-dealer. The broker-dealer may sell the shares
so
loaned, or upon default, the broker-dealer may sell the pledged shares pursuant
to this prospectus.
Broker-dealers
or agents may receive compensation in the form of commissions, discounts or
concessions from the selling shareholder. Broker-dealers or agents may also
receive compensation from the purchasers of the shares for whom they act as
agents or to whom they sell as principal, or both. Compensation as to a
particular broker-dealer might be in excess of customary commissions and will
be
in amounts to be negotiated in connection with the sale. Broker-dealers or
agents and any other participating broker-dealers or the selling shareholders
may be deemed to be “underwriters” within the meaning of Section 2(11) of the
Securities Act of 1933 (the “Securities Act”) in connection with sales of the
shares. Accordingly, any such commission, discount or concession received by
them and any profit on the resale of the shares purchased by them may be deemed
to be underwriting discounts or concessions under the Securities
Act.
The
selling shareholders and any broker-dealers, agents or underwriters that
participate with the selling shareholders in the distribution of the issued
and
outstanding shares of common stock may be deemed to be “underwriters” within the
meaning of the Securities Act, in which event any commissions received by these
broker-dealers, agents or underwriters and any profits realized by the selling
shareholders on the resales of the securities may be deemed to be underwriting
commissions or discounts under the Securities Act. If the selling shareholders
are deemed to be underwriters, the selling shareholders may be subject to
certain statutory and regulatory liabilities, including liabilities imposed
pursuant to Sections 11, 12 and 17 of the Securities Act and Rule 10b-5 under
the Securities Exchange Act of 1934. In addition, the selling shareholders
may be subject to the prospectus delivery requirements of the Securities Act,
unless an exemption therefrom is available.
Any
shares covered by the registration statement, of which this prospectus is a
part, that qualify for sale pursuant to Rule 144 under the Securities Act may
be
sold under Rule 144 rather than pursuant to this prospectus. The shares may
only
be sold only through registered or licensed brokers or dealers if required
under
applicable state securities laws. In addition, in certain states the shares
may
not be sold unless they have been registered or qualified for sale in the
applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
The
selling stockholders may pledge or grant a security interest in some or all
of
the shares of Common Stock owned by them and, if they default in the performance
of their secured obligations, the pledgees or secured parties may offer and
sell
the shares of Common Stock from time to time pursuant to this prospectus
or any
amendment to this prospectus under Rule 424(b)(3) or other applicable provision
of the Securities Act of 1933, as amended, amending, if necessary, the list
of
selling stockholders to include the pledgee, transferee or other successors
in
interest as selling stockholders under this prospectus. The selling stockholders
also may transfer and donate the shares of Common Stock in other circumstances
in which case the transferees, donees, pledgees or other successors in interest
will be the selling beneficial owners for purposes of this
prospectus.
We
will
bear all costs, expenses and fees in connection with the registration of the
shares, including registration and filing fees, printing and duplication
expenses, administrative expenses, legal fees and accounting fees. If the shares
are sold through underwriters or broker-dealers, the selling shareholders will
be responsible for underwriting discounts, underwriting commissions and agent
commissions. The selling shareholders may agree to indemnify any broker-dealer
or agent that participates in transactions involving sales of the shares against
certain liabilities, including liabilities arising under the Securities Act.
We
have agreed to indemnify the selling shareholders against specified liabilities,
including specified liabilities under the Securities Act, and such selling
shareholders agreed to indemnify us against certain liabilities, including
liabilities under the Securities Act. The selling shareholders may sell all,
some or none of the shares offered by this prospectus or interests
therein.
We
are
registering the shares of common stock covered by this prospectus on behalf
of
the selling shareholders named in the following table. We issued the shares
to
the selling shareholder in a private placement transaction in May 2006. The
following table sets forth certain information known to us regarding the
ownership of our common stock as of May 19, 2006.
|
Name
and Address of Beneficial Owner
|
Shares
Beneficially
Owned
Before Offering(1)
|
Number
of Shares Offered
|
Number
of Shares Owned After the Offering (2)
|
|
Variable
Insurance Products Fund III: Balanced Portfolio
82
Devonshire Street, E31C
Boston,
MA 02109
|
41,496
|
40,108
|
1,388
|
|
Fidelity
Puritan Trust: Fidelity Balanced Fund
82
Devonshire Street, E31C
Boston,
MA 02109
|
2,172,938
|
2,100,226
|
72,712
|
|
Fidelity
Advisor Series I: Fidelity Advisor Balanced Fund
82
Devonshire Street, E31C
Boston,
MA 02109
|
150,866
|
145,466
|
5,400
|
|
Magnetar
Capital Master Fund, Ltd (3)
Magnetar
Financial LLC
1603
Orrington Avenue, 13th Floor
Evanston,
IL 60201
|
314,200
|
314,200
|
0
|
Each
of
the selling shareholders represented that it acquired the shares for investment
and with no present intention of public sale or distribution of such shares.
In
recognition of the fact that investors, even though purchasing common stock
without a view to distribution, may wish to be legally permitted to sell their
shares when they deem the sale to be appropriate, we have filed with the
Commission a registration statement, with respect to the resale of the shares
from time to time and we have agreed to prepare and file such amendments and
supplements to the Registration statement as may be necessary to keep the
Registration statement effective until the shares are no longer required to
be
registered for the sale by the selling shareholders. The selling shareholders
may sell all, some or none of their shares pursuant to this Registration
Statement. Except as set forth in the table, none of the selling shareholders
has had a material relationship with us in the past three years.
____________________________
(1)
Except
as
indicated pursuant to applicable community property laws, the persons named
in
the table have sole voting and investment power with respect to all shares
of
common stock, which they each hold.
(2)
Assumes
that all shares registered pursuant to this Registration Statement are sold.
The
selling shareholders may sell all, some or none of their shares pursuant to
this
Registration Statement. The Registration Statement is being filed to register
the shares purchased by the selling shareholders. None of the selling
shareholders has informed us of their intent to sell their shares.
(3)
Magnetar
Financial LLC is the investment advisor of Magnetar Capital Master Fund,
Ltd
(“Magnetar Master Fund”) and consequently has voting control and investment
discretion over securities held by Magnetar Master Fund. Magnetar Financial
LLC
disclaims beneficial ownership of the shares held by Magnetar Master Fund.
Alec
Litowitz has voting control over Supernova Management LLC, the general partner
of Magnetar Capital Partners LP, the sole managing member of Magnetar Financial
LLC. As a result, Mr. Litowitz may be considered the beneficial owner of
any
shares deemed to be beneficially owned by Magnetar Financial LLC. Mr. Litowitz
disclaims beneficial ownership of these shares.
The
validity of the shares is being passed upon by DLA Piper Rudnick Gray Cary
US
LLP, San Diego, California.
The
financial statements of PICO Holdings, Inc. ("the Company") and its consolidated
subsidiaries (except HyperFeed Technologies, Inc. for the year ended
December 31, 2003) as of December 31, 2005 and 2004, and for each of
the three years in the period ended December 31, 2005, the related financial
statement schedules, and management’s report on the effectiveness of internal
controls over financial reporting as of December 31, 2005, incorporated in
this
prospectus by reference from the Company’s Annual Report on Form 10-K for the
year ended December 31, 2005 have been audited by Deloitte & Touche
LLP as stated in their reports, which are incorporated herein by reference.
The consolidated financial statements of HyperFeed Technologies, Inc.
(consolidated with those of the Company) for the year ended December 31,
2003, not presented separately herein, have been audited by KPMG LLP as stated
in their report incorporated by reference herein. Such financial
statements of the Company and its consolidated subsidiaries are incorporated
by
reference herein in reliance upon the respective reports of such firms given
upon their authority as experts in accounting and auditing. Both of the
foregoing firms are independent registered public accounting
firms.
The
SEC
allows us to “incorporate by reference” the information we file with them, which
means that we can disclose important information to you by referring you to
those documents. The information incorporated by reference is considered to
be
part of this prospectus, and information that we file later with the SEC will
automatically update and supersede this information. We incorporate by reference
the documents listed below and any future filings we will make with the SEC
under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934.
| (1) |
Our
Quarterly Report on Form 10-Q for the quarter ended March 31, 2006,
filed
with the SEC on May 9, 2006.
|
| (2) |
Our
Current Reports on Form 8-K filed with the SEC on March 31, 2006
and May
10, 2006.
|
| (3) |
Our
Annual Report on Form 10-K for the fiscal year ended December 31,
2005,
filed with the SEC on March 10, 2006.
|
Any
statement contained in a document that is incorporated by reference is modified
or superseded for all purposes to the extent that a statement contained in
this
prospectus (or in any other document that is subsequently filed with the SEC
and
incorporated by reference) modifies or is contrary to that previous statement.
Any statement so modified or superseded is not deemed a part of this prospectus,
except as so modified or superseded.
We
will
provide without charge to each person to whom this prospectus is delivered,
upon
oral or written request, a copy of any or all of the foregoing documents
incorporated herein by reference (other than exhibits to such documents unless
such exhibits are specifically incorporated by reference into the information
that this prospectus incorporates). Written or telephone requests should be
directed to James F. Mosier at PICO Holdings, Inc., 875 Prospect Street, Suite
301, La Jolla, California 92037, telephone number (858)
456-6022.
You
should rely only on the information incorporated by reference or provided in
this prospectus or any supplement. We have not authorized anyone else to provide
you with different information. The selling shareholders will not make an offer
of these shares in any state where the offer is not permitted. You should not
assume that the information in this prospectus or any supplement is accurate
as
of any date other that the date on the front of those documents.
We
file
annual, quarterly and current reports, proxy statements and other information
with the SEC. You may read and copy any document we file at the public reference
facilities maintained by the SEC at 100 F. Street, N.E., Room 1580,
Washington, D.C. 20549. You can obtain information on the operation of the
public reference room by calling the SEC at 1-800-SEC-0330. Our common stock
is
traded on The NASDAQ National Market. Reports and other information concerning
us can also be inspected at the offices of the National Association of
Securities Dealers, Inc., Market Listing Section, 1735 K Street, N.W.,
Washington, D.C. 20006. Such reports and other information may also be inspected
without charge at a Web site maintained by the SEC. The address of the site
is
http:\\www.sec.gov.