PICO Holdings Inc.
Annual Report 2018

Plain-text annual report

UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549_____________________FORM 10-Ký ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE FISCAL YEAR ENDED DECEMBER 31, 2018OR¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from _____ to _____Commission file number 033-36383PICO HOLDINGS, INC.(Exact Name of Registrant as Specified in Its Charter)Delaware(State or other jurisdiction of incorporation)94-2723335(IRS Employer Identification No.)3480 GS Richards Blvd, Suite 101 Carson City, Nevada 89703(Address of Principal Executive Offices, including Zip Code)Registrant’s Telephone Number, Including Area Code(775) 885-5000Securities Registered Pursuant to Section 12(b) of the Act:Title of Each ClassName of Each Exchange On Which RegisteredCommon Stock, Par Value $0.001Nasdaq Stock Market LLCSecurities Registered Pursuant to Section 12(g) of the Act: NoneIndicate by check mark whether the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act.Yes ¨ No ýIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No ýIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 ofthis chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company, ” and “emerging growth company” in Rule 12b-2 of the Exchange Act (check one):Large accelerated filer ¨Accelerated filer ýNon-accelerated filer ¨Smaller reporting company ýNon-accelerated filer ¨If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financialaccounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b of the Act). Yes ¨ No ýAt June 29, 2018, the aggregate market value of shares of the registrant’s common stock held by non-affiliates of the registrant (based upon the closing sale price of such shares on theNasdaq Global Select Market on June 29, 2018) was $229.8 million, which excludes shares of common stock held in treasury and shares held by executive officers, directors, andstockholders whose ownership exceeds 10% of the registrant’s common stock outstanding at June 29, 2018. This calculation does not reflect a determination that such persons aredeemed to be affiliates for any other purposes.On February 28, 2019, the registrant had 20,482,479 shares of common stock, $0.001 par value, outstanding.DOCUMENTS INCORPORATED BY REFERENCEPortions of the registrant’s Definitive Proxy Statement to be filed with the United States Securities and Exchange Commission pursuant to Regulation 14A in connection withthe registrant’s 2019 Annual Meeting of Shareholders, to be filed subsequent to the date hereof, are incorporated by reference into Part III of this Annual Report on Form 10-K.ANNUAL REPORT ON FORM 10-KTABLE OF CONTENTS Page No.PART IItem 1.BUSINESS 3Item 1A.RISK FACTORS 10Item 1B.UNRESOLVED STAFF COMMENTS 16Item 2.PROPERTIES 16Item 3.LEGAL PROCEEDINGS 16Item 4.MINE SAFETY DISCLOSURES 16 PART IIItem 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERPURCHASES OF EQUITY SECURITIES 17 Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 18 Item 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 27Item 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 55Item 9A.CONTROLS AND PROCEDURES 55Item 9B.OTHER INFORMATION 57 PART IIIItem 10.DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE 57Item 11.EXECUTIVE COMPENSATION 57Item 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATEDSTOCKHOLDER MATTERS 57Item 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 57Item 14.PRINCIPAL ACCOUNTING FEES AND SERVICES 57 PART IVItem 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 58 SIGNATURES 602PART INote About “Forward-Looking Statements”This Annual Report on Form 10-K (including “Management’s Discussion and Analysis of Financial Condition and Results of Operations”) contains“forward-looking statements,” as defined in the Private Securities Litigation Reform Act of 1995, regarding our business, financial condition, results ofoperations, and prospects, including, without limitation, statements about our expectations, beliefs, intentions, anticipated developments, and otherinformation concerning future matters. Words such as “may”, “will”, “could”, “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 ofidentifying forward-looking statements in this Annual Report on Form 10-K.Although forward-looking statements in this Annual Report on Form 10-K reflect the good faith judgment of our management, such statements canonly be based on current expectations and assumptions and are not guarantees of future performance. Consequently, forward-looking statements areinherently subject to risk and uncertainties, and the actual results and outcomes could differ materially from future results and outcomes expressed orimplied by such forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, withoutlimitation, those discussed under Part I, Item 1A “Risk Factors”, as well as those discussed elsewhere in this Annual Report on Form 10-K and in otherfilings we may make from time to time with the United States Securities and Exchange Commission (“SEC”) after the date of this report. Readers areurged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report on Form 10-K. Weundertake no obligation to (and we expressly disclaim any obligation to) revise or update any forward-looking statements, whether as a result of newinformation, subsequent events, or otherwise, in order to reflect any event or circumstance that may arise after the date of this Annual Report on Form10-K, unless otherwise required by law. Readers are urged to carefully review and consider the various disclosures made in this Annual Report onForm 10-K, and the other filings we may make from time to time with the SEC after the date of this report, which attempt to advise interested parties ofthe risks and uncertainties that may affect our business, financial condition, results of operations, and prospects.ITEM 1. BUSINESSIntroductionPICO Holdings, Inc. is a holding company that was incorporated in 1981. In this Annual Report on Form 10-K, PICO and its subsidiaries are collectivelyreferred to as “PICO,” the “Company,” or by words such as “we,” “us,” and “our.” Our business is primarily operated through our wholly owned subsidiary,Vidler Water Company, Inc. (“Vidler”).Our objective is to maximize long-term shareholder value. Currently, we believe the highest potential return to shareholders is from a return of capital. Aswe monetize assets, we intend to return capital back to shareholders through a stock repurchase program or by other means such as special dividends. Wemay, from time to time, reinvest a portion of proceeds from asset monetizations in further development of existing assets if we believe the returns on suchreinvestment outweigh the benefits of a return of capital.Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and, if applicable, amendments to those reports, aremade available free of charge on our web site (www.picoholdings.com) as soon as reasonably practicable after the reports are electronically filed or furnishedwith the SEC. Our website also contains other material about our Company. Information on our website is not incorporated by reference into this AnnualReport on Form 10-K. Our corporate office is located at 3480 GS Richards Blvd., Suite 101, Carson City, Nevada 89703, and our telephone number is (775)885-5000.The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto included elsewhere in this AnnualReport on Form 10-K. Additional information regarding the performance of and recent developments in our operating segments is included in Item 7,Management’s Discussion and Analysis of Financial Condition and Results of Operations.3Our BusinessWe are primarily focused on monetizing our existing water rights and storage credits that we own in Arizona, Colorado, Nevada and New Mexico. Thelong-term future demand for our existing water assets is driven by population and economic growth relative to currently available water supplies in thesouthwestern United States. We have developed sources of water for municipal and industrial use, either from existing supplies of water, such as water usedfor agricultural purposes, acquired unappropriated (previously unused) water, or discovered new water sources based on science and targeted exploration. Weare not a water utility, and do not currently intend to enter into regulated utility activities.A water right is the legal right to divert water and put it to beneficial use. Water rights are real property rights which can be bought and sold and arecommonly measured in acre-feet (“AF”), which is a measure of the volume of water required to cover an area of one acre to a depth of one foot and is equal to325,850 gallons. The value of a water right depends on a number of factors, which may include location, the seniority of the right, whether or not the right istransferable, or if the water can be moved from one location to another. We believe we have purchased water rights at prices consistent with their then currentuse, which was typically agricultural in nature, with the expectation that the value would increase as we converted the water rights through the developmentprocess to a higher use, such as municipal and industrial use. We acquired and developed water resources with the expectation that such water resourceswould be the most competitive source of water (the most economical source of water supply) to support new growth in municipalities or new commercial andindustrial projects.Over the past eight years, the population growth of the states where we own water rights and storage credits has exceeded the national growth ratecollectively and individually, with the exception of New Mexico. According to the Census Bureau’s estimate of state population changes for the period April1, 2010 to July 1, 2018, Nevada’s growth rate was 12.4%, Arizona was 12.2%, Colorado was 13.2%, and New Mexico was 1.8%. These population growthstatistics compare to the national total growth rate of 5.96% over the same period.Historically, a significant portion of the Southwest’s water supplies have come from the Colorado River. The balance is provided by other surface rights,such as rivers and lakes, groundwater (water pumped from underground aquifers), and water previously stored in reservoirs or aquifers. Prolonged droughts(decreased snow pack runoff and the related decreased surface water) and rapid population growth in the past twenty years have exacerbated the region’sgeneral water scarcity.In December 2012, the U.S. Department of the Interior released a report titled: The Colorado River Basin Water Supply and Demand Study, examiningthe future water demands on the Colorado River Basin. The report projects water supply and demand imbalances throughout the Colorado River Basin andadjacent areas over the next 50 years. The average imbalance in future supply and demand is projected to be greater than 3.2 million acre-feet per year by2060. The study projects that the largest increase in demand will come from municipal and industrial users as a result of population growth. The ColoradoRiver Basin currently provides water to approximately 40 million people, and the study estimates that this number could nearly double to approximately76.5 million people by 2060, under a rapid growth scenario.Certain areas of the Southwest confronting long-term growth have insufficient known supplies of water to support their future economic and populationgrowth. The inefficient allocation of available water between agricultural users and municipal or industrial users, the lack of available known water suppliesin a particular location, or inadequate infrastructure to fully utilize or store existing and new water supplies provide opportunities for us to apply our waterresource development expertise.The development of our water assets required significant capital and expertise. A complete project, from acquisition, through development, permitting,and sale is typically a long-term endeavor. In the regions in which we operate, new housing and commercial and industrial developments require an assured,or sustainable, water supply (for example, in Arizona, access to water supplies for at least 100 years is required) before a permit for the development will beissued.We have acquired or developed water rights and water related assets in Arizona, Idaho, Nevada, Colorado, and New Mexico. We also developed andoperate our own water storage facility near Phoenix, Arizona, utilize water storage capacity operated by third parties in Arizona, and “bank,” or store water forfuture growth with municipalities in Nevada and New Mexico.We have also entered into “teaming” and joint resource development arrangements with third parties who have water assets but lack the capital orexpertise to commercially develop these assets. The first of these arrangements was a water delivery teaming agreement in southern Nevada with the LincolnCounty Water District (“Lincoln/Vidler”), which is developing water resources in Lincoln County, Nevada. In northern Nevada, we have also entered into ajoint development agreement with Carson City and Lyon County, Nevada to develop and provide water resources in Lyon County as well as a water bankingagreement with Truckee Meadows Water Authority in Reno, Nevada.4We generate revenues by:•selling our developed water rights to real estate developers, power generating facilities or other commercial and industrial users who must securerights to an assured, or sustainable, supply of water in order to receive permits for their development projects;•selling our developed water rights to water utilities, municipalities and other government agencies for their specific needs, including to supportpopulation and economic growth;•selling our stored water to state agencies, commercial developers or municipalities that have either exhausted their existing water supplies or requirereserves for future water obligations, or, in instances where our water represents the most economical source of water, for their commercial projects orcommunities; and•leasing and selling of our water or land.We owned the following significant water resource and water storage assets at December 31, 2018:Fish Springs RanchWe own a 51% membership interest in, and are the managing partner of, Fish Springs Ranch, LLC (“FSR”), which owns the Fish Springs Ranch and otherproperties totaling approximately 7,310 acres in Honey Lake Valley in Washoe County, Nevada approximately 40 miles north of Reno, Nevada. FSR alsoowns approximately 12,907 acre-feet of permitted water rights related to the properties of which 7,907 acre-feet are designated as water credits, transferable toother areas within Washoe County (such as Reno and Sparks) to support community development. Although the additional 5,000 AF has been approved andpermitted by the Nevada State Engineer, existing federal rights of way will need to be updated before such water is transferable. To date, we have funded allof the operational expenses, development, and construction costs incurred in this partnership. Certain of the development and construction costs are treatedas preferred capital under the partnership agreement which among other things, entitles us to receive interest on the initial balance of the preferred capital andthe accumulated interest at the London Inter-Bank Offered Rate (“LIBOR”) plus 450 basis points. The preferred capital and accumulated interest is first inline to be paid out as the partnership generates sufficient revenue. At December 31, 2018 the balance in the preferred capital account, including $87.1 millionof accrued interest, was $181.7 million and the associated interest rate was 7.31%.During 2006, we started construction of a pipeline and an electrical substation to provide the power required to pump the water to the north valleysregion of Reno. In July 2008, we completed construction of and dedicated our pipeline and associated infrastructure to Washoe County, Nevada under theterms of an Infrastructure Dedication Agreement (“IDA”) between Washoe County and FSR. Under the provisions of the IDA, Washoe County is responsiblefor the operation and maintenance of the pipeline and we own the exclusive right to the capacity of the pipeline to allow for the sale of water for futureeconomic development in the north valley area of Reno. As of December 31, 2018, our remaining 7,907 acre-feet of water that has regulatory approval to beimported to the north valleys of Reno is available for sale under a Water Banking Trust Agreement entered into between FSR and Washoe County. Under theWater Banking Trust Agreement, Washoe County holds our water rights in trust. We can sell our water credits to developers, who must then dedicate thewater to the local water utility for service. In December 2014, Washoe County Water Utilities merged with the Truckee Meadows Water Authority(“TMWA”), consolidating water supply service in Washoe County. Also effective at the end of 2014, FSR, Washoe County, and TMWA consented to theassignment of the Water Banking Trust Agreement and the IDA to the Truckee Meadows Water Authority.The property is a working ranch and is comprised of 7,310 acres of land owned by us and approximately 180,000 acres of a Bureau of Land Managementgrazing allotment. The land and allotment are currently leased to a cattle company for grazing. The ranch also grows alfalfa hay and grass that is sold to cattleoperators, dairies and feed stores. We have entered into an option agreement with a solar company to lease up to 2,600 acres for solar panels and batterystorage.Carson/LyonThe capital of Nevada, Carson City, and Lyon County are located in the western part of the state, close to Lake Tahoe and the border with California.While Carson City’s housing growth has been and is expected to be minimal due to land constraints, there is planned growth for the Dayton corridor, directlyeast of Carson City. The planned growth in this area is anticipated to be driven by the employment growth at the Tahoe Reno Industrial Center (“TRIC”) andthe construction of the extension of the USA Parkway, completed in August 2017, which connects Interstate route 80 to TRIC and to U.S. route 50 near SilverSprings, Lyon County. There are currently few existing water sources to support future growth and development in the Dayton corridor area and we haveworked with Carson City and Lyon County for several years on ways to deliver water to support this expected growth.5We have development and improvement agreements with both Carson City and Lyon County to provide water resources for planned future growth inLyon County and to connect, or “intertie,” the municipal water systems of Carson City and Lyon County. The agreements allow for certain river water rightsowned or controlled by us to be conveyed for use in Lyon County. The agreements also allow us to bank water with Lyon County and authorize us to buildthe infrastructure to upgrade and inter-connect the Carson City and Lyon County water systems.We own or control water rights consisting of both Carson River agriculture designated water rights and certain municipal and industrial designated waterrights. We anticipate that we will have up to approximately 3,500 acre-feet available for municipal use in Lyon County for future development, if and whendemand occurs, principally by means of delivery through the new infrastructure we constructed.Vidler Arizona Recharge FacilityWe built and received the necessary permits to operate a full-scale water “recharge” facility that allowed us to bank water underground in the HarquahalaValley, Arizona. “Recharge” is the process of placing water into storage underground. When needed, the water will be “recovered,” or removed from storage,through groundwater wells. This stored water creates a long term storage credit (“LTSC”). The Arizona Department of Water Resources tracks and documentsthe LTSCs stored throughout Arizona.We recharged Colorado River water at this facility, which is a primary source of water for the Lower Basin States of Arizona, California, and Nevada. Thewater storage facility is strategically located adjacent to the Central Arizona Project (“CAP”) aqueduct, a conveyance canal running from Lake Havasu toPhoenix and Tucson. Our recharged water was purchased from surplus flows of CAP water. Proximity to the CAP aqueduct provides a competitive advantageas it minimizes the cost of water conveyance of our LTSCs.Potential users include industrial companies, power-generating companies, developers, and local governmental political subdivisions in Arizona,including municipalities and incorporated areas, and out-of-state users such as municipalities and water agencies in Nevada and California. The ArizonaWater Banking Authority (“AWBA”) has the responsibility for intrastate and interstate storage of water for governmental entities. To date, we have not storedwater at the facility for any third party and there is no longer excess water which can be banked.While Arizona was the only southwestern state with surplus flows of Colorado River water available for storage, there is no surplus flows available to usas drought conditions have reduced the flow of the Colorado River and other water users have fully utilized their water allocations. In the future, we do notanticipate purchasing and storing surplus flows of Colorado River water and we have discontinued using the recharge element of the storage site. AtDecember 31, 2018, we had LTSCs of approximately 250,600 acre-feet of water in storage at the facility. To date, we have not generated any revenue fromselling our stored water at this facility.Phoenix AMA Water StorageAs of December 31, 2018, we owned approximately 53,600 acre-feet of LTSCs stored in the Phoenix Active Management Area (“AMA”), of which13,445 AF are under agreements of purchase and sale by third parties expiring in December 2019 and November 2021. However, the buyers have the optionto terminate the agreements with 10 days notice without any obligation to purchase any additional LTSCs. Water stored in the AMA may be recovered andused anywhere in the AMA and could have a variety of uses for residential and commercial developments within the Phoenix metropolitan area. All of thestorage sites we utilize within the AMA are operated by third parties.Harquahala Valley Ground Water BasinAny new residential development in Arizona within an AMA must obtain a permit from the Arizona Department of Water Resources certifying a“designated assured water supply” sufficient to sustain the development for at least 100 years. Harquahala Valley groundwater meets the designation ofassured water supply.As of December 31, 2018, we owned 1,926 acres of land and have the ability to utilize 6,040 acre-feet of groundwater for development within theHarquahala Basin. The Analysis of Adequate Water Supply for the 6,040 acre-feet must be renewed before December 2021 in order to maintain these rights.6Lincoln County, Nevada Water Delivery and Teaming AgreementLincoln County Nevada (“Lincoln”) and Vidler entered into a water delivery teaming agreement to locate and develop water resources in LincolnCounty, Nevada for planned projects under the Lincoln County master plan. Under the agreement, proceeds from sales of water will be shared equally afterVidler is reimbursed for the expenses incurred in developing water resources in Lincoln County. Lincoln/Vidler has filed applications for more than 100,000acre-feet of water rights with the intention of supplying water for residential, commercial, and industrial use, as contemplated by the county’s approvedmaster plan. We believe that this is the only known new source of water for Lincoln County. Although it is uncertain, Vidler currently anticipates that overthe long-term, up to 40,000 acre-feet of water rights will ultimately be permitted from these applications, and put to use for planned projects in LincolnCounty.Tule Desert Groundwater BasinLincoln/Vidler jointly filed permit applications in 1998 for approximately 14,000 acre-feet of water rights for industrial use from the Tule DesertGroundwater Basin in Lincoln County, Nevada. In November 2002, the Nevada State Engineer awarded Lincoln/Vidler a permit for 2,100 acre-feet of waterrights, which Lincoln/Vidler subsequently sold in 2005, and ruled that an additional 7,240 acre-feet could be granted pending additional studies byLincoln/Vidler (the “2002 Ruling”). Subsequent to the 2002 Ruling and consistent with the Nevada State Engineer’s conditions, we completed theseadditional engineering and scientific studies.On April 15, 2010, Lincoln/Vidler and the Nevada State Engineer announced a Settlement Agreement with respect to litigation between the partiesregarding the amount of water to be permitted in the Tule Desert Groundwater Basin. The Settlement Agreement resulted in the granting to Lincoln/Vidler ofthe original application of 7,240 acre-feet of water rights with an initial 2,900 acre-feet of water rights available for sale or lease by Lincoln/Vidler. Thebalance of the water rights (4,340 acre-feet) is the subject of staged pumping and development over the next several years to further refine the modeling of thebasin and potential impacts, if any, from deep aquifer pumping in the remote, unpopulated desert valley in Lincoln County, Nevada.The Tule Desert Groundwater Basin water resources were developed by Lincoln/Vidler to support the Lincoln County Recreation, Conservation andDevelopment Act of 2004 (the “Land Act”). The water permitted under the Settlement Agreement is anticipated to provide sufficient water resources to aportion of the Land Act properties.Kane SpringsIn 2005, Lincoln/Vidler agreed to sell water to a developer of Coyote Springs, a new planned residential and commercial development 60 miles north ofLas Vegas, as and when supplies were permitted from Lincoln/Vidler’s existing applications in Kane Springs, Nevada. Lincoln/Vidler currently has priorityapplications for approximately 17,375 acre-feet of water in Kane Springs for which the Nevada State Engineer has requested additional data before making adetermination on the applications from this groundwater basin. The actual permits received may be for a lesser quantity, which cannot be accuratelypredicted.Currently, we have an option agreement with a developer to sell our remaining 500 acre-feet of water rights we own in this area at a price of $6,358 peracre-foot that is escalated at 7.5% per year from September 2017. The agreement expires in September 2019 with a cost to exercise of approximately $3.5million. To date, the developer has made all required annual option payments.7The following table summarizes our other water rights and real estate assets at December 31, 2018:Name and location of asset Brief description Present commercial useNevada: Truckee River Water Rights Approximately 299 acre-feet of Truckee River waterrights permitted for municipal use. Water rights are available to support developmentthrough sale, lease, or partnering arrangements.Dry Lake Vidler owns 600 acres of agricultural and ranch land inDry Lake Valley North. Lincoln/Vidler owns the 1,009acre-feet of permitted agricultural groundwater rightsassociated with the land.Located in Lincoln County. Water rights and land are available to supportdevelopment through sale, lease, or partneringarrangements.Muddy River 267 acre-feet of water rights.Located 35 miles east of Las Vegas. Currently leased to Southern Nevada Water Authorityin the Muddy River Irrigation Company.Dodge Flat 1,397 acre-feet of permitted municipal and industrialuse water rights, and 1,064 acres of land.Located in Washoe County, east of Reno. Water rights and land are currently under contract. InJanuary 2018 31.5 acre-feet were sold to a miningcompany.In November 2014, we entered into an optionagreement with a solar developer for 1,064 acres of landand 18AF of water rights.Colorado: Tunnel Approximately 152 acre-feet of water rights.Located in Summit County (the Colorado Rockies),near Breckenridge. 57 acre-feet of water leased under long term leases. 95acre-feet are available for sale or lease.New Mexico: Campbell Ranch Application for a new appropriation of 350 acre-feet ofground water. Vidler is in partnership with the landowner. The water rights would be used for a newresidential and commercial development.Located 25 miles east of Albuquerque. In November 2014, our application was denied by theNew Mexico State Engineer causing us to record animpairment loss of $3.5 million which reduced thecapitalized costs and other assets of this project to zero.We appealed this decision on November 19, 2014. Theappeal was denied in February 2019.Lower Rio Grande Basin Approximately 1,215 acre-feet of agricultural waterrights.Located in Dona Ana and Sierra Counties. Water is available for sale, lease or other partneringopportunities.In 2014, we entered into a long term lease for a portionof these water rights.Middle Rio Grande Basin Approximately 99 acre-feet of water rights permitted formunicipal use.Located in Santa Fe and Bernalillo Counties. Water is available for sale, lease, or other partneringopportunities.EmployeesAt December 31, 2018, we had 17 employees.Executive OfficersThe executive officers of PICO are:Name Age PositionDorothy A. Timian - Palmer 61 President and Chief Executive OfficerMaxim C. W. Webb 57 Executive Chairman of the BoardJohn T. Perri 49 Chief Financial Officer and Secretary8Ms. Timian - Palmer has served as our President and Chief Executive Officer since August 2018. Ms. Timian - Palmer has been Chief Executive Officer ofVidler Water Company, Inc. since October 2016 and President of Vidler Water Company. Inc. since October 2008.Mr. Webb has served as our Executive Chairman since August 2018. Prior to his appointment as Executive Chairman, Mr. Webb was our President andChief Executive Officer, and a member of our Board of Directors since October 2016 and as Chairman of the Board of Directors since December 2016. Mr.Webb has been an officer of Vidler Water Company, Inc. since 2001. He has served in various capacities since joining our company in 1998, including ChiefFinancial Officer, Treasurer, Executive Vice President and Secretary from 2001 to October 2016.Mr. Perri has served as our Chief Financial Officer and Secretary since October 2016. He has served in various capacities since joining our company in1998, including Vice President, Chief Accounting Officer from 2010 to October 2016, Financial Reporting Manager, Corporate Controller and VicePresident, Controller from 2003 to 2010.9ITEM 1A. RISK FACTORSThe following information sets out factors that could cause our actual results to differ materially from those contained in forward-looking statementswe have made in this Annual Report on Form 10-K and those we may make from time to time. You should carefully consider the following risks, togetherwith other matters described in this Form 10-K or incorporated herein by reference in evaluating our business and prospects. If any of the following risksoccurs, our business, financial condition or operating results could be harmed. In such case, the trading price of our securities could decline, in some casessignificantly.General economic conditions could have a material adverse effect on our financial results, financial condition and the demand for and the fair value ofour assets.Our operations are sensitive to the general economic conditions of the local markets in which our assets are located although international, national, andregional economic conditions may also impact our markets. General poor economic conditions and the resulting effect of non-existent or slow rates of growthin the markets in which we operate could have a material adverse effect on the demand for our water assets. These poor economic conditions include higherunemployment, inflation, deflation, decreases in consumer demand, changes in buying patterns, a weakened dollar, higher consumer debt levels, higherinterest rates, especially higher mortgage rates, and higher tax rates and other changes in tax laws or other economic factors that may affect commercial andresidential real estate development.Specifically, high national, regional, or local unemployment may arrest or delay any significant growth of the residential real estate markets in which weoperate, which could adversely affect the demand for our water assets. Any prolonged lack of demand for our water assets could have a significant adverseeffect on our revenues, results of operations, cash flows, and the return on our investment from these assets.Our future revenue is uncertain and depends on a number of factors that may make our revenue, profitability, cash flows, and the fair value of ourassets volatile.Our future revenue and profitability related to our water resource and water storage operations will primarily be dependent on our ability to develop andsell or lease our water assets. In light of the fact that our water resource and water storage operations represent the majority of our overall business at present,our long-term profitability and the fair value of the assets related to our water resource and water storage operations could be affected by various factors,including the drought in the southwest, regulatory approvals and permits associated with such assets, transportation arrangements, and changing technology.We may also encounter unforeseen technical or other difficulties which could result in cost increases with respect to our water resource and water storagedevelopment projects. Moreover, our profitability and the fair value of the assets related to our water resource and water storage operations is significantlyaffected by changes in the market price of water. Future sales and prices of water may fluctuate widely as demand is affected by climatic, economic,demographic and technological factors as well as the relative strength of the residential, commercial, financial, and industrial real estate markets.Additionally, to the extent that we possess junior or conditional water rights, during extreme climatic conditions, such as periods of low flow or drought, ourwater rights could be subordinated to superior water rights holders. The factors described above are not within our control.One or more of the above factors in one or more of our operating segments could impact our revenue and profitability, negatively affect our financialcondition and cash flows, cause our results of operations to be volatile, and could negatively impact our rate of return on our water assets and cause us todivest such assets for less than our intended return on our investment.10A downturn in the homebuilding and land development sectors in our markets would materially adversely affect our business, results of operations, andthe demand for and the fair value of our assets.The homebuilding industry experienced a significant and sustained downturn in recent years having been impacted by factors that include, but are notlimited to, weak general economic and employment growth, a lack of consumer confidence, large supplies of resale and foreclosed homes, a significantnumber of homeowners whose outstanding principal balance on their mortgage loan exceeds the market value of their home, and tight lending standards andpractices for mortgage loans that limit consumers’ ability to qualify for mortgage financing to purchase a home. These factors resulted in an industry-wideweakness in demand for new homes and caused a material adverse effect on the growth of the local economies and the homebuilding industry in thesouthwestern United States (“U.S.”) markets where our water assets are located, including the states of Nevada, Arizona, Colorado, and New Mexico. Thecontinuation of the recent improvement in residential and commercial real estate development process and activity is essential for our ability to generateoperating income in our water resource and water storage business. We are unable to predict whether and to what extent this recovery will continue or itstiming. Any future slow-down in real estate and homebuilding activity could adversely impact various development projects within the markets in which ourwater assets are located and this could materially affect the demand for and the fair value of these assets and our ability to monetize these assets. Declines andweak conditions in the U.S. housing market have reduced our revenues and created losses in our water resource and water storage, and land development andhomebuilding businesses in prior years and could do so in the future. Additionally, the recent tax law changes limiting, among other things, deductibility ofmortgage interest and of state and local income taxes may have an impact on the national housing market and in the markets in which we operate, althoughthe Nevada market may be less impacted due to the lack of a state income tax.We may not be able to realize the anticipated value of our water assets in our projected time frame, if at all.We expect that the current rate of growth of the economy will continue to have an impact on real estate market fundamentals. Depending on how marketsperform both in the short and long-term, the state of the economy, both nationally and locally in the markets where our assets are concentrated, could result ina decline in the value of our existing water assets, or result in our having to retain such assets for longer than we initially expected, which would negativelyimpact our rate of return on our water assets, cause us to divest such assets for less than our intended return on investment, or cause us to incur impairments onthe book values of such assets to estimated fair value. Such events would adversely impact our financial condition, results of operations and cash flows.The fair values of our water assets are linked to growth factors concerning the local markets in which our assets are concentrated and may be impactedby broader economic issues.Both the demand for, and fair value of, our water assets are significantly affected by the growth in population and the general state of the local economieswhere our real estate and water assets are located. The local economies where our real estate and water assets are located, primarily in Arizona and northernNevada, but also in Colorado and New Mexico, may be affected by factors such as the local level of employment, the availability and cost of financing forreal estate development transactions, and affordability of housing. The unemployment rate in these states, as well as issues related to the credit markets, mayprolong a slowdown of the local economies where our real estate and water assets are located. This could materially and adversely affect the demand for, andthe fair value of, our real estate and water assets and, consequently, adversely affect our growth and revenues, results of operations, cash flows and the returnon our investment from these assets.The fair values of our water assets may decrease which could adversely affect our results of operations with losses from asset impairments.The fair value of our water resource and water storage assets depends on market conditions. We acquired water resources and land for expansion into newmarkets and for replacement of inventory and expansion within our current markets. The valuation of real estate and water assets is inherently subjective andbased on the individual characteristics of each asset. Factors such as changes in regulatory requirements and applicable laws, political conditions, thecondition of financial markets, local and national economic conditions, change in efficiencies of water use, the financial condition of customers, potentiallyadverse tax consequences, and interest and inflation rate fluctuations subject valuations to uncertainties. In addition, our valuations are made on the basis ofassumptions that may not prove to reflect economic or demographic reality. If population growth and, as a result, water and/or housing demand in ourmarkets fails to meet our expectations when we acquired our real estate and water assets, our profitability may be adversely affected and we may not be ableto recover our costs when we sell our real estate and water assets. We regularly review the value of our water assets. These reviews have resulted in recordingsignificant impairment losses in prior years to our water resource assets. Such impairments have adversely affected our results of operations and our financialcondition in those years.11If future market conditions adversely impact the anticipated timing of and amount of sales of our water assets we may be required to record furthersignificant impairments to the carrying value of our water assets, which would adversely affect our results of operations and our financial condition.* The majority of our remaining assets and operations consist of our existing water resource and water storage operations that are concentrated in alimited number of assets and markets, making our cash flows, profitability and the fair value of those assets difficult to predict and vulnerable toconditions and fluctuations in a limited number of local economies.We anticipate that a significant amount of our water resource and water storage revenue, results of operations and cash flows will come from a limitednumber of assets, which primarily consist of our water rights in Nevada and our water storage operations in Arizona. Our two most significant assets are ourwater storage operations in Arizona and our water rights to serve the north valleys area of Reno, Nevada. As a result of this concentration, we expect ourinvested capital and results of operations will be vulnerable to the conditions and fluctuations in these local economies, along with changes in local andregional government land use, zoning, permitting approvals and other regulatory action.Our Arizona Recharge Facility is one of the few private sector water storage sites in Arizona. At December 31, 2018, we had approximately 251,000 acre-feet of water stored at the facility. In addition, we had approximately 53,600 acre-feet of water stored in the Phoenix Active Management Area atDecember 31, 2018. We have not stored any water on behalf of any customers and as of December 31, 2018, had not generated any material revenue from therecharge facility. We cannot be certain that we will ultimately be able to sell all of the stored water at a price sufficient to provide an adequate economicprofit, if at all.We constructed a pipeline approximately 35 miles long to deliver water from Fish Springs Ranch to the north valleys area of Reno, Nevada. As ofDecember 31, 2018, the total cost of the pipeline project, including our water credits (net of impairment losses incurred to date) carried on our balance sheetwas approximately $83.1 million. To date, we have sold only a small amount of the water credits and we cannot provide any assurance that the sales prices wemay obtain in the future will provide an adequate economic return, if at all. Any prolonged weak demand or lack of permitting approvals for new homes,residential and commercial development, and, as a result, for our assets in Nevada and Arizona, would have a material adverse effect on our future revenues,results of operations, cash flows, and the return on our investment from those assets. Demand for these water credits is anticipated to primarily come from bothlocal and national developers planning to construct new projects in the north valleys area of Reno, Nevada. The success of these projects is dependent onnumerous factors beyond our control, including local government approvals, employment growth in the greater Reno area, and the ability of the developersto finance these projects.We may suffer uninsured losses or suffer material losses in excess of insurance limits.We could suffer physical damage to any of our assets at one or more of our different businesses and liabilities resulting in losses that may not be fullyrecoverable by insurance. In addition, certain types of risks, such as personal injury claims, may be, or may become in the future, either uninsurable or noteconomically insurable, or may not be currently or in the future covered by our insurance policies or otherwise be subject to significant deductibles or limits.Should an uninsured loss or a loss in excess of insured limits occur or be subject to deductibles, we could sustain financial loss or lose capital invested in theaffected asset(s) as well as anticipated future income from that asset. In addition, we could be liable to repair damage or meet liabilities caused by risks thatare uninsured or subject to deductibles.We may not receive all of the permitted water rights we expect from the water rights applications we have filed in Nevada and New Mexico.We have filed certain applications in Nevada and New Mexico to be awarded permitted water rights. To date, the courts in New Mexico have denied ourapplications and we have not been awarded any water rights in New Mexico. In Nevada our applications are primarily as part of the water teaming agreementwith Lincoln County. We deploy the capital required to enable the filed applications to be converted into permitted water rights over time as and when wedeem appropriate or as otherwise required. We only expend capital in those areas where our initial investigations lead us to believe that we can obtain asufficient volume of water to provide an adequate economic return on the capital employed in the project. These capital expenditures largely consist ofdrilling and engineering costs for water production, costs of monitoring wells, legal and consulting costs for hearings with the State Engineer, and othercompliance costs. Until the State Engineer in the relevant state permits the water rights we are applying for, we cannot provide any assurance that we will beawarded all of the water that we expect based on the results of our drilling and our legal position and it may be a considerable period of time before we areable to ascertain the final volume of water rights, if any, that will be permitted by the State Engineer. Any significant reduction in the volume of waterawarded to us from our original base expectation of the amount of water that may be permitted may result in the write down of capitalized costs which couldadversely affect the return on our investment from those assets, our revenues, results of operations, and cash flows.12Variances in physical availability of water, along with environmental and legal restrictions and legal impediments, could impact profitability.We value our water assets, in part, based upon the volume (as measured in acre-feet) of water we anticipate from water rights applications and ourpermitted water rights. The water and water rights held by us and the transferability of these rights to other uses, persons, and places of use are governed bythe laws concerning water rights in the states of Arizona, Colorado, Nevada, and New Mexico. The volumes of water actually derived from the water rightsapplications or permitted rights may vary considerably based upon physical availability and may be further limited by applicable legal restrictions.As a result, the volume of water anticipated from the water rights applications or permitted rights may not in every case represent a reliable, firm annualyield of water, but in some cases describe the face amount of the water right claims or management’s best estimate of such entitlement. Additionally, we mayface legal restrictions on the sale or transfer of some of our water assets, which may affect their commercial value. If the volume of water yielded from ourwater rights applications is less than our expectations, or we are unable to transfer or sell our water assets, we may lose some or all of our anticipated returns,which may adversely affect our revenues, profitability and cash flows.Purchasers of our real estate and water assets may default on their obligations to us and adversely affect our results of operations and cash flow.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 areonly released once the financing has been fully paid off. Purchasers of our real estate and water assets may default on their financing obligations. Suchdefaults may have an adverse effect on our business, financial condition, and the results of operations and cash flows.Our sale of water assets may be subject to environmental regulations which would impact our revenues, profitability, and cash flows.The quality of the water assets we lease or sell may be subject to regulation by the United States Environmental Protection Agency acting pursuant to theUnited States Safe Drinking Water Act along with other federal, state and local regulations. While environmental regulations may not directly affect us, theregulations regarding the quality of water distributed affects our intended customers and may, therefore, depending on the quality of our water, impact theprice and terms upon which we may in the future sell our water assets. If we need to reduce the price of our water assets in order to make a sale to our intendedcustomers, our balance sheet, return on investment, results of operations and financial condition could suffer.Our water assets may be impacted by legal and political opposition in certain locations.The water assets we hold and the transferability of these assets and rights to other uses, persons, or places of use are governed by the laws and regulationsconcerning water rights in the states of Arizona, Nevada, Colorado and New Mexico and may be directly or indirectly affected by other federal, state andlocal laws and regulations related to water and land use. Our development and sale of water assets is subject to the risks of delay associated with receiving allnecessary regulatory approvals and permits. Additionally, the transfer of water resources from one use to another may affect the economic base or impactother issues of a community including development, and will, in some instances, be met with local opposition. Moreover, municipalities who will likelyregulate the use of any water we might sell to them in order to manage growth could create additional requirements that we must satisfy to sell and conveywater assets.If we are unable to effectively transfer, sell and convey water resources, our ability to monetize these assets will suffer and our return on investment,revenues and financial condition would decline.If our assets decline in value, our financial condition and the return on our investment could suffer.Historically, we have acquired and invested in assets that we believed were undervalued or that would benefit from additional capital, restructuring ofoperations, strategic initiatives, or improved competitiveness through operational efficiencies. If any previously acquired asset 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. If we are not successful managingour previous acquisitions, our business, financial condition, results of operations and cash flows could be materially affected. Such failures, declines in fairvalues, and/or failure to manage acquisitions, could result in a negative return on equity. We could also lose part or all of our capital in these assets andexperience reductions in our net income, cash flows, assets and equity.13Future dispositions of our businesses, assets, operations and investments, if unsuccessful, could reduce the value of our common shares. Any futuredispositions may result in significant changes in the composition of our assets and liabilities. Consequently, our financial condition, results of operations andthe trading price of our common shares may be affected by factors different from those historically affecting our financial condition, results of operations andtrading price at the present time.We may need additional capital in the future to fund our business and financing may not be available on favorable terms, if at all, or without dilution toour shareholders.We currently anticipate that our available capital resources and operating cash flows will be sufficient to meet our expected working capital and capitalexpenditure requirements for at least the next 12 months. However, we cannot provide any assurance that such resources will be sufficient to fund ourbusiness. We may raise additional funds through public or private debt, equity or hybrid securities financings, including, without limitation, through theissuance of securities.We may experience difficulty in raising necessary capital in view of the recent volatility in the capital markets and increases in the cost of finance,especially for a small capitalization company like ours. Increasingly stringent rating standards could make it more difficult for us to obtain financing. If weraise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our shareholders could be significantlydiluted, and these newly issued securities may have rights, preferences or privileges senior to those of existing shareholders. Indebtedness would result inincreased debt service obligations and could result in operating and financing covenants that would restrict our operations. The additional financing we mayneed may not be available to us, or on favorable terms. If adequate funds are not available or are not available on acceptable terms, if and when needed, ourability to fund our operations or otherwise execute our strategic plan would be significantly limited. In any such case, our business, operating results orfinancial condition could be materially adversely affected.* Our ability to utilize net operating loss carryforwards and certain other tax attributes may be limited.Under Section 382 of the Internal Revenue Code of 1986, as amended, if we undergo an “ownership change” (generally defined as a greater than 50%change (by value) in our equity ownership over a three year period), the ability to use our pre-change net operating loss carryforwards and other pre-changetax attributes to offset our post-change income may be limited. Notwithstanding our adoption of a tax benefit preservation plan, it is possible that we couldexperience ownership changes in the future as a result of shifts in our stock ownership. As of December 31, 2018, we had federal and state net operating losscarryforwards of approximately $170.1 million and $154.3 million, respectively, which, depending on our value at the time of any ownership changes, couldbe limited.We may not be able to retain key management personnel we need to succeed, which could adversely affect our ability to successfully operate ourbusinesses.To run our day-to-day operations and to successfully manage our businesses we must, among other things, continue to retain key management. We relyon the services of a small team of key executive officers. If they depart, it could have a significant adverse effect upon our business. Also, increasedcompetition for skilled management and staff employees in our businesses could cause us to experience significant increases in operating costs and reducedprofitability.Analysts and investors may not be able to evaluate us adequately, which may negatively influence the price of our stock.We own assets that are unique, complex in nature, and difficult to understand. In particular, our water resource business is a developing industry in theUnited States with very little historical and comparable data, very complex valuation issues and a limited following of analysts. Because our assets areunique, analysts and investors may not be able to adequately evaluate our operations and enterprise as a going concern. This could cause analysts andinvestors to make inaccurate evaluations of our stock, or to overlook PICO in general. As a result, the trading volume and price of our stock could suffer andmay be subject to excessive volatility.14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 we expect will continue to be, subject to fluctuations. The market price of our commonstock may be significantly impacted by:•quarterly variations in financial performance and condition of our various businesses;•shortfalls in revenue or earnings from estimates forecast by securities analysts or others;•changes in estimates by such analysts;•the ability to monetize our water assets for an adequate economic return, including the length of time any such monetization may take;•our competitors’ announcements of extraordinary events such as acquisitions;•litigation; and•general economic conditions and other matters described herein.Our results of operations have been subject to significant fluctuations, particularly on a quarterly basis, and our future results of operations couldfluctuate significantly from quarter to quarter and from year to year. Causes of such fluctuations may include one time transactions, and impairment losses.Statements or changes in opinions, ratings, or earnings estimates made by brokerage firms or industry analysts relating to the markets in which we do businessor relating to us specifically could result in an immediate and adverse effect on the market price of our common stock. Such fluctuations in the market priceof our common stock could affect the value of your investment and your ability to sell your shares.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 byemployees, shareholders or customers could be very costly and substantially disrupt our business. Additionally, from time to time we or our subsidiaries willhave disputes with companies or individuals which may result in litigation that could necessitate our management’s attention and require us to expend ourresources. We may be unable to accurately assess our level of exposure to specific litigation and we cannot provide any assurance that we will always be ableto resolve such disputes out of court or on terms favorable to us. We may be forced to resolve litigation in a manner not favorable to us, and such resolutioncould have a material adverse impact on our consolidated financial condition or results of operations.We have been the subject of shareholder activism efforts that could cause a material disruption to our business.In the past, certain investors took steps to involve themselves in the governance and strategic direction of our company due to governance and strategic-related disagreements with us. While we have formally settled with certain of such activists, other investors could take steps to involve themselves in thegovernance and strategic direction of our Company. Such shareholder activism efforts could result in substantial costs and diversion of management’sattention and resources, harming our business and adversely affecting the market price of our common stock.Anti-takeover provisions in our charter documents and under Delaware law may make an acquisition of us more complicated and the removal andreplacement of our directors and management more difficult.Provisions of our certificate of incorporation and bylaws, as well as provisions of Delaware law, could make it more difficult for a third party to acquireus, even if doing so would benefit our stockholders. These provisions may also make it difficult for stockholders to remove and replace our board of directorsand management. For example, these provisions limit who may call a special meeting of stockholders and establish advance notice requirements fornominations for election to the board of directors or for proposing matters that can be acted upon at stockholder meetings. In addition, we have adopted a taxbenefits preservation plan designed to preserve our ability to utilize our net operating losses as a result of certain stock ownership changes, which may havethe effect of discouraging transactions involving an actual or potential change in our ownership. The tax benefit preservation plan was ratified by ourshareholders at our 2018 annual meeting.If equity analysts do not publish research or reports about our business or if they issue unfavorable commentary or downgrade our common stock, theprice of our common stock could decline.The trading market for our common stock will rely in part on the research and reports that equity research analysts may publish about us and ourbusiness. We do not control these analysts. The price of our stock could decline if one or more equity analysts downgrade our stock or if those analysts issueother unfavorable commentary or cease publishing reports about us or our business.15Our business could be negatively impacted by cyber security threats.In the ordinary course of our business, we use our data centers and our networks to store and access our proprietary business information. We face variouscyber security threats, including cyber security attacks to our information technology infrastructure and attempts by others to gain access to our proprietaryor sensitive information. The procedures and controls we use to monitor these threats and mitigate our exposure may not be sufficient to prevent cybersecurity incidents. The result of these incidents could include disrupted operations, lost opportunities, misstated financial data, liability for stolen assets orinformation, increased costs arising from the implementation of additional security protective measures, litigation and reputational damage. Any remedialcosts or other liabilities related to cyber security incidents may not be fully insured or indemnified by other means.THE FOREGOING FACTORS, INDIVIDUALLY OR IN AGGREGATE, COULD MATERIALLY ADVERSELY AFFECT OUR OPERATING RESULTS ANDCASH FLOWS AND FINANCIAL CONDITION AND COULD MAKE COMPARISON OF HISTORICAL FINANCIAL STATEMENTS, INCLUDING RESULTSOF OPERATIONS AND CASH FLOWS AND BALANCES, DIFFICULT OR NOT MEANINGFUL.ITEM 1B. UNRESOLVED STAFF COMMENTSNone.ITEM 2. PROPERTIESWe lease office space in Carson City, Nevada, where our principal executive office is located, and office space in La Jolla, California, that is vacant andwhich we are seeking to sublet. We continually evaluate our current and future space capacity in relation to our business needs. We believe that our existingoffice space is adequate to meet our current business requirements and that suitable replacement and additional space will be available in the future oncommercially reasonable terms, should we need it.We have significant holdings of real estate and water assets in the southwestern United States as described in“Item 1 - Business.”ITEM 3. LEGAL PROCEEDINGSNeither we nor our subsidiaries are parties to any potentially material pending legal proceedings.We are subject to various litigation matters that arise in the ordinary course of our business. Based upon information presently available, management isof the opinion that resolution of such litigation will not likely have a material effect on our consolidated financial position, results of operations, or cashflows. Because litigation is inherently unpredictable and unfavorable resolutions could occur, assessing contingencies is highly subjective and requiresjudgments about future events. When evaluating contingencies, we may be unable to provide a meaningful estimate due to a number of factors, including theprocedural status of the matter in question, the presence of complex or novel legal theories, and/or the ongoing discovery and development of informationimportant to the matters. In addition, damage amounts claimed in litigation against us may be unsupported, exaggerated or unrelated to possible outcomes,and as such are not meaningful indicators of our potential liability. We regularly review contingencies to determine the adequacy of our accruals and relateddisclosures. The amount of ultimate loss may differ from these estimates, and it is possible that cash flows or results of operations could be materially affectedin 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 our business, financial condition, results of operations or cash flows will depend on anumber 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 our consolidated financial statements; and the unique facts and circumstances of the particular matter that may give rise toadditional factors.ITEM 4. MINE SAFETY DISCLOSURESNot applicable.16PART IIITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITYSECURITIESOur common stock is traded on the NASDAQ Global Select Market under the symbol “PICO.” The following table sets out the quarterly high and lowsales prices for the past two years as reported on the NASDAQ Global Select Market. These reported prices reflect inter-dealer prices, without adjustments forretail markups, markdowns, or commissions. 2018 2017 High Low High LowFirst Quarter$13.40 $10.60 $15.74 $13.05Second Quarter$12.85 $10.38 $17.95 $13.35Third Quarter$12.70 $11.35 $17.60 $16.05Fourth Quarter(1)$12.63 $8.85 $20.20 $12.30(1)The lowest stock price during the fourth quarter of 2017 reflected the $5.00 per share special dividend paid to our shareholders on November 21, 2017,while prior period prices have not been adjusted to reflect the special dividend.Any future decision to pay dividends on our common stock will be at the discretion of our board of directors and will depend upon, among other factors,our ability to monetize assets, our results of operations, financial condition, capital requirements, and other factors our board of directors may deem relevant.On February 28, 2019, the closing sale price of our common stock was $10.28 and there were approximately 320 holders of record.ISSUER PURCHASES OF EQUITY SECURITIESPeriod Total number of shares ofcommon stock purchased Average price paid pershare of common stock(including commissions) Total number of shares ofcommon stock repurchasedas part of publiclyannounced plans orprograms Maximum dollar value ofshares of common stockthat may yet be repurchasedunder the plans or programs(in thousands) (1)10/1/2018 - 10/31/18 313,329 $11.53 2,076,457 $25,80711/1/2018 - 11/30/18 154,496 $10.17 2,230,953 $24,23612/1/2018 - 12/31/18 271,544 $9.58 2,502,497 $21,634Total 739,369 (1) The stock repurchase program was announced on March 2, 2017. Our Board of Directors authorized up to $50 million to be used under this program andthere is no set expiration date.17ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSINTRODUCTIONThe following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the readerunderstand our Company. The MD&A should be read in conjunction with our consolidated financial statements and the accompanying notes, presented laterin this Annual Report on Form 10-K. The MD&A includes the following sections:•Company Summary, Recent Developments, and Future Outlook — a brief description of our operations, the critical factors affecting them, and their futureprospects;•Critical Accounting Policies, Estimates, and Judgments — a discussion of accounting policies which require critical judgments and estimates. Oursignificant accounting policies, including the critical accounting policies discussed in this section, are summarized in the notes to the consolidatedfinancial statements;•Results of Operations — an analysis of our consolidated results of operations for the past three years, presented in our consolidated financial statements;and•Liquidity and Capital Resources — an analysis of cash flows, sources and uses of cash, contractual obligations and a discussion of factors affecting ourfuture cash flow.COMPANY SUMMARY, RECENT DEVELOPMENTS, AND FUTURE OUTLOOKRecent Developments:Northern NevadaThe majority of our water resource assets is located in northern Nevada at FSR and our Carson / Lyon project. FSR’s water credits are able to provide asustainable water supply in the North Valleys region of Reno, Washoe County, Nevada and the Carson / Lyon water rights are able to provide a sustainablewater supply in Lyon County, Nevada. As a result, we are dependent on new residential or commercial development occurring in these regions in order for usto monetize our water resources in northern Nevada. In turn, new development in these regions is highly dependent on the continued robust economic andjob growth that is occurring in northern Nevada.The economic development in the greater Reno region has been concentrated in the Tahoe Reno Industrial Center business park (“TRIC”) which is a107,000 acre industrial park proximate to Interstate 80 and 15 miles east of Reno, Nevada. Tesla Motors, Inc. (“Tesla”) built its Gigafactory facility in thisbusiness park with initial estimates that 6,500 jobs would be created by the Gigafactory project. Currently, the forecast is that more than 10,000 jobs will becreated by the project. Many other technology companies have also moved to the area including Apple, Google, Jet.com, Battery Systems Inc., Tire Rack,U.S. Ordinance, Zulily, Switch and Blockchains LLC.The Economic Development Authority of Western Nevada (“EDAWN”), comprised of Reno, Sparks, and Tahoe areas, estimated that the region wouldgenerate 52,400 direct and indirect jobs from 2015 to 2020. As of the most recent tracking data provided by EDAWN in November 2018, the actual jobgrowth continues to be ahead of this forecast with 58,401 new jobs created since December 2014; a total increase of 16.5% as compared to the forecastedtotal job growth in that period of 15.1%. EDAWN has released a further update (RCG Economics, Technical Memorandum dated January 29, 2019) to theirprevious forecast that include the latest historical data and a new five-year forecast from 2019 through 2023. This five - year forecast projects a cumulativeaddition of 51,585 new jobs in the region which represents a 12.7% increase in employment. This job growth leads to population growth. The report alsoprojects the region’s population to grow to 686,787 residents by the end of 2023, an increase of 54,470 residents (8.6%) in that five-year period. We believethat this increased employment and population growth will create demand for new residential, commercial and industrial development in the greater Renoarea and in Lyon County.18Current economic conditions have manifested into new business openings, fewer apartment vacancies and the greater absorption of existing housinginventory. This activity has resulted in multiple new housing projects entering the approval process with local governments in Reno, Sparks, Carson City,Lyon County and Fernley. Residential housing projects have to demonstrate sustainable water supply to get final map approval and many projects in theNorth Valleys of Nevada are currently in the process or have obtained master plan amendment / zone change approvals. The next step for these developers isto obtain tentative map and then final map approvals. Within the Reno-Sparks and Washoe County area of Nevada, according to EDAWN, in 2018 there were4,595 new housing permits pulled for 2018. EDAWN’s goal is for at least 6,000 new housing permits to meet the projected demand for housing. In 2018, totalnew permits in Reno / Sparks / Washoe County decreased approximately 10% over the total number of new building permits for single-family and multi-family homes combined of 5,120 in 2017, but increased approximately 28% over 3,595 of new building permits for all of 2016. We believe the reduction inthe issuance of building permits is due to a lag between subdivision approvals such as Zone Change/Master Plan Amendments and Tentative Maps andactual building permits. We expect the building permit activity to increase in 2019 once the permit process is initiated on newly approved subdivisions. Webelieve this increase in activity will lead to demand for our water resources as developers pursue their projects to provide housing for the population growthin the region. However, the increased activity has strained governmental agencies and has caused delays in processing permits as well as new projects’planning approval process. The timing of future monetization of our water resources in northern Nevada is directly correlated to the timing that residentialdevelopers pursue their projects in the areas that our FSR and Carson / Lyon assets are located and the time it takes for those developers to get the requisiteplanning approvals prior to obtaining final map or, in the case of commercial development projects, final regulatory approvals.ArizonaSeveral market catalysts with respect to our LTSCs continue to emerge including the recent drought in the western United States, continued structuraldeficits on the Colorado River system, Indian Firming and Settlement obligations by the state of Arizona, increased water demand from overall growth inArizona and the Lower Basin Drought Contingency Planning effort by Arizona. There is continued interest from other parties contemplating buying ourLTSCs at prices that we believe reflect the true value of our LTSCs.Arizona has an obligation to “firm” Indian water supplies as negotiated through various Indian Water Settlement Agreements. Section 105 of theSettlements Act (S. 437) titled “Firming of Central Arizona Project Indian Water,” authorizes the Secretary of Interior and the State of Arizona to develop afirming program to ensure that of the total 197,500 acre-feet of non-indian agricultural water reallocated to the Arizona Indian Tribes, 60,648 acre-feet mustbe delivered in the same manner as water with a municipal and industrial priority during water shortages, over a 100 year period. It is estimated that over the100 year period, the total shortfall of the Indian Firming obligation is approximately 550,000 acre-feet. To date approximately 140,000 acre-feet has beensecured by Arizona for the firming obligations shortfall. The US Bureau of Reclamation also has an Indian firming obligation for existing and future ArizonaIndian settlements of approximately 950,000 acre-feet. We believe our LTSCs can be used to help Arizona and the US Bureau of Reclamation meet theseobligation.A shortage on the Colorado River system will be declared by the Secretary of the Interior when on January 1, of any year, Lake Mead’s surface waterelevation is at or below 1,075 ft. When Lake Mead is at an elevation of 1,075 ft. and at or above 1050 ft., Nevada’s share of the shortage is 13,000 acre-feetand Arizona’s cut-back to its allocation is 320,000 acre-feet. In contrast, California suffers no loss to their allocation from the Colorado River (2007 ShortageSharing Guidelines). Because of the continued drought on the Colorado River system, over the past 16 years, a new plan has been developed, the LowerBasin Drought Contingency Plan, known as DCP. This plan, as currently devised, provides for additional water supplies to be held behind Hoover Dam inLake Mead requiring a reduction in the volume of water from Arizona, Nevada, and California’s apportionments. This collective effort is to stave off adrought declaration and/or to reduce its impacts to the Lower Basin States of which the most affected would be Arizona by over 1,000,000 acre-feet through2026. To date, the states have not yet agreed on a final DCP and, in the absence of an agreement ultimately being reached, it is possible that the Secretary ofthe Interior will determine the shortage contribution of each state.The Colorado River system has been determined to suffer from a structural deficit of 1.2 million acre-feet annually. This means that on an average annualwater year, Lake Mead will lose 1.2 million acre-feet to the system, due to evaporation, treaty obligations with Mexico and allocations of water to Arizona,Nevada and California that exceeds what the system yields. We continue to believe that Vidler’s LTSCs are well positioned to buffer Arizona through timesof water shortage and our LTSCs could be purchased by state entities and/or municipalities located in the Phoenix AMA to be used directly or to help sustainlevels in Lake Mead.19Discontinued Real Estate Operations and Assets and Liabilities Held-for-SaleOn April 10, 2017, our then majority owned subsidiary, UCP, Inc. (“UCP”), entered into a merger agreement with Century Communities, Inc. (“Century”)whereby each outstanding share of UCP common stock outstanding was converted into $5.32 in cash and 0.2309 of a newly issued share of Century commonstock. The merger transaction closed on August 4, 2017 and consequently, we deconsolidated UCP as of the closing date. The assets and liabilities of UCPqualified as held-for-sale and its results of operations have been classified as discontinued operations as of the earliest period presented.See Note 11,“Discontinued Operations” for additional information about these transactions.CRITICAL ACCOUNTING POLICIES, ESTIMATES, AND JUDGEMENTSThis section describes the most important accounting policies affecting our assets and liabilities, and the results of our operations. Since the estimates,assumptions, and judgments involved in the accounting policies described below have the greatest potential impact on our financial statements, we considerthese to be our critical accounting policies:•how we determine the fair value and carrying value of our tangible and intangible water assets, and real estate;•how and when we recognize revenue when we sell water assets and real estate; and•how we determine our income tax provision, deferred tax assets and liabilities, and reserves for unrecognized tax benefits, as well as the need forvaluation allowances on our deferred tax assets.We believe that an understanding of these accounting policies will help the reader to analyze and interpret our financial statements.Our consolidated financial statements, and the accompanying notes, are prepared in accordance with GAAP, which requires us to make estimates, usingavailable data and our judgment, for things such as valuing assets, accruing liabilities, recognizing revenues, and estimating expenses. Due to the uncertaintyinherent in these matters, actual results could differ from the estimates we use in applying the critical accounting policies. We base our estimates on historicalexperience, and various other assumptions, which we believe to be reasonable under the circumstances.The following are the significant subjective estimates used in preparing our financial statements:1. Fair value and carrying value of our tangible and intangible water assets and real estateOur primary long-lived assets include tangible and intangible water assets and real estate. At December 31, 2018, the total carrying value of such assetswas $166.2 million, or approximately 92% of our total assets. These assets are carried at cost, less any recorded impairments.Tangible water assets and real estateWe review our long-lived tangible water assets and real estate as facts and circumstances change, or if there are indications of impairment present, toensure that the estimated undiscounted future cash flows, excluding interest charges, from the use and eventual disposition of these assets will at least recovertheir carrying value. Cash flow forecasts are prepared for each discrete asset. We engage in a rigorous process to prepare and review the cash flow modelswhich utilize the most recent information available to us. However, the process inevitably involves the use of significant estimates and assumptions,especially the estimated current and future demand for these assets, the estimated future market values of our assets, the timing of the disposition of theseassets, the ongoing cost of maintenance and improvement of the assets, and the current and projected income earned and other uncertain future events. As aresult, our estimates are likely to change from period to period. In addition, our estimates may change as unanticipated events transpire which would cause usto reconsider the current and future use of the assets.If we use different assumptions, if our plans change, or if the conditions in future periods differ from ourforecasts, our financial condition and results of operations could be materially impacted.There were no material impairment losses recorded on our tangible water assets or real estate during the years ended December 31, 2018 and 2017.20Intangible water assetsOur intangible water assets are accounted for as indefinite-lived intangible assets. Accordingly, until the asset is sold, they are not amortized, that is, theirvalue is not charged as an expense in our consolidated statement of operations and comprehensive income or loss over time, but the assets are carried at costand reviewed for impairment, at least annually during the fourth quarter, and more frequently if a specific event occurs or there are changes in circumstanceswhich suggest that the asset may be impaired. Such events or changes may include lawsuits, court decisions, regulatory mandates, and economic conditions,including interest rates, demand for residential and commercial real estate, changes in population, and increases or decreases in prices of similar assets. Oncethe assets are sold, the value is charged to cost of real estate and water assets sold in our consolidated statement of operations and comprehensive income orloss.When we calculate the fair value of intangible water assets, we use a discounted cash flow model, under which the future net cash flows from the asset areforecasted and then discounted back to their present value using a weighted average cost of capital approach to determining the appropriate discount rate.Preparing these cash flow models requires us to make significant assumptions about revenues and expenses as well as the specific risks inherent in the assets.If the carrying value exceeds the fair value, an impairment loss is recognized equal to the difference. We conduct extensive reviews utilizing the most recentinformation available to us; however, the review process inevitably involves the use of significant estimates and assumptions, especially the estimatedcurrent asset pricing, potential price escalation, income tax rates, discount rates, absorption rates and timing, and demand for these assets. These models aresensitive to minor changes in any of the input variables.In summary, the cash flow models for our most significant indefinite-lived intangible assets forecast initial sales to begin within approximately one year,and then increase until the assets are mostly sold over the next four decades. We have assumed sale proceeds for the assets that are based on our estimates ofthe likely future sales price per acre-foot. These per-unit sale prices are estimated based on the demand and supply fundamentals in the markets which theseassets serve. If we use different assumptions, if our plans change, or if the conditions in future periods differ from our forecasts, our financial condition andresults of operations could be materially impacted.There were no material impairment losses recorded on our intangible water assets during the years ended December 31, 2018 and 2017.2. Revenue recognitionSale of real estate and water assetsWe recognize revenue when there is a legally binding sale contract, the profit is determinable (the collectability of the sales price is reasonably assured,or any amount that will not be collectible can be estimated), the earnings process is virtually complete (we are not obliged to perform significant activitiesafter the sale to earn the profit, meaning we have transferred all risks and rewards to the buyer), and the buyer’s initial and continuing investment are adequateto demonstrate a commitment to pay for the property.Unless all of these conditions are met, we use the deposit method of accounting. Under the deposit method of accounting, until the conditions to fullyrecognize a sale are met, payments received from the buyer are recorded as a liability on our balance sheet, and no gain is recognized.3. Income taxesOur income tax expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect our best assessment of estimated future taxesto be paid. We are subject to federal and various state income taxes. We have multiple state filing groups with different income tax generating abilities.Significant judgments and estimates are required in determining the consolidated income tax expense.21Deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense. In evaluating ourability to recover our deferred tax assets within the jurisdiction from which they arise we consider all available positive and negative evidence, includingscheduled reversals of deferred tax liabilities, tax planning strategies and recent financial operating results. We consider many factors when assessing thelikelihood of future realization of our deferred tax assets, including recent cumulative earnings experience by taxing jurisdiction, expectations of futuretransactions, the carryforward periods available to us for tax reporting purposes, our historical use of tax attributes, and availability of tax planning strategies.These assumptions require significant judgment about future events; however, they are consistent with the plans and estimates we use to manage ourunderlying businesses. In evaluating the objective evidence that historical results provide, we consider three years of cumulative operating income or loss.As a result of the analysis of all available evidence as of December 31, 2011, we recorded a full valuation allowance on our net deferred tax assets. Ourevaluation at December 31, 2018 resulted in the same conclusion and we therefore continue to hold a full valuation allowance on our reported consolidatednet deferred tax assets. If our assumptions change and we determine we will be able to realize these attributes, the tax benefits relating to any reversal of thevaluation allowance on deferred tax assets at December 31, 2018 will be recognized as a reduction of income tax expense. If our assumptions do not change,each year we could record an additional valuation allowance on any increases in the deferred tax assets.The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude ofjurisdictions. Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future. As a result of changes in tax law andrates that became effective for tax years starting on January 1, 2018 (the “Tax Act”), we revalued our deferred tax assets and liabilities using a 21% tax rate forour federal deferred income tax balances. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications ofthe Tax Cuts and Jobs Act (SAB 118), which allowed us to record provisional amounts during a measurement period not to extend beyond one year of theenactment date. As a result, we previously recorded a provisional estimate of the effect of the Tax Act in our financial statements. The resulting decrease inour net deferred tax asset was offset by a reduction in our recorded valuation allowance which resulted in no net effect on our results of operations, cash flowsor financial position. In the fourth quarter of 2018, we completed our analysis to determine the effect of the change in tax law and recorded immaterialadjustments as of December 22, 2018.The accounting guidance for income taxes provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than notthat the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Theguidance also provides information on measurement, de-recognition, classification, interest and penalties, accounting in interim periods, disclosure andtransition.We recognize tax liabilities in accordance with accounting guidance on income taxes and we adjust these liabilities when our judgment changes as aresult of the evaluation of new information not previously available. Due to the complexity of some of these uncertainties, the ultimate resolution may resultin a payment that is materially different from our current estimate of the tax liabilities. These differences will be reflected as increases or decreases to incometax expense in the period in which they are determined. Currently, we have no material unrecognized tax benefits on any open tax years.RESULTS OF OPERATIONS -- YEARS ENDED DECEMBER 31, 2018 AND 2017Overview of Economic Conditions and Impact on Results of OperationsThe economies in the markets in which our major water assets are located and serve, primarily northern Nevada and Arizona, are exhibiting robust growthwhich we believe will lead to demand for our water assets in those markets. We believe that current trends in employment, housing inventory, home prices,and low interest rates, will have a positive impact on our operating performance. There has been an increase in real estate development activity in the marketswhere our assets will ultimately be used, and we believe that will lead to increased demand for our intangible and tangible water assets. Individual marketscontinue to experience varying results, as local home inventories, affordability, and employment factors strongly influence each local market. Deteriorationin economic conditions in the markets where we operate, and/or if we fail to generate revenue, incur expenses beyond expectations, or incur operating losses,could cause additional impairment losses on our water assets.Our revenues and results of operations fluctuate from period to period. For example, we recognize revenue from the sale of water assets when specifictransactions close, and as a result, sales of water assets for any individual period are not necessarily indicative of revenues for future periods or the fullfinancial year.22PICO Holdings, Inc. Shareholders’ Equity (in thousands): December 31, 2018 2017 ChangeShareholders’ equity$176,624 $207,163 $(30,539)Shareholders’ equity per share$8.52 $8.95 $(0.43)The primary decrease in shareholders’ equity during 2018 was due to the purchase of 2.5 million shares of our common stock for $27.6 million.Total Assets and Liabilities (in thousands): December 31, 2018 2017 ChangeTotal assets$180,211 $214,402 $(34,191)Total liabilities$3,587 $7,239 $(3,652)Total assets and liabilities decreased during the year ended December 31, 2018, primarily due to the use of $27.6 million in cash for the purchase ourcommon stock, the distribution of deferred compensation assets and the related reduction of deferred compensation liabilities, and sales of our intangiblewater assets.Results of Operations (in thousands): Year Ended December 31, 2018 2017 ChangeTotal revenue and other income (loss)$13,051 $36,276 $(23,225)Total costs and expenses$16,370 $25,935 $(9,565)Revenue and other income (loss)The majority of our revenue recorded for the year ended December 31, 2018 was from the sale of approximately 511 acre-feet of water rights from ourCarson/Lyon project for $10.3 million and the sale of 76.9 acre-feet of water rights from our Fish Springs Ranch project for $2.7 million.The majority of our revenue recorded for the year ended December 31, 2017 was from the sale of 102,500 long-term storage credits for $25.9 million. Wealso reported realized gains on the sale of investments of $8.8 million recognized on the sale of investments from our deferred compensation accounts inconjunction with the distribution of such assets to our former CEO.Costs and ExpensesCost of water assets and real estate sold:During the year ended December 31, 2018 we recorded a total of $5.2 million in cost of real estate and water assets, of which $4.9 million relates to salesof approximately 622 acre-feet of water rights. During the year ended December 31, 2017 we recorded $12.8 million in the cost of real estate and water assetssold related to our sale of 102,500 water credits.General, Administrative and Other:During the year ended December 31, 2018 we continued implementing cost saving measures primarily intended to realign our organizational structuredue to the changes in roles and workforce. During the year ended December 31, 2018 and 2017 we recorded general and administrative costs of $11 millionand $12.4 million, respectively. The decrease in general and administrative costs was primarily due to a year over year decrease of $1.3 million incompensation and bonus expenses and $690,000 in legal expenses. During 2018, we continued to reduce headcount and transitioned to the new corporateoffice in Carson City, Nevada.23During the year ended December 31, 2018, we recorded an impairment loss of $1.3 million to write down the value of an investment in anunconsolidated affiliate to zero. This impairment loss is recorded within impairment loss on investment in unconsolidated affiliate in the consolidatedfinancial statements. Additionally, we wrote off $1 million in notes and interest receivable from the same unconsolidated affiliate, which is recorded withingeneral, administrative, and other in the consolidated financial statements.Stock-Based Compensation ExpenseStock-based compensation expense is calculated based on the fair value of the award on the grant date and is recognized over the vesting period of theawards. As of December 31, 2018, there was no unrecognized stock-based compensation expense related to restricted stock units (“RSU”) or performance-based price-contingent stock options (“PBO”).The stock-based compensation expense consisted primarily of the following awards (in thousands): Year Ended December 31, 2018 2017PBO - Officers$— $427RSU - Officers199 204RSU - Directors223 613RSU - Management3 50Total stock-based compensation expense$425 $1,294Income TaxesThe Tax Cuts and Jobs Act of 2017 (the “Tax Act”) enacted on December 22, 2017, resulted in significant changes to the U.S. corporate income taxsystem. The changes were effective beginning in 2018 and include a federal statutory rate reduction from 35% to 21%, the elimination or reduction of certaindomestic deductions and credits and limitations on the deductibility of interest expense and executive compensation as well as limitations on the use offuture net operating losses. Changes in tax rates and tax laws are accounted for in the period of enactment and consequently during the year ended December31, 2017, we recorded a reduction in our net deferred tax asset to reduce the value of each deferred tax attribute to 21% which was offset by a reduction in therecorded valuation allowance resulting in no net effect to the current period income tax provision. In the fourth quarter of 2018, we completed our analysis todetermine the effect of the Tax Act and recorded immaterial adjustments as of December 22, 2018. We continued to record a full valuation allowance on ournet deferred tax assets. However, we recorded tax expense of $53,000 and $3.1 million during the years ended December 31, 2018 and 2017, respectivelyresulting in an effective tax rate for the years ended December 31, 2018 and 2017 of 1.6% and 29.8%, respectively. The effective tax rate differed from ourfederal corporate income tax rate of 21% due primarily to the valuation allowance changes recorded on our net deferred tax assets in 2018 and in 2017, werecorded tax expense due to recognizing realized gains on the sale of certain investments that were included in unrealized gains reported in othercomprehensive income in previous periods.DISCONTINUED OPERATIONSDuring the year ended December 31, 2017, results from discontinued operations included income or loss from UCP’s operations and the loss recorded onthe sale of such operations.Real Estate:On April 10, 2017, UCP entered into a merger agreement with Century whereby each outstanding share of UCP common stock was converted into $5.32in cash and 0.2309 of a newly issued share of Century common stock. The transaction closed on August 4, 2017 and we received $55.3 million in cash andapproximately 9% of the then outstanding common stock of Century. The transaction resulted in a loss on sale of $8.7 million, which was recorded duringthe year ended December 31, 2017. In October 2017, we sold our entire position of Century common stock for $59.2 million and realized a loss on the sale of$842,000.24Agribusiness:In February 2017, we received the final $6 million that had been held in escrow for general indemnification claims related to the sale of our discontinuedagribusiness operations. We guaranteed up to $8 million for any environmental indemnification claims in excess of the $6 million general indemnificationescrow pursuant to the terms of the sale. This guaranty will remain in force until July 31, 2020. The guaranty has been recorded at estimated fair value thatreflects our expectation that no significant amounts will be paid out under the guaranty. However, any amounts paid by us under the guaranty in excess ofthis estimate will result in additional loss on the sale.See Note 11,“Discontinued Operations” for additional information about these transactions.LIQUIDITY AND CAPITAL RESOURCES -- YEARS ENDED DECEMBER 31, 2018 and 2017A substantial portion of our historical revenue and cash flow has, and is expected in the future, to come from one-time sales of our assets which areprimarily long-term water resource development projects that we expect to support economic growth in the local markets where the assets are located. Thetiming and amount of sales and cash flows depend on a number of factors which are difficult to predict, and cannot be directly compared from one period toanother. However, given our cash balances at December 31, 2018, we currently believe that we have sufficient resources to cover our expenses for at least thenext 12 months. In the long-term, we estimate that cash from operations will provide us with adequate funding for future operations. However, if additionalfunding is needed we could defer significant expenditures, obtain a line of credit, or complete a debt or equity offering. Any additional equity offerings maybe dilutive to our shareholders and any additional debt offerings may include operating covenants that could restrict our business. We are currently notsubject to any debt covenants which might limit our ability to obtain additional financing through debt or equity offerings. We classify the sale of and costsincurred to acquire and develop our water assets as operating activities in our consolidated statement of cash flows.Our OperationsThe majority of our cash inflows for the year ended December 31, 2018 was from $13.6 million in sales of various real estate and water rights assets. Thiswas offset by $10.8 million of cash used for overhead and various project expenses. Additionally, we used $27.6 million in cash to repurchase shares of ourcommon stock during the year ended December 31, 2018.On October 26, 2017 our board of directors declared a special dividend of $5.00 per share, amounting to approximately $115.9 million. The record datewas November 6, 2017, payment was made on November 20, 2017 and the ex-dividend date was November 21, 2017. The entire cash distribution wasclassified as a return of capital for U.S. federal income tax purposes. Generally, such a cash distribution would reduce the tax basis of a shareholder’s commonshares; however, if such a distribution is in excess of a shareholder’s tax basis, a portion of the distribution may be treated as a capital gain under current taxlaw.The majority of our revenue recorded for the year ended December 31, 2017 was from the sale of 102,500 long-term storage credits for $25.9 million. Wealso reported realized gains on the sale of investments of $8.8 million recognized on the sale of investments from our deferred compensation accounts inconjunction with the distribution of $23.3 million of such assets to our former CEO. We also paid our former CEO $10.4 million in severance benefits, settledcertain stock-based compensation, and paid other related severance expenses. See Note 10, “Related-Party Transactions” for additional information.Discontinued OperationsDuring 2017 we sold our real estate operations and during 2015 we sold our agribusiness operations.We guaranteed up to $8 million for any indemnification claims related to the agribusiness operations in excess of a $6 million general indemnificationescrow pursuant to the terms of a guaranty agreement with the buyer that will remain in force until July 31, 2020.Consolidated Cash and SecuritiesWe have adequate working capital reserves and generally hold our cash in money market funds. At December 31, 2018 and 2017, we had unrestrictedand available cash and securities of $12.6 million and $34.9 million, respectively, which could be used for general corporate purposes.25Cash FlowOur cash flows from operating, investing, and financing activities were as follows (in thousands): Year Ended December 31, 2018 2017Cash provided by (used in): Operating activities - continuing operations$3,349 $(345)Operating activities - discontinued operations(313) (9,728)Total operating activities3,036 (10,073) Investing activities - continuing operations62 67,908Investing activities - discontinued operations— 47,173Total investing activities62 115,081 Financing activities - continuing operations(27,676) (117,222)Financing activities - discontinued operations— (11,638)Total financing activities$(27,676) $(128,860)Decrease in cash and cash equivalents$(24,578) $(23,852)Cash Flows From Operating ActivitiesDuring 2018, we generated cash of $3.3 million in our continuing operations. This was primarily derived from $13.6 million in cash receipts from salesof various real estate and water rights assets, which was offset by approximately $10.8 million of cash used for overhead and various project expenses.During 2017, we used cash of $345,000 in our continuing operations which was derived primarily from the $26.3 million sale of long term storagecredits, offset by cash used of $12.2 million for general and administrative expenses and various project costs and $18.3 million for payment of severancebenefits and deferred compensation payment of cash related to the termination of our former CEO. Through the closing date of the UCP merger, ourdiscontinued operations used cash of $9.7 million primarily generated from $246 million in sales of residential real estate and lots offset by cash of $216.9million used for the acquisition and development of real estate, and $37 million for overhead.Cash Flows From Investing ActivitiesWe had no material cash flows from investing activities during the year ended December 31, 2018.Our continuing investing activities provided $67.9 million of cash during 2017 primarily from the $59.2 million in cash we received when we sold ourinvestment in Century common stock, and approximately $8.2 million in cash from the sale of various other debt and equity investments out of our deferredcompensation plans. During the year we purchased $270 million of U.S. Treasuries, which was offset by related sales and maturities of $198 million and $140million, respectively. Our discontinued operations generated $47.2 million of net cash during 2017 which was comprised of the $55.3 million received onthe sale of UCP less UCP’s cash balance as of the date of the sale, and $6 million in cash received from the escrow account for general indemnification claimsrelated to the sale of our discontinued agribusiness operations.Cash Flows From Financing ActivitiesDuring the year ended December 30, 2018, we used $27.6 million in cash to repurchase shares of our common stock. We had no other significantfinancing activities during the year.During 2017, we paid a special dividend of $115.9 million. Our discontinued operations received cash of $86.7 million during 2017 provided fromdraws on its debt arrangements, which was used primarily to fund the acquisition and development of various real estate projects offset by payments of $96.5million which was used to repay debt when certain real estate properties were sold.26Off-Balance Sheet ArrangementsAs of December 31, 2018, we had no off-balance sheet arrangements, other than those discussed throughout this document, that have, or are reasonablylikely to have, a material current or future effect on our consolidated financial condition, revenues or expenses, results of operations, liquidity, capitalexpenditures, or capital resources.ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAOur financial statements as of December 31, 2018 and 2017 and for each of the two years in the period ended December 31, 2018, and the Report of theRegistered Independent Public Accounting Firm are included in this report as listed in the index.SELECTED QUARTERLY FINANCIAL DATASummarized unaudited quarterly financial data (in thousands, except per share amounts) for 2018 and 2017 are shown below. In management’s opinion,the interim financial statements from which the following data has been derived contain all adjustments necessary for a fair presentation of results for suchinterim periods and are of a normal recurring nature. Three Months Ended March 31, 2018 June 30, 2018 September 30,2018 December 31,2018Sale of real estate and water assets$247 $10,480 $230 $2,680Impairment loss on investment in unconsolidated affiliate— — (1,312) —Other97 132 388 109Total revenue and other income (loss)$344 $10,612 $(694) $2,789 Gross profit - real estate and water assets$28 $6,339 $132 $1,892 Income (loss) from continuing operations$(2,862) $4,259 $(4,669) $(100)Net income from discontinued operations, net of tax$— $43 $— $—Net income (loss) attributable to PICO Holdings, Inc.$(2,862) $4,302 $(4,669) $(100) Net income (loss) per common share – basic and diluted: Income (loss) from continuing operations$(0.12) $0.19 $(0.21) $(0.01)27 Three Months Ended March 31, 2017 June 30, 2017 September 30,2017 December 31,2017(1)Sale of real estate and water assets$25,097 $43 $136 $1,112Impairment loss on investment in unconsolidated affiliate— — — —Other1,096 8,591 69 132Total revenue and other income$26,193 $8,634 $205 $1,244 Gross profit - real estate and water assets$12,565 $26 $81 $500 Income (loss) from continuing operations$9,293 $2,803 $(3,109) $(1,728)Net income (loss) from discontinued operations, net of tax$(3,259) $177 $(3,175) $612Net income (loss)$6,034 $2,980 $(6,284) $(1,116)Net income (loss) attributable to PICO Holdings, Inc.$4,643 $1,575 $(4,639) $(1,116) Net income (loss) per common share – basic and diluted: Income (loss) from continuing operations$0.40 $0.12 $(0.13) $(0.07)Income (loss) from discontinued operations$(0.20) $(0.05) $(0.07) $0.03(1) During 2017, we sold our real estate segment. As a result of the transaction, the assets and liabilities of our real estate operations qualified as held-for-saleand have been classified as discontinued operations in the accompanying consolidated financial statements as of the earliest period presented. See Note 11,“Discontinued Operations,” in the accompanying consolidated financial statements for additional information.28PICO HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2018 AND 2017AND FOR EACH OF THETWO YEARS IN THE PERIODENDED DECEMBER 31, 2018INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page No.Report of Independent Registered Public Accounting Firm 30Consolidated Balance Sheets as of December 31, 2018 and 2017 31Consolidated Statements of Operations and Comprehensive Income or Loss for the Years Ended December 31, 2018 and 2017 32Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2018 and 2017 34Consolidated Statements of Cash Flows for the Years Ended December 31, 2018 and 2017 36Notes to Consolidated Financial Statements 3829REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders ofPICO Holdings, Inc.Carson City, NevadaOpinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of PICO Holdings, Inc. and subsidiaries (the "Company") as of December 31, 2018 and 2017,the related consolidated statements of operations and comprehensive income or loss, shareholders’ equity, and cash flows for each of the two years in theperiod ended December 31, 2018, and the related notes to the financial statements (collectively referred to as the "financial statements"). In our opinion, thefinancial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of itsoperations and its cash flows for each of the two years in the period ended December 31, 2018, in conformity with accounting principles generally acceptedin the United States of America.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company'sinternal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued bythe Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 14, 2019, expressed an unqualified opinion on theCompany's internal control over financial reporting.Basis for OpinionThese financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financialstatements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Companyin accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing proceduresto assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also includedevaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financialstatements. We believe that our audits provide a reasonable basis for our opinion./s/ DELOITTE & TOUCHE LLPSan Diego, CaliforniaMarch 14, 2019We have served as the Company’s auditors since 1997.30PICO HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETSDecember 31, 2018 and 2017(In thousands) 2018 2017Assets Cash and cash equivalents$12,550 $37,128Investments ($1,902 measured at fair value at December 31, 2017)— 3,214Tangible water assets and real estate, net44,298 44,675Intangible assets121,917 126,785Other assets1,446 2,600Total assets$180,211 $214,402 Liabilities and shareholders’ equity Deferred compensation$— $4,112Other liabilities3,448 2,431Accounts payable and accrued expenses139 696Total liabilities3,587 7,239 Commitments and contingencies Preferred stock, $0.001 par value; authorized 10,000 shares, none issued Common stock, $0.001 par value; authorized 100,000 shares, 20,848 issued and 20,726 outstanding at December 31,2018, and 23,153 issued and 23,152 outstanding at December 31, 201721 23Additional paid-in capital353,250 379,388Accumulated deficit(175,536) (172,767)Accumulated other comprehensive income— 544Treasury stock, at cost (common shares: 121 and 1 at December 31, 2018 and December 31, 2017, respectively)(1,111) (25)Total PICO Holdings, Inc. shareholders’ equity176,624 207,163Total liabilities and equity$180,211 $214,402The accompanying notes are an integral part of the consolidated financial statements.31PICO HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME OR LOSSFor the years ended December 31, 2018 and 2017(In thousands, except per share data) 2018 2017Revenues and other income: Sale of real estate and water assets$13,637$26,388Impairment loss on investment in unconsolidated affiliate(1,312)—Other income, net7269,888Total revenues and other income13,05136,276 Cost of sales and expenses: Cost of water assets and real estate sold5,24613,216General, administrative, and other11,04812,414Depreciation and amortization76305Total costs and expenses16,37025,935Income (loss) from continuing operations before income taxes(3,319)10,341Provision for federal and state income taxes(53)(3,082)Income (loss) from continuing operations(3,372)7,259Income from discontinued operations, net of tax—3,053Income (loss) on sale of discontinued operations, net of tax43(8,698)Net income (loss) from discontinued operations, net of tax43(5,645)Net income (loss)(3,329)1,614Net income attributable to noncontrolling interests—(1,150)Net income (loss) attributable to PICO Holdings, Inc.$(3,329)$464The accompanying notes are an integral part of the consolidated financial statements.32PICO HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME OR LOSS, CONTINUED(In thousands, except per share data) 2018 2017Other comprehensive loss: Net income (loss)$(3,329)$1,614Other comprehensive loss, net of tax: Unrealized loss on securities, net of deferred income tax and reclassification adjustments(544)(6,193)Foreign currency translation—76Total other comprehensive loss, net of tax(544)(6,117)Comprehensive loss(3,873)(4,503)Comprehensive income attributable to noncontrolling interests—(1,150)Comprehensive loss attributable to PICO Holdings, Inc.$(3,873)$(5,653) Net income (loss) per common share – basic and diluted: Income (loss) from continuing operations$(0.15)$0.31Loss from discontinued operations—(0.29)Net income (loss) per common share – basic and diluted$(0.15)$0.02Weighted average shares outstanding22,07423,122The accompanying notes are an integral part of the consolidated financial statements.33PICO HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITYFor the year ended December 31, 2018(In thousands) Shares ofCommonStock Issued CommonStock AdditionalPaid-inCapital AccumulatedDeficit AccumulatedOtherComprehensiveIncome Shares ofTreasuryStock TreasuryStock,at Cost TotalBeginning balance, December 31, 201723,154 $23 $379,388 $(172,767) $544 1 $(25) $207,163Stock-based compensation expense 425 425Exercise of restricted stock units28 —Withholding taxes paid on vestedrestricted stock units (55) (55)Purchases of treasury stock 2,455 (27,621) (27,621)Retirement of treasury stock(2,334) (2) (26,508) (2,334) 26,510 —Distribution of treasury stock to deferredcompensation plan participant (1) 25 25Net loss (3,329) (3,329)Reclassification of unrealized gain oninvestments to accumulated deficit 560 (544) 16Ending balance, December 31, 201820,848 $21 $353,250 $(175,536) $— 121 $(1,111) $176,624The accompanying notes are an integral part of the consolidated financial statements34PICO HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITYFor the year ended December 31, 2017(In thousands) Shares ofCommonStock Issued CommonStock AdditionalPaid-inCapital AccumulatedDeficit AccumulatedOtherComprehensiveIncome Shares ofTreasuryStock TreasuryStock,at Cost Non-controllingInterest TotalBeginning balance, December 31,201623,125 $23 $495,468 $(173,231) $6,661 55 $(927) $99,575 $427,569Stock-based compensation expense 1,872 299 2,171Exercise of restricted stock units76 —Withholding taxes paid on vestedrestricted stock units (831) (121) (952)Changes in ownership ofnoncontrolling interest (465) 465 —Distributions to noncontrollinginterest (26) (26)Purchases of treasury stock 47 (690) (690)Retirement of treasury stock(47) (690) (47) 690 —Distribution of treasury stock todeferred compensation planparticipant (former CEO) (106) (54) 902 796Deconsolidation of noncontrollinginterest in conjunction with sale ofconsolidated subsidiary (101,342) (101,342)Special dividend paid (115,860) (115,860)Net income 464 1,150 1,614Unrealized gain on investments,net of deferred income tax of$3,483 and reclassificationadjustments of $9,781 (6,193) (6,193)Foreign currency translation 76 76Ending balance, December 31, 201723,154 $23 $379,388 $(172,767) $544 1 $(25) $— $207,163The accompanying notes are an integral part of the consolidated financial statements35PICO HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWSFor the years ended December 31, 2018 and 2017(In thousands) 2018 2017Operating activities: Net income (loss)$(3,329) $1,614Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Provision for deferred income taxes— 3,442Depreciation and amortization expense76 303Stock-based compensation expense425 1,295Loss (gain) on sale or impairment of investments1,304 (8,722)Net (income) loss from discontinued operations, net(43) 5,645Gain on sale of property, plant and equipment— (165)Changes in assets and liabilities, net of effects of acquisitions and dispositions: Notes and other receivables1,065 1,619Real estate, water, and intangible assets5,246 13,027Income taxes— (275)Other assets30 32Deferred compensation(2,247) (7,500)Accounts payable and accrued expenses816 (10,714)Other operating activities, net6 54Cash provided by (used in) operating activities - continuing operations3,349 (345)Cash used in operating activities - discontinued operations(313) (9,728)Net cash provided by (used in) operating activities3,036 (10,073) Investing activities: Proceeds from the sale of investments— 197,848Proceeds from maturity of investments80 139,912Purchases of investments— (270,317)Proceeds from the sale of property, plant and equipment— 470Purchases of property, plant and equipment(18) (5)Cash provided by investing activities - continuing operations62 67,908Cash provided by investing activities - discontinued operations— 47,173Net cash provided by investing activities62 115,081 Financing activities: Special dividend paid— (115,860)Payment of withholding taxes on exercise of restricted stock units(55) (672)Purchases of treasury stock(27,621) (690)Cash used in financing activities - continuing operations(27,676) (117,222)Cash used in financing activities - discontinuing operations— (11,638)Net cash used in financing activities(27,676) (128,860)Net decrease in cash and cash equivalents(24,578) (23,852)Cash and cash equivalents, beginning of year37,128 60,980Cash and cash equivalents of continuing operations, end of year$12,550 $37,12836PICO HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUEDFor the years ended December 31, 2018 and 2017(In thousands) 2018 2017Supplemental disclosure of cash flow information: Cash paid (received) during the year for: Payment (refund) of federal and state income taxes$53 $(367) Non-cash investing and financing activities: Issuance of common stock for vested restricted stock units$263 $1,824Fair value of common stock of Century received in the sale of UCP, Inc. $60,044Distribution of debt and equity securities in satisfaction of deferred compensation liability (including 1,375 and53,996 shares of treasury stock in 2018 and 2017, respectively)$1,866 $15,709The accompanying notes are an integral part of the consolidated financial statements37PICO HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOOTNOTE INDEX Page No.1. Nature of Operations and Significant Accounting Policies 382. Tangible Water Assets and Real Estate, Net 433. Intangible Assets, Net 434. Investments 435. Disclosures About Fair Value 446. Commitments and Contingencies 467. Stock-Based Compensation 468. Federal and State Current and Deferred Income Tax 499. Accumulated Other Comprehensive Income 5110. Related-Party Transactions 5211. Discontinued Agribusiness Operations 541.NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIESOrganization and Operations:PICO Holdings, Inc., together with its subsidiaries (collectively, “PICO” or the “Company”), is a holding company. As of December 31, 2018, theCompany has presented its consolidated financial statements and the accompanying notes to the consolidated financial statements using the guidelinesprescribed for real estate companies, as the majority of the Company’s assets and operations are primarily engaged in real estate and related activities.The Company’s most significant operating subsidiary as of December 31, 2018 was Vidler Water Company, Inc. (“Vidler”), a Nevada corporation. Vidlerowns water resources and water storage in the southwestern United States, with assets and operations in Nevada, Arizona, Colorado, and New Mexico.Currently, Vidler is primarily focused on selling its existing water rights and storage credits.Smaller Reporting Company:The Company qualifies as a Smaller Reporting Company (“SRC”) under the Securities and Exchange Commission (“SEC”) definition and thereforecertain disclosures that are no longer required have been removed in accordance with the SEC’s disclosure requirements for SRCs.Principles of Consolidation:The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned, majority-owned and controlledsubsidiaries, and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).Intercompany balances and transactions have been eliminated in consolidation.Use of Estimates in Preparation of Financial Statements:The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues andexpenses for each reporting period. The significant estimates made in the preparation of the Company’s consolidated financial statements relate tointangibles, real estate and water assets, deferred income taxes, stock-based compensation, and contingent liabilities. While management believes that thecarrying value of such assets and liabilities were appropriate as of December 31, 2018 and December 31, 2017, it is reasonably possible that actual resultscould differ from the estimates upon which the carrying values were based.38Special Dividend:In October 2017, the Company declared a special cash dividend of $5.00 per share, which amounted to approximately $115.9 million. The distributionwas paid on November 20, 2017, with an ex-dividend date of November 21, 2017.Tangible Water Assets and Real Estate:Tangible water assets and real estate include the cost of certain tangible water assets, water storage credits and related storage facilities, real estate,including raw land and improvements. The Company capitalizes pre-acquisition costs, the purchase price of real estate, development costs and otherallocated costs, including any interest, during development and construction. Pre-acquisition costs, including non-refundable land deposits, are expensed tocost of sales when the Company determines continuation of the related project is not probable.Additional costs to develop or otherwise get tangible water and real estate assets ready for their intended use are capitalized. These costs typicallyinclude direct construction costs, legal fees, engineering, consulting, direct cost of drilling wells or related construction, and any interest costs capitalized onqualifying assets during the development period. The Company expenses all maintenance and repair costs. The types of costs capitalized are consistentacross periods presented. Tangible water assets consist of various water interests in development or awaiting permitting. Amortization of real estateimprovements is computed on the straight-line method over the estimated useful lives of the improvements ranging from five to 15 years.Intangible Water Assets:Intangible water assets include the costs of indefinite-lived intangible assets and is comprised of water rights and the exclusive right to use two watertransportation pipelines. The Company capitalizes development and entitlement costs and other allocated costs, including any interest, during thedevelopment period of the assets to tangible water assets and transfers the costs to intangible water assets when water rights are permitted. Water rights consistof various water interests acquired or developed independently or in conjunction with the acquisition of real estate. When the Company purchases intangiblewater assets that are attached to real estate, an allocation of the total purchase price, including any direct costs of the acquisition, is made at the date ofacquisition based on the estimated relative fair values of the water rights and the real estate.Intangible assets with indefinite useful lives are not amortized but are tested for impairment at least annually in the fourth quarter, or more frequently ifevents or changes in circumstances indicate that the asset may be impaired, by comparing the fair value of the assets to their carrying amounts. The fair valueof the intangible assets is calculated using discounted cash flow models that incorporate a wide range of assumptions including current asset pricing, priceescalation, discount rates, absorption rates, timing of sales, and costs. These models are sensitive to minor changes in any of the input variables.Investments:At December 31, 2018, the Company had no investments with a carrying value. At December 31, 2017, the Company’s investment portfolio wascomprised of corporate bonds and equity securities. Corporate bonds were purchased based on the maturity and yield-to-maturity of the bond and an analysisof the fundamental characteristics of the issuer. The Company’s investments in equity securities primarily consisted of common stock of publicly traded andprivate small-capitalization companies in the United States (“U.S.”). Such investments were reported at fair value. Investments in private companies aregenerally held at the lower of cost or fair value, unless the Company has the ability to exercise significant influence. The cost of any equity security sold isdetermined using an average cost basis and specific identification for bond cost. Sales and purchases of investments are recorded on the trade date.Other-than-Temporary Impairment:All of the Company’s debt and equity investments are subject to a periodic impairment review. The Company recognizes an impairment loss when adecline in the fair value of its investments below the cost basis is judged to be other-than-temporary.Factors considered in determining whether a loss is temporary on an equity security includes the length of time and extent to which the investments fairvalue has been less than the cost basis, the financial condition and near-term prospects of the investee, extent of the loss related to credit of the issuer, theexpected cash flows from the security, the Company’s intent to sell the security and whether or not the Company will be required to sell the security beforethe recovery of its cost. If a security is impaired and continues to decline in value, additional impairment losses are recorded in the period of the decline ifdeemed other-than-temporary. Subsequent recoveries of the value are reported as unrealized gains and are part of other comprehensive income or loss.39Impairment of Long-Lived Assets:The Company records an impairment loss when the condition exists where the carrying amount of a long-lived asset or asset group is not recoverable.Impairment of long-lived assets is triggered when the estimated future undiscounted cash flows, excluding interest charges, for the lowest level for whichthere is identifiable cash flows that are independent of the cash flows of other groups of assets do not exceed the carrying amount. The Company prepares andanalyzes cash flows at appropriate levels of grouped assets. If the events or circumstances indicate that the remaining balance may be impaired, suchimpairment will be measured based upon the difference between the carrying amount and the fair value of such assets determined using the estimated futurediscounted cash flows, excluding interest charges, generated from the use and ultimate disposition of the respective long-lived asset.Noncontrolling Interests:The Company reports the share of the results of operations that are attributable to other owners of its consolidated subsidiaries that are less than wholly-owned as noncontrolling interest in the accompanying consolidated financial statements. In the consolidated statement of operations and comprehensiveincome or loss, the income or loss attributable to the noncontrolling interest is reported separately and the accumulated income or loss attributable to thenoncontrolling interest, along with any changes in ownership of the subsidiary, is reported within shareholders’ equity.Cash and Cash Equivalents:Cash and cash equivalents include short-term, highly liquid instruments, purchased with original maturities of three months or less.Other Assets:Other assets include the following significant account balances:Property, Plant and Equipment, Net:Property, plant and equipment are carried at cost, net of accumulated depreciation. Depreciation is computed on the straight-line method over theestimated lives of the assets. Buildings and leasehold improvements are depreciated over the shorter of the useful life or lease term and range from 15 to 30years, office furniture and fixtures are generally depreciated over seven years, and computer equipment is depreciated over three years. Maintenance andrepairs are charged to expense as incurred, while significant improvements are capitalized. Gains or losses on the sale of property, plant and equipment areincluded in other income.Accounts payable and accrued expenses:Accounts payable and accrued expenses includes trade payables and accrued construction payables.Deferred Compensation:The Company reports the investment returns generated in the deferred compensation accounts in other income with a corresponding expense recognizedin general and administrative costs. In July 2017, the Company’s board of directors elected to terminate the Company’s deferred compensation plans. Inaccordance with applicable regulations, distribution of the assets and settlement of the deferred compensation obligation was made to the participants in July2018.Other Liabilities:Other liabilities includes primarily employee benefits, unearned revenues, option payments and deposits received.40Revenue Recognition:Sale of Real Estate and Water Assets:Revenue recognition on the sale of real estate and water assets conforms with accounting literature related to the sale of real estate, and is recognized infull when there is a legally binding sale contract, the profit is determinable (the collectability of the sales price is reasonably assured, or any amount that willnot be collectible can be estimated), the earnings process is virtually complete (the Company is not obligated to perform significant activities after the sale toearn the profit, meaning the Company has transferred all risks and rewards to the buyer). If these conditions are not met, the Company records the cashreceived as deferred revenue until the conditions to recognize full profit are met.Other Income, Net:Included in other income are various transactional results including realized gains and losses from the sale of investments and property, plant andequipment, interest income, sales of oil and gas, and other sources not considered to be the core focus of the existing operating entities within the group.Cost of Sales:Cost of Real Estate and Water Assets:Cost of real estate and water assets sold includes direct costs of the acquisition of the asset less any impairment losses previously recorded against theasset, development costs incurred to get the asset ready for use, and any capitalized interest costs incurred during the development period.General, Administrative, and Other:General, administrative, and other costs include salaries and benefits, stock-based compensation, consulting, audit, tax, legal, insurance, property taxes,rent and utilities, and other general operating expenses.Stock-Based Compensation:Stock-based compensation expense is measured at the grant date based on the fair values of the awards, calculated using the closing stock price on thedate of grant, and is recognized as expense over the period in which the share-based compensation vests using the straight-line method. When an employeerestricted stock unit (“RSU”) vests, the recipient receives a new share of PICO common stock for each RSU, less the number of shares of common stock equalin value to applicable withholding taxes. When an RSU is forfeited, all previously recognized expense is reversed during the respective forfeiture year andthe remaining unamortized expense is canceled.Accounting for Income Taxes:The Company’s provision for income tax expense includes federal and state income taxes currently payable and those deferred because of temporarydifferences between the income tax and financial reporting bases of the assets and liabilities. The asset and liability method of accounting for income taxesalso requires the Company to reflect the effect of a tax rate change on accumulated deferred income taxes in income in the period in which the change isenacted.In assessing the realization of deferred income taxes, management considers whether it is more likely than not that any deferred income tax assets will berealized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the period in whichtemporary differences become deductible. If it is more likely than not that some or all of the deferred income tax assets will not be realized a valuationallowance is recorded. At December 31, 2018, the Company concluded that it is likely that not all of its deferred tax assets will be realized, and accordingly, avaluation allowance was recorded against the deferred tax assets that are not expected to be realized.The Company recognizes any uncertain income tax positions on income tax returns at the largest amount that is more-likely-than-not to be sustainedupon audit by the relevant taxing authority. An uncertain income tax position will not be recognized unless it has a greater than a 50% likelihood of beingsustained. The Company recognizes any interest and penalties related to uncertain tax positions in income tax expense.41The Tax Cuts and Jobs Act of 2017 (the “Tax Act”), enacted in December 2017, resulted in significant changes to the U.S. tax law by, among otherthings, reducing the U.S. federal corporate tax rate from 35% to 21%, elimination or reduction of certain domestic deductions and credits, and limitations onthe deductibility of interest expense and executive compensation as well as limitations on the use of future net operating losses. In December 2017, the SECstaff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118), which allowed the Company torecord provisional amounts during a measurement period not to extend beyond one year of the enactment date. As a result, the Company previously recordeda provisional estimate of the effect of the Tax Act in its financial statements. In the fourth quarter of 2018, the Company completed its analysis to determinethe effect of the Tax Act and recorded immaterial adjustments as of December 22, 2018.Due to the tax legislation, the Company remeasured its U.S. deferred tax assets and liabilities based on the rates at which they are expected to reverse inthe future, which is generally 21%. The Company recorded a decrease related to its deferred tax assets and liabilities of $35.6 million with a correspondingadjustment to the valuation allowance for the year ended December 31, 2017. As our deferred tax asset is offset by a full valuation allowance, this change inrates had no impact on our financial position or results of operations.Loss per Share:Basic earnings or loss per share was computed by dividing net earnings by the weighted average number of shares outstanding during the period. Dilutedearnings or loss per share was computed similarly to basic earnings or loss per share except the weighted average shares outstanding are increased to includeadditional shares from the assumed exercise of any common stock equivalents using the treasury method, if dilutive. The Company’s free-standing stockappreciation rights (“SAR”), performance-based price-contingent stock options (“PBO”), and RSU are considered common stock equivalents for this purpose.The number of additional shares related to these common stock equivalents is calculated using the treasury stock method.For the two years ended December 31, 2018, the Company’s common stock equivalents were excluded from the diluted per share calculation becausetheir effect on earnings per share was anti-dilutive.Recently Issued Accounting Pronouncements:In February 2016, the Financial Accounting Standards Board (“FASB”) issued guidance which establishes a right-of-use model that requires a lessee torecord a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than twelve months. Leases will be classified as either"finance" or "operating," with classification affecting the pattern of expense recognition in the income statement. This update requires a modifiedretrospective transition as of the beginning of the earliest comparative period presented in the financial statements. This update is effective for financialstatements issued for annual periods and interim periods within those annual periods beginning after December 15, 2018, and early adoption is permitted.We will adopt the Lease Standard effective January 1, 2019 applying an optional transition method that will allow us to continue to apply the currentguidance of ASC 840 in the comparative periods in the year of adoption. We have elected the “package of practical expedients,” which permits us to notreassess prior conclusions about lease identification, lease classification and initial direct costs. We have also made an accounting policy election to notrecognize right-of-use assets or lease liabilities for leases with terms of 12 months or less. The most significant impact relates to its accounting for operatingleases. The Company has concluded the adoption of ASU 2016-02 will have an immaterial impact on the Company’s consolidated financial statements.In January 2016, the FASB issued guidance which makes several changes, including the elimination of the available-for-sale classification of equityinvestments, and requires equity investments with readily determinable fair values to be measured at fair value with changes in fair value recognized inearnings. Effective January 1, 2018, the Company adopted the new guidance and recorded a cumulative effect adjustment to decrease opening retaineddeficit at January 1, 2018 by $560,000 as required for equity investments recorded at fair value, formerly available-for-sale securities.In May 2014, the FASB issued guidance regarding revenue from contracts with customers, which provides a consistent revenue accounting model acrossindustries. The Company has reviewed this update and other guidance that was subsequently issued to further clarify the implementation guidance. Underthis guidance, revenue is recognized as the transfer of goods and services to customers takes place and in amounts that reflect the payment or payments thatare expected to be received from the customers for those goods and services and requires new disclosures about revenue. The Company adopted the guidanceeffective January 1, 2018 which did not have a material impact on its consolidated financial statements.422. TANGIBLE WATER ASSETS AND REAL ESTATE, NETThe cost assigned to the various components of tangible water and real estate assets were as follows (in thousands): December 31, 2018 2017Tangible water assets$29,622 $29,655Real estate and improvements held and used, net of accumulated amortization of $12,003 at December 31, 2018 andDecember 31, 20179,469 9,469Other real estate inventories5,207 5,551Total tangible water and real estate assets, net$44,298 $44,675The Company’s real estate improvements were fully depreciated at December 31, 2016.3. INTANGIBLE ASSETSThe Company’s carrying amounts of its intangible assets were as follows (in thousands): December 31, 2018 2017Pipeline rights and water credits at Fish Springs Ranch$83,108 $83,897Pipeline rights and water rights at Carson-Lyon21,542 25,569Other17,267 17,319Total intangible assets$121,917 $126,785Fish Springs Ranch Pipeline Rights and Water Credits:There are 13,000 acre-feet per-year of permitted water rights at Fish Springs Ranch. The existing permit allows up to 8,000 acre-feet of water per year tobe exported to support the development in the Reno, Nevada area. Under a settlement agreement signed in 2007, the Pyramid Lake Paiute Tribe (the “Tribe”)agreed to not oppose any permitting activities for the pumping and export of groundwater in excess of 8,000 acre-feet of water per year, and in exchange, FishSprings Ranch will pay the Tribe 12% of the gross sales price for each acre-foot of additional water that Fish Springs Ranch sells in excess of 8,000 acre-feetper year, up to 13,000 acre-feet per year. The obligation to expense and pay the 12% fee is due only if and when the Company sells water in excess of 8,000acre-feet, and accordingly, Fish Springs Ranch will record the liability for such amounts as they become due upon the sale of any such excess water.Currently, Fish Springs Ranch does not have regulatory approval to export any water in excess of 8,000 acre-feet per year from Fish Springs Ranch to supportfurther development in northern Reno, and it is uncertain whether such regulatory approval will be granted in the future.Impairment Losses:There were no impairment losses recognized on intangible assets during the years ended December 31, 2018 or December 31, 2017.4. INVESTMENTSAt December 31, 2018, the Company had no available-for-sale investments. The cost and carrying value of available-for-sale investments at December31, 2017 were as follows (in thousands):December 31, 2017Cost Gross Unrealized Gains Gross Unrealized Losses Carrying ValueDebt securities: corporate bonds$700 $6 $(22) $684Marketable equity securities513 710 (5) 1,218Total$1,213 $716 $(27) $1,90243The amortized cost and carrying value of investments in debt securities, by contractual maturity, are shown below. Actual maturity dates may differ fromcontractual maturity dates because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties (in thousands): December 31, 2017 Amortized Cost Carrying ValueDue in one year or less$225 $204Due after one year through five years475 480 $700 $684Included in other income, net in the accompanying consolidated financial statements is the net realized gain or loss on investments (in thousands): Year Ended December 31, 2018 2017Gross realized gains: Debt securities$82 $77Equity securities and other investments2 9,746Total gain84 9,823Gross realized losses: Debt securities(16) (87)Equity securities and other investments (1)(1,355) (1,014)Total loss(1,371) (1,101)Net realized gain (loss)$(1,287) $8,722(1) Included within this caption for the year ended December 31, 2018 is $1.3 million that is reported in a separate line, impairment loss on unconsolidatedaffiliate, within the Company’s consolidated statements of operations and comprehensive income or loss for the year then ended.Other Investments:Investment in Spigit Holdings Corporation (formerly Mindjet, Inc):The Company previously owned a convertible note receivable (which was recorded within other assets in the consolidated financial statements) andcommon stock and nonvoting preferred stock representing a voting ownership of 19.3% of Spigit Holdings Corporation (“Spigit”). The carrying value of theinvestment, including the convertible note receivable and associated interest, was approximately $2.3 million at December 31, 2017.During the year ended December 31, 2018, we recorded an impairment charge of $1.3 million to write down the value of the Company’s investment inSpigit to zero. Additionally, the Company wrote off $1 million in notes and interest receivable from Spigit. In December 2018, Spigit was merged withanother unrelated company and PICO received no compensation or obtained any ownership in the newly formed company.5. DISCLOSURES ABOUT FAIR VALUERecurring Fair Value MeasurementsAssets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair valuemeasurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment andconsiders factors specific to the asset or liability. The following tables set forth the Company’s assets and liabilities that were measured at fair value, on arecurring basis, by level within the fair value hierarchy (at December 31, 2018 there were no assets or liabilities measured at fair value). There were nosignificant transfers between Level 1 and Level 2 during the year ended December 31, 2017. The Company’s policy is to recognize transfers between levels atthe end of the reporting period.44At December 31, 2017 (in thousands): Quoted Prices InActiveMarkets forIdentical Assets(Level 1) Significant OtherObservable Inputs(Level 2) SignificantUnobservable Inputs(Level 3) Balance atDecember 31,2017Assets Available-for-sale equity securities (1)$975 $244 $1,219Available-for-sale debt securities (1)$683 $683Total$1,658$244 $— $1,902(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 1available-for-sale investments are valued using quoted market prices multiplied by the number of shares owned and debt securities are valued using amarket 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 marketprices 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 varyconsiderably over time. Inputs include directly or indirectly observable inputs such as quoted prices. Level 3 available-for-sale securities would includesecurities 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 theassets. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.Non-Recurring Fair Value MeasurementsAssets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair valuemeasurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment andconsiders factors specific to the asset.The following table sets forth the Company’s non-financial assets that were measured at fair value, on a non-recurring basis, by level within the fair valuehierarchy during the year ended December 31, 2018 (in thousands):Asset Description Quoted Prices InActiveMarkets forIdentical Assets(Level 1) Significant OtherObservable Inputs(Level 2) SignificantUnobservable Inputs(Level 3) Total LossInvestment in unconsolidated affiliate (1) $— $1,312(1) The Company recorded an impairment loss of $1.3 million to write down the value of its investment in Spigit to fair value, which was zero. The fair valueapproach relied primarily on Level 3 unobservable inputs including potential offers to purchase the entity. The inputs were based upon assumptions believedto be reasonable, but which by their nature are uncertain and unpredictable. Spigit was subsequently merged with another entity as described in note4,“Investments.”There were no non-financial assets that were measured at fair value, on a non-recurring basis, during the year ended December 31, 2017.Estimated Fair Value of Financial Instruments Not Carried at Fair ValueFair 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 participantsat the measurement date. The level within the fair value hierarchy in which the fair value measurements are classified include measurements using quotedprices in active markets for identical assets or liabilities (Level 1), quoted prices for similar instruments in active markets or quoted prices for identical orsimilar instruments in markets that are not active (Level 2), and significant valuation assumptions that are not readily observable in the market (Level 3).45As of December 31, 2018 and 2017, the fair values of cash and cash equivalents, accounts payable, and accounts receivable approximated their carryingvalues because of the short-term nature of these assets or liabilities.6. COMMITMENTS AND CONTINGENCIESThe Company leases some of its offices under non-cancelable operating leases that expire at various dates through 2020. Rent expense for the yearsended December 31, 2018 and 2017 for office space was $354,000 and $388,000, respectively.Future minimum payments under all operating leases were as follows (in thousands):Year ended December 31, 2019$3562020166Thereafter—Total$522Neither 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 andunfavorable resolutions could occur, assessing contingencies is highly subjective and requires judgments about future events. When evaluatingcontingencies, the Company may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter inquestion, the presence of complex or novel legal theories, and/or the ongoing discovery and development of information important to the matters. Inaddition, damage amounts claimed in litigation against the Company may be unsupported, exaggerated or unrelated to possible outcomes, and as such arenot meaningful indicators of the Company’s potential liability. The Company regularly reviews contingencies to determine the adequacy of accruals andrelated disclosures. The amount of ultimate loss may differ from these estimates, and it is possible that the Company’s consolidated financial statementscould 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’sbusiness, financial condition, results of operations or cash flows will depend on a number of variables, including: the timing and amount of such losses; thestructure and type of any remedies; the significance of the impact any such losses, damages or remedies may have on the consolidated financial statements;and the unique facts and circumstances of the particular matter that may give rise to additional factors.7. STOCK-BASED COMPENSATIONAt December 31, 2018, the Company had one stock-based payment arrangement outstanding, the PICO Holdings, Inc. 2014 Equity Incentive Plan (the“2014 Plan”).The 2014 Plan provides for the issuance of up to 3.3 million shares of common stock in the form of performance-based price-contingent stock options(“PBO”), restricted stock unit (“RSU”), stock-settled stock appreciation rights (“SAR”), non-statutory stock options, restricted stock awards (“RSA”),performance shares, performance units, deferred compensation awards, and other stock-based awards to employees, directors, and consultants of the Company(or any present or future parent or subsidiary corporation or other affiliated entity of the Company). The 2014 Plan allows for broker assisted cashlessexercises and net-settlement of income taxes and employee withholding taxes. Upon exercise of a PBO, RSU, and SAR, the employee will receive newlyissued shares of PICO common stock with a fair value equal to the in-the-money value of the award, less applicable federal, state and local withholding andincome taxes (however, the holder can elect to pay withholding taxes in cash).The Company recorded total stock based compensation expense of $425,000 and $1.3 million during the years ended December 31, 2018 and 2017,respectively.46Performance-Based Options (PBO):At various times, the Company has awarded PBO to various members of management. All of the PBO issued contain a market condition based on theachievement of a stock price target during the contractual term and vest monthly over a three year period. The vested portion of the options may be exercisedonly if the 30-trading-day average closing sales price of the Company’s common stock equals or exceeds 125% of the grant date stock price. The stock pricecontingency may be met any time before the options expire and it only needs to be met once for the PBO to remain exercisable for the remainder of the term.Compensation expense is amortized on a straight-line basis over the requisite service period for the entire award, which is the vesting period of the award.However, any unrecognized compensation expense for unvested awards can be accelerated if the vesting period is modified.The estimated fair value of the Company’s PBO was determined using a Monte Carlo model, which incorporated the following assumptions: 201410-Year OptionGrant date 11/14/2014Expiration date 11/14/2024Grant date stock price $19.51Historical volatility 35.00%Risk-free rate (annualized) 2.38%Dividend yield (annualized) —%PBO granted 167,619Weighted average grant date fair value $6.51Fair value of award on grant date $1,475,705The determination of the fair value of PBO using an option valuation model is affected by the Company’s stock price, as well as assumptions regarding anumber of complex and subjective variables. The volatility is calculated through an analysis based on historical daily returns of PICO’s stock over a look-back period equal to the PBO contractual term. The risk-free interest rate assumption is based upon a risk-neutral framework using the 10-year zero-couponrisk-free interest rates derived from the treasury constant maturities yield curve on the grant date, for the 10-year PBO award. The dividend yield assumptionwas based on the expectation of no future dividend payouts by the Company.A summary of PBO activity was as follows: Performance-Based Options Weighted-AverageExercise Price PerShareOutstanding at December 31, 2016453,333 $19.51Granted— Forfeited(285,714) $19.51Outstanding at December 31,2017167,619 $14.51Granted— Forfeited— Outstanding at December 31, 2018167,619 $14.51On January 8, 2017, 285,714 PBO expired and were canceled in conjunction with the termination of the Company’s former CEO. The remaining 167,619PBO outstanding are exercisable for up to 10 years from the grant date.47 Performance-Based Options Weighted-AverageExercise Price PerShare Weighted-AverageContractual TermRemaining(Years) Aggregate IntrinsicValueVested at December 31, 2016402,117 $19.51 4.5 $—Vested51,216 Forfeited(285,714) Vested at December 31, 2017 (1)167,619 $14.51 6.9 $—Vested— Forfeited— Vested at December 31, 2018167,619 $14.51 5.9 $—(1) In November 2017, the exercise price per share of the PBO was reduced to reflect the special dividend paid to shareholders.As of December 31, 2018 and December 31, 2017, there were no PBO exercisable as the market condition had not been met. The was no unrecognizedcompensation cost related to unvested PBO at December 31, 2018 and at December 31, 2017.Restricted Stock Units (RSU):RSU awards the recipient, who must be continuously employed by the Company until the vesting date, unless the employment contracts stipulateotherwise, the right to receive one share of the Company’s common stock. RSU issued to management do not vote and are not entitled to receive dividends,however the RSU issued to the Company’s director’s are entitled to dividends.A summary of RSU activity was as follows: RSU Shares Weighted-AverageGrant Date FairValue Per ShareOutstanding and unvested at December 31, 201648,232 $14.85Granted54,186 $15.01Vested(71,944) $14.58Forfeited(19,999) $13.82Outstanding and unvested at December 31, 201710,475 $19.51Granted19,716 $12.59Vested(30,191) $14.99Forfeited— $—Outstanding and unvested at December 31, 2018— $—There was no unrecognized compensation cost related to unvested RSU for the year ended December 31, 2018, and for the year ended December 31,2017, the unrecognized cost was was $178,000.Stock-Settled Stock Appreciation Rights (SAR):The 466,470 previously outstanding SAR with an exercise price of $42.71 expired during the year ended December 31, 2017. Consequently, there are nosuch awards outstanding. 488. FEDERAL AND STATE CURRENT AND DEFERRED INCOME TAXAs a result of the Tax Act, the Company remeasured its net deferred tax assets and corresponding valuation allowance using a federal rate of 21% duringthe year ended December 31, 2018, which resulted in no net impact to the income tax provision. The Company and its subsidiaries file a consolidated federalincome tax return. Companies that are less than 80% owned corporations, or entities that are treated as partnerships for federal income tax purposes, fileseparate federal income tax returns. All of the Company’s pre-tax loss from continuing operations in each of the two years ended December 31, 2018 and2017 was generated in the U.S. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilitiesfor financial reporting purposes and the amounts used for income tax purposes.The Company’s income tax (provision) benefit for federal and state income taxes consisted of the following (in thousands): Year Ended December 31, 2018 2017Current tax (provision) benefit$(53) $360Deferred tax provision— (3,442)Total income tax provision$(53) $(3,082)The difference between income taxes provided at the Company’s federal statutory rate and effective tax rate was as follows (in thousands): Year Ended December 31, 2018 2017Federal income tax (provision) benefit at statutory rate$697 $(3,620)Change in valuation allowance529 36,055Impact of U.S. tax reform— (35,570)State taxes, net of federal benefit— 319Expired credits(1,056) —Other(223) (266)Total income tax provision$(53) $(3,082)49The significant components of deferred income tax assets and liabilities were as follows (in thousands): December 31, 2018 2017Deferred tax assets: Net operating losses, capital losses, and tax credit carryforwards$64,378 $55,852Deferred compensation— 1,212Impairment loss on securities— 36Impairment loss on water assets10,313 10,791Employee benefits, including stock-based compensation928 745Excess tax basis in affiliate496 5,743Fixed assets798 811Other, net772 1,011Total deferred tax assets77,685 76,201Deferred tax liabilities: Unrealized appreciation on securities— 122Revaluation of real estate and water assets3,145 3,251Other, net503 520Total deferred tax liabilities3,648 3,893Valuation allowance(74,037) (72,308)Net deferred income tax asset$— $—Deferred tax assets and liabilities and federal income tax expense in future years can be significantly affected by changes in circumstances that wouldinfluence management’s conclusions as to the ultimate realization of deferred tax assets. Valuation allowances are established and maintained for deferred taxassets on a “more likely than not” threshold. At December 31, 2011, the Company considered it more likely than not that the deferred tax assets would not berealized and a full valuation allowance was provided. At December 31, 2018, after evaluating the positive and negative evidence, management concluded tomaintain a full valuation allowance against its deferred tax assets. The Company has considered the following possible sources of taxable income whenassessing the realization of the deferred tax assets: (1) future reversals of existing taxable temporary differences; (2) taxable income in prior carryback years;(3) tax planning strategies; and (4) future taxable income exclusive of reversing temporary differences and carryforwards. Reliance on future U.S. taxableincome as an indicator that a valuation allowance is not required is difficult when there is negative evidence such as the Company's cumulative losses inrecent years. In considering the evidence as to whether a valuation allowance is needed, the existence, magnitude and duration of such cumulative losses arefactors that are accorded significant weight in the Company's assessment. As a result, a determination was made that there was not sufficient positive evidenceto enable the Company to conclude that it was “more likely than not” that certain of these deferred tax assets would be realized. Therefore, the Company hasprovided a full valuation allowance against the Company's net deferred tax assets balances as discussed above. This assessment will continue to beundertaken in the future. The Company's results of operations may be impacted in the future by the Company's inability to realize a tax benefit for future taxlosses or for items that will generate additional deferred tax assets.The Company's results of operations might be favorably impacted in the future by reversals of valuation allowances if the Company is able todemonstrate sufficient positive evidence that the Company's deferred tax assets will be realized.50The Company had operating loss carryforwards, federal tax credit carryforwards, and state capital loss carryforwards as of December 31, 2018, that willexpire if not utilized. The following table summarizes such carryforwards and their expiration as follows (in thousands): Federal NetOperating Losses Federal TaxCredits State NetOperating Losses State andFederal CapitalLossesExpire 2019 $— $355 $3,888 $—Expire 2020 through 2025 — 2,121 16,327 85,131Expire 2026 through 2030 — 13 15,804 —Expire 2031 through 2037 170,101 4,563 118,307 —Total $170,101 $7,052 $154,326 $85,131Utilization of the Company's U.S. federal and certain state net operating loss and tax credit carryovers may be subject to substantial annual limitationdue to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. Such an annual limitation could result in theexpiration of the net operating loss carryforwards before utilization. As of December 31, 2018, the Company believes that utilization of its federal netoperating losses and federal tax credits are not limited under any ownership change limitations provided under the Internal Revenue Code. The tax benefitpreservation plan adopted by the Company provides protections to preserve the Company’s ability to utilize its net operating loss carryforwards as a result ofcertain stock ownership changes in the future.The Company is subject to taxation in the U.S. and various state jurisdictions. As of December 31, 2018, the Company's statute is open from 2015 and2014 forward for federal and for state tax purposes, respectively.9. ACCUMULATED OTHER COMPREHENSIVE INCOMEThere was no accumulated other comprehensive income at December 31, 2018. In 2017, the components of accumulated other comprehensive incomewas as follows (in thousands): 2017Net unrealized gain on available-for-sale investments (1)$544Foreign currency translation—Accumulated other comprehensive income$544(1) The unrealized gain on available-for-sale investments is net of a deferred income tax liability of $145,000 at December 31, 2017.The following table reports amounts that were reclassified from accumulated other comprehensive income and included in earnings (in thousands): Year Ended December 31, 2018 2017Accumulated other comprehensive income - January 1$544 $6,661Unrealized gain reclassified and recognized in net loss, net of tax(1)(544) (6,358)Foreign exchange reclassified and recognized in net loss, net of tax(1)— 2Total reclassified and recognized in net loss, net of tax(544) (6,356)Unrealized gain on marketable securities, net of tax— 164Accumulated currency, net of tax— 75Net change in other comprehensive income, net of tax(544) (6,117)Accumulated other comprehensive income - December 31$— $544(1) Amounts reclassified from this category are included in other income in the consolidated statement of operations and comprehensive income or loss.5110. RELATED-PARTY TRANSACTIONSDeferred CompensationIn July 2017, the Company’s Board of Directors terminated the Company’s deferred compensation plans. In accordance with applicable regulations,distribution of the remaining assets and settlement of the deferred compensation obligation was made in July 2018.In connection with the termination of the Company’s former CEO in 2016, assets valued at $23.3 million were distributed from the trust accounts during2017.Employment Agreements:In connection with the appointment of Ms. Timian-Palmer as the Company’s President and Chief Executive Officer and the appointment of Mr. Webb asthe Company’s Executive Chairman, the Company entered into an Employment Agreement with Ms. Timian-Palmer (the “Palmer Employment Agreement”)and an Amended and Restated Employment Agreement with Mr. Webb (the “Webb Employment Agreement”, and together with the Palmer EmploymentAgreement, the “Employment Agreements”), each of which became effective on August 6, 2018. The Webb Employment Agreement supersedes theEmployment Agreement entered into by and between Mr. Webb and the Company, dated January 1, 2017.Pursuant to the terms of the Employment Agreements, Ms. Timian-Palmer will earn an annual base salary of $389,000 and Mr. Webb will earn an annualbase salary of $210,800. Mr. Webb will accrue no amounts for paid vacation or personal time off during the term of the Webb Employment Agreement.While Ms. Timian-Palmer and Mr. Webb will be employed on an at-will basis, the Employment Agreements provide that in the event that Ms. Timian-Palmer’s or Mr. Webb’s employment with the Company is terminated by the Company without cause or Ms. Timian-Palmer or Mr. Webb resigns for goodreason, the Company will provide to such terminated individual, contingent upon a general release of claims against the Company, (i) with respect to Ms.Timian-Palmer, a lump-sum payment equal to Ms. Timian-Palmer’s then-current base salary for a period equal to 36 months, and with respect to Mr. Webb, alump-sum payment equal to 24 months of Mr. Webb’s base salary as in effect immediately prior to his appointment as Executive Chairman, (ii) a bonus, ifany, pursuant to the Amended Bonus Plan (as defined below), in an amount determined by the Compensation Committee pursuant to the terms of theAmended Bonus Plan and as described more fully below, (iii) payment of the cost of COBRA coverage for such individual and his or her dependents throughthe earlier of a period of one year or the date such individual becomes eligible for health coverage from another employer, and (iv) full acceleration of thevesting of all outstanding equity awards held by such individual.Executive Bonus Plan:On August 2, 2018, the Company adopted an Amended and Restated Executive Bonus Plan (the “Amended Bonus Plan”) to provide for the payment ofbonuses to Ms. Timian-Palmer and Mr. Webb (collectively, the “Plan Participants”). The Amended Bonus Plan, which has a term of five years from January 1,2018 through December 31, 2022, amends, restates and supersedes the Company’s Executive Bonus Plan adopted on December 14, 2016 (the “Prior BonusPlan”).Pursuant to the terms of the Amended Bonus Plan, a pool of funds will be created for distribution on a yearly basis (the “Bonus Pool”). The first step incalculating the Bonus Pool is to calculate the total revenues and other income of the Company during the year (other than any revenues or other incomeattributed to the Company’s investments in Synthonics, Inc. and Mindjet Inc. and the Company’s deferred compensation plans (the “Excluded Assets”))minus (a) the gross invested capital for each asset of the Company (other than an Excluded Asset) that was sold or otherwise disposed of during such year,defined as the book value of such asset as of the date of the sale (or other disposition) of such asset, as determined in accordance with U.S. GAAP andreflected in the Company’s financial records as of such date, plus any impairment or depreciation charges taken by the Company with respect to such asset onor prior to such date; (b) an amount equal to the aggregate of the gross invested capital for each relevant asset as determined pursuant to the immediatelypreceding clause (a), multiplied by the amount of years (including any partial year) elapsed between January 1, 2018 and the date of the sale or other disposalof such asset, multiplied by 5%; and (c) administrative expenses specified in the Amended Bonus Plan (such resulting amount, the “Total Net Gain”). Forassets sold (or otherwise disposed of) entirely or partially for non-cash consideration by the Company, the calculation of Total Net Gain with respect to thenon-cash consideration will instead be made in the year in which the non-cash consideration is ultimately sold (or otherwise disposed of) for cash by theCompany.52The second step in calculating the Bonus Pool is to multiply the Total Net Gain by the “Adjustment Factor”, which is the greater of (i) a fraction, thenumerator of which is the total amount of cash distributed (or committed to be distributed) to the Company’s shareholders with respect to all such assets sold(or otherwise disposed of) during the year, and the denominator of which is the total amount of cash received (after payment of all selling costs, includingbankers’ fees and commissions) for which all such assets were sold (or otherwise disposed of) during the year, or (ii) such percentage (not to exceed 100%) asthe Compensation Committee of the Board of Directors (the “Compensation Committee”) determines in its sole discretion to utilize as the Adjustment Factor.The amount that results from multiplying the Total Net Gain by the Adjustment Factor is the “Adjusted Net Gain.”The final step in calculating the Bonus Pool is to multiply the Adjusted Net Gain by 8.75%, which results in the actual Bonus Pool. The Bonus Pool willbe allocated 55% to Ms. Timian-Palmer and 45% to Mr. Webb. Each Plan Participant will be entitled to his or her allocated portion of the Bonus Pool for theyear if he or she is employed by the Company on the last day of the year. Any bonus paid pursuant to the Amended Bonus Plan will be paid 50% in the formof cash and 50% in the form of a RSU award, except that if a Plan Participant incurs a separation from service prior to the date that such RSU awards arescheduled to be granted, such bonus will be paid entirely in the form of cash. Such RSU awards shall be granted pursuant to the terms of the 2014 Plan, willbe fully vested on the date of grant, and the number of RSUs subject to such award will be equal to (x) the dollar value of 50% of the total amount of suchbonus, divided by (y) the average of the daily volume weighted average prices (the “VWAP”) of the Company’s common stock for all of the trading daysduring the 30 calendar day period ending on (and including) the last trading day immediately prior to the grant date of such award, rounded down to thenearest whole share. The issuance of any shares pursuant to such RSU awards will occur on the earlier of (i) the third anniversary of the date of grant of suchRSU award, (ii) a Plan Participant’s separation from service or (iii) a change of control.In the event that any Plan Participant’s employment with the Company is terminated in certain circumstances as provided in a written agreement betweenthe Company and such Plan Participant, as applicable, such terminated individual will be entitled to payment of an amount under the Amended Bonus Planfor a portion of the year in which such termination occurs. In order to calculate such amount, the Compensation Committee will first determine the Total NetGain for the portion of the year prior to such individual’s termination (which Total Net Gain will be determined in the same manner as described above basedon the actual revenues or other income of the Company (including sales or other dispositions of assets) during such partial year period; provided, however,that the amount of administrative expenses for such portion of the year will be prorated based on the Compensation Committee’s estimate of the total amountof administrative expenses for such year) (such amount, the “Pro Rata Net Gain”). Second, the Pro Rata Net Gain is multiplied by an adjustment factor whichis the greater of (i) a fraction, the numerator of which is the amount of cash distributed (or committed to be distributed) to the Company’s shareholders inconnection with the Company’s sale (or other disposition) of assets during such portion of the year, and the denominator of which is the total amount of cashreceived for which all assets were sold (or otherwise disposed of) during such portion of the year, or (ii) such percentage (not to exceed 100%) as theCompensation Committee determines in its sole discretion to utilize as the Adjustment Factor. The resulting amount is multiplied by 8.75% to arrive at the“Termination Bonus Pool.” In the event that any Plan Participant is entitled to payment of an amount under the Amended Bonus Plan for the portion of theyear in which such individual’s termination occurs, such amount will be paid in the form of cash and will be equal to a percentage of the Termination BonusPool corresponding to such individual’s allocated percentage of the Bonus Pool.There was no compensation earned under the Amended Bonus Plan for the year ended December 31, 2018.Incentive CompensationCertain officers of Vidler are eligible to receive an annual incentive award based on the combined net income, after certain adjustments, of Vidler. Thecompensation earned and accrued under this plan during the year ended December 31, 2018 and December 31, 2017 was $100,000 and $414,000,respectively.Severance CompensationIn connection with the execution of a transition agreement with the Company’s current Chief Financial Officer, $748,000 of severance benefits wereaccrued during the year ended December 31, 2018.Sale of Oil and Gas AssetsIn conjunction with exiting our residual oil and gas operations, during 2017, the Company sold the majority of the remaining oil and gas lease assets tothe service agent the Company had contracted with to operate and manage such oil and gas operations. The Company received book value for the majority ofthe assets sold resulting in no significant gain or loss on the transaction. The Company sold the legal business entities that were created to operate the oil andgas operations to its service agent. The Company incurred $150,000 of disposal related expenses for the final sale.5311. DISCONTINUED OPERATIONSThe Company’s real estate segment qualified as held-for-sale at December 31, 2017 and has been classified as discontinued operations in theaccompanying consolidated financial statements as of the earliest period presented.During 2017, UCP entered into a merger agreement with Century whereby each outstanding share of UCP common stock was converted into $5.32 incash and 0.2309 of a newly issued share of Century common stock representing 9% of Century’s common stock then outstanding. The transaction closed onAugust 4, 2017 and as a result the Company deconsolidated UCP as of the closing date. In October 2017, the Company sold its entire position of Centurycommon stock for $59.2 million and recorded a realized loss of $842,000.During 2015, the Company sold substantially all of the assets used in its agribusiness segment. The Company has guaranteed up to $8 million for anyindemnification claims and will remain in force until July 31, 2020. The guaranty has been recorded at estimated fair value that reflects the Company’sexpectation that no significant amounts will be paid out under the guaranty. However, any amounts paid by the Company in excess of the estimate will resultin additional loss on the sale.The following table presents the details of the Company’s results from discontinued operations included in the consolidated statement of operations andcomprehensive income or loss (in thousands): 2018 2017Revenue and other income: Sale of real estate$— $247,213Sale of canola oil and meal— —Other— 506Total revenue and other income— 247,719 Cost of goods sold: Cost of real estate sold— 200,789Cost of canola oil and meal sold Total cost of goods sold— 200,789 Impairment loss on intangible and long-lived assets— 102Interest— —Selling expenses— 13,784General, administrative and other— 29,631Total expenses— 244,306Income (loss) from discontinued operations— 3,413Benefit (provision) for federal and state income taxes (360)Gain (loss) on sale of discontinued operations, net of tax43 (8,698)Net income (loss) from discontinued operations, net of tax43 (5,645)Net loss from discontinued operations attributable to noncontrolling interests— (1,150)Net income (loss) from discontinued operations attributable to PICO Holdings, Inc.$43 $(6,795)54ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENone.ITEM 9A. CONTROLS AND PROCEDURESEvaluation of Disclosure Controls and Procedures.The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act) designed to providereasonable assurance that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded,processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.These include controls and procedures designed to ensure that this information is accumulated and communicated to the Company’s management,including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Management, withthe participation of the Chief Executive and Chief Financial Officers, evaluated the effectiveness of the Company’s disclosure controls and procedures as ofDecember 31, 2018. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’sdisclosure controls and procedures were effective as of December 31, 2018.Management’s Annual Report on Internal Control over Financial Reporting.Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statements for external purposes of accounting principles generally accepted in the UnitedStates and includes those policies and procedures that:•Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the Company’s assets;•Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generallyaccepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations ofmanagement and directors of the Company; and•Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets thatcould have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systemsdetermined to be effective can provide only reasonable assurance of achieving their control objectives.Management, with the participation of the Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company’s internalcontrol over financial reporting as of December 31, 2018. In making this assessment, management used the criteria set forth by the Committee of SponsoringOrganizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework (2013). Based on this assessment, management, with theparticipation of the Chief Executive Officer and Chief Financial Officer, concluded that, as of December 31, 2018, the Company’s internal control overfinancial reporting was effective based on the COSO criteria (2013).Deloitte & Touche LLP, the independent registered public accounting firm who audited the Company’s consolidated financial statements included inthis Form 10-K, has issued an attestation report on the Company’s internal control over financial reporting, which is included herein.Changes in Internal Control over Financial Reporting.There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter endedDecember 31, 2018, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.55REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders ofPICO Holdings, Inc.Carson City, NevadaOpinion on Internal Control over Financial ReportingWe have audited the internal control over financial reporting of PICO Holdings, Inc. and subsidiaries (the “Company”) as of December 31, 2018, based oncriteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission(COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, basedon criteria established in Internal Control - Integrated Framework (2013) issued by COSO.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidatedfinancial statements and financial statement schedule as of and for the year ended December 31, 2018 of the Company and our report dated March 14, 2019,expressed an unqualified opinion on those financial statements.Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Ourresponsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firmregistered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and theapplicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining anunderstanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operatingeffectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. Webelieve that our audit provides a reasonable basis for our opinion.Definition and Limitations of Internal Control over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate./s/ DELOITTE & TOUCHE LLPSan Diego, CaliforniaMarch 14, 201956ITEM 9B. OTHER INFORMATIONNone.PART IIIITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEThe information required by this item regarding directors will be set forth in the section headed “Election of Directors” in our definitive proxy statementwith respect to our 2019 annual meeting of shareholders (the “2019 proxy statement”), to be filed on or before April 30, 2019 and is incorporated herein byreference. The information required by this item regarding the Company’s code of ethics will be set forth in the section headed “Code Of Ethics” in the 2019proxy statement and is incorporated herein by reference. Information regarding executive officers is set forth in Item 1 of Part 1 of this Report under thecaption “Executive Officers.” Other information required by this item will be set forth in the sections headed “Corporate Governance” and “Section 16(a)Beneficial Ownership Reporting Compliance” in the 2019 proxy statement and is incorporated herein by reference.ITEM 11. EXECUTIVE COMPENSATIONThe information required by this item will be set forth in the section headed “Executive Compensation and Related Information” in the 2019 proxystatement and is incorporated herein by reference.ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, AND RELATED STOCKHOLDER MATTERSThe information required by this item will be set forth in the sections headed “Security Ownership of Certain Beneficial Owners and Management” and“Equity Compensation Plan Information” in the 2019 proxy statement and is incorporated herein by reference.ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEThe information required by this item will be set forth in the section headed “Certain Relationships and Related Persons Transactions” and“Compensation Committee, Interlocks and Insider Participation” in the 2019 proxy statement and is incorporated herein by reference.ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICESThe information required by this item will be set forth in the sections headed “Independent Registered Public Accounting Firm Fees” and “AuditCommittee Pre-Approval Policy” in the 2019 proxy statement and is incorporated herein by reference.57PART IVITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES(a)FINANCIAL SCHEDULES AND EXHIBITS1.ExhibitsExhibitNumber Description3.1 Certificate of Incorporation of PICO Holdings, Inc. (2)3.2 Bylaws of PICO Holdings, Inc. (2)3.3 Certificate of Designation of Series A Junior Participating Preferred Stock of PICO Holdings, Inc. (3)4.1 Section 382 Rights Agreement, dated as of July 24, 2017, by and between PICO Holdings, Inc. and Computershare Trust Company N.A. (3)4.2 PICO Holdings, Inc. Stock Certificate. (4)10.1 Guaranty, dated July 31, 2015, between PICO Holdings, Inc. and CHS Hallock, LLC. (6)10.2† PICO Holdings, Inc. 2014 Equity Incentive Plan, Stock Option Grant Notice, Stock Option Award Agreement, Stock Option Notice ofExercise, Restricted Stock Unit Grant Notice, Restricted Stock Unit Award Agreement, and Restricted Stock Deferral Election Form. (7)10.3† Transition Agreement by and between PICO Holdings, Inc. and John T. Perri, dated August 6, 2018, as amended.10.4† Infrastructure Dedication Agreement between Fish Springs Ranch, LLC, and Washoe County, Nevada dated October 16, 2007. (10)10.5† Employment Agreement, dated August 8, 2018, by and between PICO Holdings, Inc. and Maxim C.W. Webb. (1)10.6† Employment Agreement, dated December 14, 2016, by and between PICO Holdings, Inc. and John T. Perri. (9)10.7† Employment Agreement, dated August 8, 2018, by and between PICO Holdings, Inc. and Dorothy Timian-Palmer. (1)10.8† PICO Holdings, Inc. Amended and Restated Executive Bonus Plan. (1)10.9† PICO Holdings, Inc. Amended and Restated Nonemployee Director Compensation Policy (8)10.10 Form of Indemnity Agreement with directors and executive officers of PICO Holdings, Inc. and each of its subsidiaries. (4)10.11† Directorship Letter Agreement with Eric Speron dated December 18, 2015. (11)21.1 Subsidiaries of PICO Holdings, Inc.23.1 Consent of Independent Registered Public Accounting Firm - Deloitte & Touche LLP.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 Actof 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 of2002.32.1 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 Document101.SCH XBRL Taxonomy Extension Schema Document101.CAL XBRL Taxonomy Extension Calculation Linkbase Document101.DEF XBRL Taxonomy Extension Definition Linkbase Document101.LAB XBRL Taxonomy Extension Label Linkbase Document101.PRE XBRL Taxonomy Extension Presentation Linkbase Document † Indicates compensatory plan, contract or arrangement in which directors or executive officers may participate.(1) Incorporated by reference to Form 8-K filed with the SEC on August 8, 2018.(2) Incorporated by reference to Form 8-K filed with the SEC on June 1, 2017.58ExhibitNumber Description(3) Incorporated by reference to Form 8-A filed with the SEC on July 24, 2017.(4) Incorporated by reference to Form 10-Q filed with the SEC on August 9, 2017.(5) Incorporate by reference to Form 8-K filed with the SEC on October 2, 2017.(6) Incorporated by reference to Form 8-K filed with the SEC on August 6, 2015.(7) Incorporated by reference to the Quarterly Report on Form 10-Q filed with the SEC on November 10, 2014.(8) Incorporated by reference to the Annual Report on Form 10-K filed with the SEC on March 3, 2017.(9) Incorporated by reference to Form 8-K filed with the SEC on December 15, 2016.(10) Incorporated by reference to the Quarterly Report on Form 10-Q filed with the SEC on November 7, 2007.(11) Incorporated by reference to Form 8-K filed with the SEC on December 22, 2015.59SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on itsbehalf by the undersigned, thereunto duly authorized.Date:March 14, 2019PICO Holdings, Inc.By: /s/ Dorothy A. Timian-PalmerDorothy A. Timian-PalmerChief Executive Officer and PresidentPursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below on March 14, 2019 by the following persons onbehalf of the Registrant and in the capacities indicated./s/ Dorothy A. Timian-PalmerChief Executive Officer and PresidentDorothy A. Timian-Palmer(Principal Executive Officer) /s/ John T. PerriChief Financial Officer and SecretaryJohn T. Perri(Principal Financial Officer) /s/ Maxim C.W. WebbExecutive Chairman of the BoardMaxim C.W. Webb /s/ Gregory E. BylinskyDirectorGregory E. Bylinsky /s/ Eric H. SperonDirectorEric H. Speron /s/ Nicole L. WeymouthDirectorNicole L. Weymouth 60TRANSITION AGREEMENTThis TRANSITION AGREEMENT (the “Agreement”) is effective as of August 6, 2018 (the “Effective Date”) and isentered into by and between PICO Holdings, Inc., a Delaware corporation (the “Company”), and John T. Perri (“Executive”).WHEREAS, Executive and the Company entered into that certain Employment Agreement effective as of January 1, 2017(the “Employment Agreement”), which is attached hereto as EXHIBIT A; andWHEREAS, Executive and the Company mutually desire to set forth the terms and conditions governing the agreed upontransition in Executive’s employment with the Company.NOW, THEREFORE, for and in consideration of the mutual promises, covenants and obligations contained herein, Executiveand the Company agree as follows:1.Bonus Plan Participation.(a) As of the Effective Date, Executive shall no longer be eligible to participate in the Company’s ExecutiveBonus Plan (the “Executive Bonus Plan”), and shall immediately cease to be a Participant (as defined in the Executive BonusPlan) for all purposes under the Executive Bonus Plan. Consistent with, and in furtherance of, the foregoing, Executive and theCompany hereby acknowledge and agree as follows:•in no event shall Executive be entitled to a bonus under the Executive Bonus Plan for the 12-month period betweenJanuary 1, 2018 and December 31, 2018, regardless of whether Executive is employed by the Company throughsuch period;•Section 3.2 of the Employment Agreement is hereby deleted in its entirety and shall have no further force or effect;•Section 6.1(b) of the Employment Agreement is hereby deleted in its entirety and shall have no further force oreffect;•the third sentence of Section 6.2 of the Employment Agreement is hereby deleted in its entirety and shall have nofurther force or effect; and•subsection (i) of Section 6.3 of the Employment Agreement shall be amended and restated as follows: “the Companyshall pay to Executive on the date of such termination, in each case to the extent not previously paid, Executive’sbase salary then in effect through the date of such termination and Executive’s accrued but unused vacation andother paid time off”.(b) For the avoidance of doubt, Executive shall remain eligible to participate in the Company’s Executive Change inControl Bonus Plan (the “CIC Bonus Plan”) following the Effective Date.2. Transition Duties. During the Transition Period (as defined below) Executive shall report directly to the Chairman of theCompany’s Board of Directors (and the Company’s Chief Financial Officer, if and when the Company appoints a new Chief FinancialOfficer) (collectively, the “Direct Reports”), and will perform the duties set forth hereto on EXHIBIT B (collectively, the “DesignatedDuties”), and/or such other duties as may be assigned to Executive by the Direct Reports from time to time following the EffectiveDate.3. Base Salary. Executive shall continue to receive his current base salary throughout the Transition Period.4. Transition Period. For purposes of this Agreement, the “Transition Period” shall mean the period beginning on theEffective Date and ending on the date that is the earliest of:(a) the date that the Company files its Annual Report on Form 10-K for the fiscal year ending December 31, 2018;(b) a date selected in the sole discretion of the Company, provided such date is not before December 31, 2018; and(c) the date of Executive’s Involuntary Termination (as defined in the Employment Agreement and as amendedpursuant to this Agreement).In the event that the Transition Period ends on either of the dates referred to in Sections 4(a) and 4(b) above, then Executive’sInvoluntary Termination shall be deemed to have occurred on such date.5. Good Reason. Executive hereby acknowledges and agrees that neither (i) the change in Executive’s authority, duties andresponsibilities as contemplated by the Designated Duties (or such other duties as may be assigned to Executive by the Direct Reportsfrom time to time following the Effective Date), nor (ii) Executive’s performance of the Designated Duties and/or such other duties asmay be assigned to Executive by the Direct Reports from time to time following the Effective Date, nor (iii) Executive no longerserving as the Company’s Chief Financial Officer and/or the Company’s appointment of a new Chief Financial Officer to replaceExecutive, shall constitute “Good Reason” as defined in Section 6.6(d) of the Employment Agreement.6. Transition Bonus.(a) Subject to Section 6(b), if Executive remains employed by the Company through the Transition Period,then the Company shall pay Executive a one-time cash bonus in the amount of $250,000, payable in a lump-sum within three businessdays following the completion of the Transition Period, subject to withholding of applicable taxes (the “Transition Bonus”).(b) Executive shall not be entitled to receive the Transition Bonus, and Section 6(a) above shall automaticallyterminate and be of no further force or effect, if during the Transition Period there occurs a CIC Transaction (as defined in the CICBonus Plan).For the avoidance of doubt, under no circumstance shall Executive be entitled to receive the Transition Bonus and a bonusunder the CIC Bonus Plan, subject to the terms and conditions thereof.7. Effect of Agreement. Except as expressly modified by this Agreement, the Employment Agreement shall remainunmodified and in full force and effect. Consistent with, and in furtherance of, the foregoing, Executive and the Company herebyacknowledge and agree as follows:•the provisions of Section 6.5 and Section 7.7 of the Employment Agreement shall be applied with respect to thepayment of the Transition Bonus under this Agreement; and•the provisions of Section 7.5 of the Employment Agreement shall be applied with respect to any disputes, claims, orcauses of action arising from or relating to the enforcement, breach, performance or interpretation of this Agreement.8. Waiver. No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver ordischarge is agreed to in writing and signed by Executive and by a duly authorized representative of the Company. No waiver byeither party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall beconsidered a waiver of any other condition or provision or of the same condition or provision at another time.9. Choice of Law; Venue. The validity, interpretation, construction and performance of this Agreement shall be governedby the laws of the State of California without giving effect to any conflict of law principles. For purposes of litigating any dispute thatarises directly or indirectly from the relationship of the parties pursuant to this Agreement that is not subject to arbitration pursuant toSection 7.5 of the Employment Agreement, the parties hereby submit to and consent to the jurisdiction of the State of California andagree that such litigation shall be conducted only in the courts of the County of San Diego, California, or the federal courts of theUnited States for the Southern District of California, and no other courts.10. Severability. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect thevalidity or enforceability of any other provision hereof, which shall remain in full force and effect.11. Benefits Not Assignable. Except as otherwise provided herein or by law, no right or interest of Executive under thisAgreement shall be assignable or transferable, in whole or in part, either directly or by operation of law or otherwise, including,without limitation, by execution, levy, garnishment, attachment, pledge or in any other manner, and no attempted transfer orassignment thereof shall be effective. No right or interest of Executive under this Agreement shall be liable for, or subject to, anyobligation or liability of Executive.12. Further Assurances. From time to time, at the Company’s request and without further consideration, Executive shallexecute and deliver such additional documents and take all such further action as reasonably requested by the Company to benecessary or desirable to make effective, in the most expeditious manner possible, the terms of this Agreement, and to provide adequateassurance of Executive’s due performance thereunder.13. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all ofwhich together will constitute one and the same instrument.14. Acknowledgment. Executive acknowledges that Executive has had the opportunity to discuss this matter with and obtainadvice from his private attorney, has had sufficient time to, and has carefully read and fully understands all the provisions of thisAgreement, and is knowingly and voluntarily entering into this Agreement.IN WITNESS WHEREOF, each of the parties has executed this Agreement as of the Effective Date.PICO HOLDINGS, INC.By: /s/ Max WebbName: Max WebbTitle: Executive ChairmanEXECUTIVE/s/ John T. PerriJohn T. PerriAMENDMENT TO TRANSITION AGREEMENTThis Amendment to Transition Agreement (“Amendment”), effective as of November 27, 2018 (the “Effective Date”), isentered into by and between PICO Holdings, Inc., a Delaware corporation (the “Company”), and John T. Perri (“Executive”), andamends that certain Transition Agreement by and between the Company and Executive dated August 6, 2018 (the “TransitionAgreement”).Whereas, the Company and Executive entered into the Transition Agreement to set forth the terms and conditions governingthe agreed upon transition in Executive’s employment with the Company; andWhereas, the Company and Executive are entering into this Amendment to amend certain terms of the Transition Agreement.Now, Therefore, in consideration of the mutual promises and subject to the terms and conditions set forth herein, the partieshereto agree as follows:1.Section 4. Section 4 of the Transition Agreement is hereby amended and restated to read in its entirety asfollows:“4. Transition Period. For purposes of this Agreement, the “Transition Period” shall mean the period beginning on theEffective Date and ending on the date that is the earlier of:(a) the date that the Company files its Quarterly Report on Form 10-Q for the three months ending March 31, 2019; and(b) the date of Executive’s Involuntary Termination (as defined in the Employment Agreement and as amendedpursuant to this Agreement).In the event that the Transition Period ends on the date referred to in Section 4(a) above, then Executive’s InvoluntaryTermination shall be deemed to have occurred on such date.”2.Section 6(a). Section 6(a) of the Transition Agreement is hereby amended and restated to read in its entirety asfollows:“(a) Subject to Section 6(b), if Executive remains employed by the Company through the Transition Period, then theCompany shall pay Executive a one-time cash bonus in the amount of $275,000, payable in a lump-sum within three businessdays following the completion of the Transition Period, subject to withholding of applicable taxes (the “Transition Bonus”).”3. Choice of Law; Venue. The validity, interpretation, construction and performance of this Amendment shall be governedby the laws of the State of California without giving effectto any conflict of law principles. For purposes of litigating any dispute that arises directly or indirectly from the relationship of theparties pursuant to this Amendment that is not subject to arbitration pursuant to Section 7.5 of the Employment Agreement (as definedin the Transition Agreement), the parties hereby submit to and consent to the jurisdiction of the State of California and agree that suchlitigation shall be conducted only in the courts of the County of San Diego, California, or the federal courts of the United States for theSouthern District of California, and no other courts.4. Counterparts. This Amendment may be executed in counterparts, each of which shall be deemed an original, but all ofwhich together will constitute one and the same instrument.5. Effect of Amendment. Except as expressly modified by this Amendment, the Transition Agreement shall remainunmodified and in full force and effect.6. Acknowledgment. Executive acknowledges that Executive has had the opportunity to discuss this matter with and obtainadvice from his private attorney, has had sufficient time to, and has carefully read and fully understands all the provisions of thisAmendment, and is knowingly and voluntarily entering into this Amendment.In Witness Whereof, each of the parties has executed this Amendment as of the Effective Date.PICO Holdings, Inc.By: /s/ Max WebbName: Max WebbTitle: Executive ChairmanExecutive/s/ John T. PerriJohn T. PerriEXHIBIT AEMPLOYMENT AGREEMENTPICO HOLDINGS, INC.EMPLOYMENT AGREEMENTThis Employment Agreement (the “Agreement”) is made and entered into by and between John T. Perri (“Executive”) and PICO Holdings, Inc. (the“Company”), effective as of January 1, 2017 (the “Effective Date”).R E C I T A L SWHEREAS, the Company and Executive wish to set forth in this Agreement the terms and conditions under which Executive will continue to beemployed by the Company on and after the Effective Date;NOW, THEREFORE, the Company and Executive, in consideration of the mutual promises set forth herein, agree as follows:ARTICLE 1NATURE OF EMPLOYMENT1.1.Effect of Agreement. This Agreement shall govern the terms of Executive’s employment with the Company on and after the EffectiveDate until it is terminated by either the Company or Executive pursuant to the terms set forth in Article 6.1.2.At-Will Employment. Executive acknowledges and agrees that nothing in this Agreement shall be construed to imply that Executive’semployment with the Company is guaranteed for any period of time. Subject to the provisions of Article 6 hereof, Executive’s employment with theCompany is at-will and either the Company or Executive may terminate the employment relationship at any time with or without cause and with or withoutnotice.ARTICLE 2EMPLOYMENT DUTIES2.1 Title/Responsibilities. Executive agrees to continue to serve the Company in the positions of Chief Financial Officer and Secretary. Executiveshall have the powers and duties commensurate with such positions.2.2 Full Time Attention. Executive shall devote his best efforts and his full business time and attention to the performance of the servicescustomarily incident to the offices of Chief Financial Officer and Secretary and to such other services as the President and Chief Executive Officer and/orBoard of Directors of the Company (the “Board”) may reasonably request.2.3 Other Activities. Except upon the prior written consent of the Board, Executive shall not during the period of employment engage, directly orindirectly, in any other business activity (whether or not pursued for pecuniary advantage) that is or may be competitive with, or that might place him in acompeting position to that of the Company or any other corporation or entity that directly or indirectly controls, is controlled by, or is under common controlwith the Company (an “Affiliated Company”), provided that passive ownership of less than one percent (1%) of the outstanding securities of any publiclytraded company shall not be deemed a violation of this Section 2.3. Executive shall not serve on any private or public company board of directors in theabsence of a resolution of the Company’s Board, provided that Executive shall not be prohibited from engaging in charitable or non-profit endeavors that donot materially interfere with the performance of his obligations under this Agreement.ARTICLE 3COMPENSATION3.1 Base Salary. Executive shall receive a base salary at an annual rate of $440,000, payable in equal installments in accordance with theCompany’s normal payroll practices. The Board, upon recommendation from the Compensation Committee of the Board (the “Compensation Committee”),in its sole discretion, may increase or decrease Executive’s base salary from time to time.3.2 Incentive Bonus. Executive shall be eligible to participate in the PICO Holdings, Inc. Executive Bonus Plan (the “Bonus Plan”), as amendedfrom time to time, in accordance with the terms and conditions of the Bonus Plan.3.3 Withholdings. All compensation and benefits payable to Executive under this Agreement shall be subject to all federal, state, and local taxesand other withholdings and similar taxes and payments required by applicable law.ARTICLE 4EXPENSE ALLOWANCES AND FRINGE BENEFITS4.1 Vacation. During the term of this Agreement, Executive shall not accrue paid vacation or personal time off under any current or future vacationor paid time off policy of the Company (collectively, the “PTO Plans”). Executive may take reasonable time off for vacation, consistent with the needs of theCompany’s business, and shall notify the Board of such vacation usage, consulting in advance with the Board as appropriate. Executive’s accrued vacationand paid time off account balance of $148,229.86 as of December 31, 2016 (the “Balance”) shall not be affected by this Section 4.1, and such Balance shallbe payable in full upon Executive’s termination of employment with the Company for any reason.4.2 Benefits. During Executive’s employment hereunder, the Company shall provide Executive with the health insurance, welfare, retirement andother similar benefits it generally provides to its other senior management employees, on terms no less favorable than those provided to any other employee;provided, however, that Executive shall not be eligible to participate in any PTO Plans. The amount and extent of any benefits to which Executive may beentitled shall be governed by the specific benefit plan or policy as it may be amended from time to time.4.3 Business Expense Reimbursement. During the term of this Agreement, Executive shall be entitled to receive proper reimbursement for allreasonable out-of-pocket expenses incurred by him (in accordance with the policies and procedures established by the Company for its senior executiveofficers) in performing services hereunder. Executive agrees to furnish to the Company adequate records and other documentary evidence of such expense forwhich Executive seeks reimbursement at least on a quarterly basis. Such expenses shall be reimbursed and accounted for under the policies and proceduresestablished by the Company, and such reimbursement shall be made promptly.ARTICLE 5CONFIDENTIALITY5.1 Confidentiality. Executive hereby agrees to hold in strict confidence and not to disclose or make available to any person, firm, corporation,association or other entity for any reason or purpose whatsoever, any Confidential Information (as defined below). Upon termination of Executive’semployment with the Company, all Confidential Information in Executive’s possession that is in written or other tangible form (together with all copies orduplicates thereof, including computer files) shall be returned to the Company and shall not be retained by Executive or furnished to any third party, in anyform except as provided herein; provided, however, that Executive shall not be obligated to treat as confidential, or return to the Company copies of anyConfidential Information that (i) was publicly known at the time of disclosure to Executive, (ii) becomes publicly known or available thereafter other than byanymeans in violation of this Agreement or any other duty owed to the Company by any person or entity, or (iii) is lawfully disclosed to Executive by a thirdparty. For purposes of this Agreement, the term “Confidential Information” shall mean information disclosed to Executive or known by Executive as aconsequence of or through his or her relationship with the Company, about the customers, employees, business methods, public relations methods,organization, procedures or finances, including, without limitation, information of or relating to customer lists, of the Company and its Affiliated Companies.5.2 Return of Property. All documents, records, apparatus, equipment and other physical property which is furnished to or obtained by Executivein the course of his employment with the Company shall be and remain the sole property of the Company. Executive agrees that, upon the termination of hisemployment, he shall return all such property (whether or not it pertains to Confidential Information).5.3 No Use of Prior Confidential Information. Executive will not intentionally disclose to the Company or use on its behalf any confidentialinformation belonging to any of his former employers or any other third party.ARTICLE 6TERMINATION6.1.Involuntary Termination. In the event of Executive’s Involuntary Termination, the Company shall pay to Executive on the date of suchtermination of employment (the “Termination Date”), to the extent not previously paid, Executive’s base salary then in effect through the Termination Dateand Executive’s accrued but unused vacation and other paid time off. In addition, provided that Executive executes and delivers to the Company inconnection with such termination of employment a Release of Claims (as defined in Section 7.8 of this Agreement) and the period for revocation, if any, ofthe Release of Claims has lapsed on or before the sixtieth (60th) day following the Termination Date without the Release of Claims having been revoked, theCompany shall provide Executive with the following, subject to Section 7.7 of this Agreement:(a)Base Salary. Executive shall receive an amount (less applicable tax withholdings) equal to twenty-four (24) months ofExecutive’s base salary as in effect on the Termination Date (without giving effect to any reduction in base salary amounting to Good Reason). Any suchamount shall be paid in a lump sum in cash on the sixtieth (60th) day following the Termination Date.(b)Bonus. Executive shall receive an amount, if any, under Section 8 of the Bonus Plan, as determined in accordance with suchSection. Any such amount (less applicable tax withholdings) shall be paid in accordance with such Section.(c)Equity Award Acceleration. All equity awards granted by the Company to Executive that are outstanding and unvested as of theTermination Date shall become fully and immediately vested, effective as of the Termination Date.(d)Continued Healthcare. If Executive and Executive’s eligible dependents then participating in the Company’s group healthinsurance plans elect to receive continued healthcare coverage pursuant to the provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985,as amended (“COBRA”), the Company shall pay the premium for Executive and Executive’s covered dependents on a monthly basis through the earlier of(i) the one (1) year anniversary of the Termination Date and (ii) the date Executive and Executive’s covered dependents, if any, become eligible forhealthcare coverage under another employer’s plan(s) (the “COBRA Payment Period”). After the Company ceases to pay premiums pursuant to thepreceding sentence, Executive may, if eligible, elect to continue healthcare coverage at Executive’s expense in accordance with the provisions of COBRA.(e)Notwithstanding the foregoing, if the Company determines, in its sole discretion, that the payment of the COBRA premiums would result in a violation ofapplicable law (including, without limitation, Section 2716 of the Public HealthService Act), then in lieu of paying the COBRA premiums, the Company will pay Executive, for each month of the remainder of the COBRA Payment Period,a fully taxable cash payment equal to the COBRA premiums for such month, subject to applicable tax withholdings (such amount, the “Special SeverancePayment”). Executive may, but is not obligated to, use any such Special Severance Payment toward the cost of COBRA premiums. Special SeverancePayments (if any) will be made to Executive on a monthly basis as follows: (i) if the Company does not pay the COBRA premiums for any month during thesixty (60)-day period following the Termination Date, a Special Severance Payment will be made to Executive on the sixtieth (60th) day following theTermination Date and will be equal to the aggregate amount of the COBRA premiums for such months; and (ii) following such sixty (60)-day period, if theCompany does not pay the COBRA premiums for any remaining month during the COBRA Payment Period, a Special Severance Payment will be made toExecutive on the first day of such month and will be equal to the COBRA premiums for such month.6.2.Exclusivity. The provisions of Section 6.1 of this Agreement are intended to be and are exclusive and in lieu of any other rights orremedies to which Executive may otherwise be entitled in the event of Executive’s Involuntary Termination. In such circumstances, Executive shall beentitled to no benefits, compensation or other payments or rights upon termination of employment other than those benefits expressly set forth in Section 6.1above. Notwithstanding the foregoing, to the extent not previously paid, Executive shall be entitled to receive any bonus payable to Executive underSection 7 of the Bonus Plan with respect to the Plan Year (as defined in the Bonus Plan) that ended immediately prior to the Plan Year in which Executive’sInvoluntary Termination occurs (which bonus, if any, shall be paid in accordance with Section 7 of the Bonus Plan).6.3.Other Termination. In the event of Executive’s termination of employment with the Company for any reason, other than due to anInvoluntary Termination, (i) the Company shall pay to Executive on the date of such termination, in each case to the extent not previously paid, Executive’sbase salary then in effect through the date of such termination, Executive’s accrued but unused vacation and other paid time off, and any bonus payable toExecutive under Section 7 of the Bonus Plan with respect to the Plan Year (as defined in the Bonus Plan) that ended immediately prior to the Plan Year inwhich Executive’s termination occurs (which bonus, if any, shall be paid in accordance with Section 7 of the Bonus Plan), and (ii) Executive shall not beentitled to any payments or benefits under Section 6.1 of this Agreement or any other severance payments or benefits.6.4.Resignation from Boards. Executive acknowledges and agrees that in the event of Executive’s termination of employment with theCompany for any reason, Executive hereby automatically and irrevocably resigns from any position that he may then have as an executive or member of theboard of directors or board of managers of any company or entity other than the Company, to which he was appointed or elected or designated to beappointed or elected by the Company, effective as of the date of such termination.6.5.Golden Parachute Payments. In the event that the severance payments and other benefits provided for in this Agreement or otherwisepayable to Executive (i) constitute “parachute payments” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the“Code”) and (ii) but for this Section 6.5, would be subject to the excise tax imposed by Section 4999 of the Code (“Excise Tax”), then Executive’s severancepayments and benefits under this Agreement shall be payable eithera.in full, orb.as to such lesser amount which would result in no portion of such severance payments or benefits being subject to the ExciseTax, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the Excise Tax, results in the receipt byExecutive on an after-tax basis, of the greatest amount of severance payments and benefits under this Agreement, notwithstanding that all or some portion ofsuch severance payments or benefits may be taxable under Section 4999 of the Code. Any reduction in the severance payments and benefits required by thisSection 6.5 will be made in the following order: (i) reduction of cash payments; (ii) reduction of accelerated vesting of equity awards other than stockoptions; (iii) reduction of accelerated vesting of stock options; and (iv) reduction of other benefits paid or provided to Executive. In the event thatacceleration of vesting of equity awards is to be reduced, such acceleration of vesting will be cancelled in the reverse order of the dateof grant of Executive’s equity awards. If two or more equity awards are granted on the same date, the accelerated vesting of each equity award will be reducedon a pro-rata basis.The professional firm engaged by the Company for general tax purposes as of the day prior to the date of the event that might reasonably be anticipated toresult in severance payments and benefits that would otherwise be subject to the Excise Tax will perform the foregoing calculations. If the tax firm soengaged by the Company is serving as accountant or auditor for the acquiring company, the Company will appoint a nationally recognized tax firm to makethe determinations required by this Section 6.5. The Company will bear all expenses with respect to the determinations by such firm required to be made bythis Section 6.5. The Company and Executive shall furnish such tax firm such information and documents as the tax firm may reasonably request in order tomake its required determination. The tax firm will provide its calculations, together with detailed supporting documentation, to the Company and Executiveas soon as practicable following its engagement. Any good faith determinations of the tax firm made hereunder will be final, binding and conclusive uponthe Company and Executive.6.6.Definition of Terms. Capitalized terms not otherwise defined by this Agreement shall have the following meanings:a.“Cause” means the occurrence of any of the following:(i)Executive’s willful and continued failure to materially perform the duties and responsibilities of his position after therehas been delivered to Executive a written demand for performance from the Board which describes the basis for the Board’s belief that Executive has notsubstantially performed his duties and provides Executive with thirty (30) days to take corrective action, unless the Board determines in the exercise of itsreasonable good faith discretion that such failure is of such nature or extent that effective corrective action is impossible or unlikely (in which case suchfailure will constitute “Cause” even though Executive is not provided with thirty (30) days to take corrective action);(ii)any act of personal dishonesty taken by Executive in connection with his responsibilities as an employee of theCompany and any Affiliated Company with the intention or reasonable expectation that such action may result in the substantial personal enrichment ofExecutive;(iii)Executive’s conviction of, or plea of nolo contendere to, a felony that the Board reasonably believes has had or willhave a material detrimental effect on the Company’s reputation or business;(iv)a breach of any fiduciary duty owed to the Company and any Affiliated Company by Executive that has a materialdetrimental effect on the Company’s or Affiliated Companies’ reputation or business;(v)Executive being found liable in any United States Securities and Exchange Commission or other civil or criminalsecurities law action or entering any cease and desist order with respect to such action (regardless of whether or not Executive admits or denies liability);(vi)Executive (i) obstructing or impeding, (ii) endeavoring to influence, obstruct or impede, or (iii) failing to materiallycooperate with, any investigation authorized by the Board or any governmental or self-regulatory entity (an “Investigation”); provided, however, thatExecutive’s failure to waive attorney-client privilege relating to communications with Executive’s own attorney in connection with an Investigation will notconstitute “Cause”; or(vii) Executive’s material breach of any contract or agreement between Executive and the Company (including this Agreement)or Executive’s intentional and material violation of any material policy of the Company.b.“Disability” means Executive’s absence, as a result of incapacity due to physical or mental illness, from Executive’s duties withthe Company on a full-time basis for 90 or more consecutive days or a total of 180 or more days in any twelve-month period.c.“Involuntary Termination” means the occurrence of either (i) termination by the Company of Executive’s employment with theCompany for any reason other than Cause or (ii) Executive’s Resignation for Good Reason; provided, however, that Involuntary Termination shall notinclude any termination of Executive’s employment which is (x) for Cause, (y) a result of Executive’s death or Disability, or (z) a result of Executive’svoluntary termination of employment which is not a Resignation for Good Reason.d.“Resignation for Good Reason” means the voluntary resignation by Executive from employment with the Company within aperiod of ninety (90) days after the initial occurrence, without Executive’s express written consent, of any of the following conditions (each, a “GoodReason”) which remains in effect for thirty (30) days after Executive’s delivery of written notice of the occurrence of such condition(s) to the Board withinthirty (30) days following the initial occurrence of such condition(s):i.a material diminution in Executive’s authority, duties or responsibilities (for the avoidance of doubt, any change inauthority, duties and responsibilities that occurs as a result of the monetization or disposition of assets by the Company shall not be considered such adiminution in authority, duties or responsibilities);ii.a material reduction in the health and welfare insurance, retirement or other benefits available to Executive as of theEffective Date (except for reductions in such benefits applicable to senior executive employees of the Company generally);iii.a material reduction in Executive’s base salary as of the Effective Date (except for any reduction in such base salarythat is proportional to or commensurate with a decrease in the Company’s assets that occurs as a result of the monetization or disposition of assets by theCompany); oriv.the failure of the Company or any Successor to honor any material term of this Agreement.ARTICLE 7GENERAL PROVISIONS7.1.Successors.a.Company’s Successors. Any successor to the Company (whether direct or indirect and whether by purchase, merger,consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets (a “Successor”) shall assume the obligations underthis Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would berequired to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term “Company” shall include any Successorwhich executes and delivers the assumption agreement described in this Section 7.1(a) or which becomes bound by the terms of this Agreement by operationof law.b.Executive’s Successors. The terms of this Agreement and all rights of Executive hereunder shall inure to the benefit of, and beenforceable by, Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.7.2 Notice.c.General. Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to havebeen duly given when personally delivered or one day following mailing via Federal Express or similar overnight courier service. In the case of Executive,mailed notices shall be addressed toExecutive at Executive’s home address that the Company has on file for Executive. In the case of the Company, mailed notices shall be addressed to itscorporate headquarters, attention: Board of Directors.d.Notice of Termination. Any termination by the Company for Cause or by Executive pursuant to a Resignation for Good Reasonshall be communicated by a notice of termination to the other party hereto given in accordance with Section 7.2(a) of this Agreement. Such notice shallindicate the specific termination provision in this Agreement relied upon, shall set forth in reasonable detail the facts and circumstances claimed to provide abasis for termination under the provision so indicated, and shall specify the termination date, consistent with the requirements of this Agreement. The failureby Executive to include in the notice any fact or circumstance that contributes to a showing of the existence of Good Reason shall not waive any right ofExecutive hereunder or preclude Executive from asserting such fact or circumstance in enforcing his rights hereunder.7.3.Non-Solicitation; Non-Disparagement. Executive shall not for a period of two (2) years following Executive’s termination ofemployment with the Company for any reason, either on Executive’s own account or jointly with or as a manager, agent, officer, employee, consultant,partner, joint venturer, owner or shareholder or otherwise on behalf of any other person, firm or corporation, directly or indirectly solicit or attempt to solicitaway from the Company any of its officers or employees or offer employment to any person who is an officer or employee of the Company; provided,however, that a general advertisement to which an employee of the Company responds shall in no event be deemed to result in a breach of this Section 7.3.Executive also agrees not to harass or disparage the Company or its employees, clients, directors or agents.7.4.Survival of Provisions. The provisions of Sections 5.1 and 7.3 of this Agreement shall survive the termination or expiration ofExecutive’s employment with the Company and shall be fully enforceable thereafter. If it is determined by a court of competent jurisdiction in any state thatany restriction in Section 5.1 or Section 7.3 of this Agreement is excessive in duration or scope or is unreasonable or unenforceable under the laws of thatstate, it is the intention of the parties that such restriction may be modified or amended by the court to render it enforceable to the maximum extent permittedby the law of that state.7.5.Dispute Resolution.a.To ensure the timely and economical resolution of disputes that arise in connection with this Agreement, Executive and theCompany agree that any and all disputes, claims, or causes of action arising from or relating to the enforcement, breach, performance or interpretation of thisAgreement, Executive’s employment, or the termination of Executive’s employment, shall be resolved to the fullest extent permitted by law by final, bindingand confidential arbitration, by a single neutral arbitrator, in San Diego County, California, conducted by the American Arbitration Association (“AAA”)under its rules for arbitration of employment disputes. By agreeing to this arbitration procedure, both Executive and the Company waive the right to resolveany such dispute through a trial by jury or judge or administrative proceeding.The arbitrator shall: (i) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise bepermitted by law; and (ii) issue a written arbitration decision, to include the arbitrator’s essential findings and conclusions and a statement of the award. Thearbitrator shall be authorized to award any or all remedies that Executive or the Company would be entitled to seek in a court of law. Each party shall bear itsown respective attorney fees and all other costs, unless provided by law and awarded by the arbitrator; provided, however, that the Company shall pay allAAA arbitration fees in excess of the amount of court fees that would be required if the dispute were decided in a court of law. Nothing in this Agreement isintended to prevent either Executive or the Company from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of anysuch arbitration. Notwithstanding the foregoing, Executive and the Company each have the right to resolve any issue or dispute over intellectual propertyrights by Court action instead of arbitration.b.Executive understands that this Agreement does not prohibit Executive from pursuing an administrative claim with a local, stateor federal administrative body such as the Department of Fair Employment andHousing, the Equal Employment Opportunity Commission or the workers’ compensation Committee. This Agreement, does, however, preclude Executivefrom pursuing court action regarding any such claim.c.Executive acknowledges and agrees that Executive is executing this Agreement voluntarily and without any duress or undueinfluence by the Company or anyone else. Executive further acknowledges and agrees that Executive has carefully read this Agreement and that Executivehas asked any questions needed for Executive to understand the terms, consequences and binding effect of this Agreement and fully understands it, includingthat Executive is waiving Executive’s right to a jury trial. Finally, Executive agrees that Executive has been provided an opportunity to seek the advice of anattorney of Executive’s choice before signing this Agreement.7.6.Remedies.(a)Injunctive Relief. The parties agree that the services to be rendered by Executive hereunder are of a unique nature and that inthe event of any breach or threatened breach of any of the covenants contained herein, the damage or imminent damage to the value and the goodwill of theCompany’s business will be irreparable and extremely difficult to estimate, making any remedy at law or in damages inadequate. Accordingly, the partiesagree that the Company shall be entitled to injunctive relief against Executive in the event of any breach or threatened breach of any such provisions byExecutive, in addition to any other relief (including damage) available to the Company under this Agreement or under law.(b)Exclusive. Both parties agree that the remedy specified in Section 7.6(a) above is not exclusive of any other remedy for thebreach by Executive of the terms hereof.7.7.Compliance with Section 409A of the Code. The parties intend that this Agreement (and all payments and other benefits provided underthis Agreement) be exempt from the requirements of Section 409A of the Code and the regulations and rulings issued thereunder (collectively, “Section409A”), to the maximum extent possible, whether pursuant to the short-term deferral exception described in Treasury Regulation Section 1.409A-1(b)(4), theinvoluntary separation pay plan exception described in Treasury Regulation Section 1.409A-1(b)(9)(iii), or otherwise. To the extent Section 409A isapplicable to such payments or benefits, the parties intend that this Agreement (and such payments and benefits) comply with the deferral, payout and otherlimitations and restrictions imposed under Section 409A. Notwithstanding any other provision of this Agreement to the contrary, this Agreement shall beinterpreted, operated and administered in a manner consistent with such intentions. Without limiting the generality of the foregoing, and notwithstandingany other provision of this Agreement to the contrary:a.No amount payable pursuant to this Agreement which constitutes a “deferral of compensation” within the meaning of Section409A shall be paid unless and until Executive has incurred a “separation from service” within the meaning of Section 409A. Furthermore, to the extent thatExecutive is a “specified employee” within the meaning of Section 409A (determined using the identification methodology selected by the Company fromtime to time, or if none, the default methodology) as of the date of Executive’s separation from service, the Company shall, within ten (10) business days afterthe date of Executive’s separation from service, notify Executive that the Company is applying this Section 7.7(a) to the payment otherwise due to be paid toExecutive and shall acknowledge in writing its obligation to accumulate and hold such amount in trust until paid in accordance with this Section 7.7(a) andexcept as otherwise permitted by Section 409A, no amount that constitutes a deferral of compensation which is payable on account of Executive’s separationfrom service shall be paid to Executive before the date which is the first day of the seventh month after the date of Executive’s separation from service or, ifearlier, the date of Executive’s death following such separation from service (the “Delayed Payment Date”). All such amounts that would, but for this Section7.7(a), become payable prior to the Delayed Payment Date will be accumulated, held in trust for the benefit of Executive (subject only to the claims of thegeneral creditors of the Company), and paid on the Delayed Payment Date. If a tax liability is created, the Company will withhold and pay any tax owed andthe net of tax amount will be held in trust.b.Each payment made under this Agreement shall be treated as a separate payment and the right to a series of installment paymentsunder this Agreement shall be treated as a right to a series of separate payments.c.With regard to any provision in this Agreement that provides for reimbursement of expenses or in-kind benefits, except for anyreimbursement or in-kind benefit provided pursuant to this Agreement that does not constitute a “deferral of compensation” within the meaning ofSection 409A, (i) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, (ii) the amount ofexpenses eligible for reimbursement, or in-kind benefits provided, during any taxable year of Executive shall not affect the expenses eligible forreimbursement, or in-kind benefits to be provided, in any other taxable year of Executive, and (iii) any such reimbursement shall be made on or before the lastday of Executive’s taxable year following the taxable year in which the expense was incurred.d.The Company intends that income provided to Executive pursuant to this Agreement will not be subject to taxation underSection 409A. However, the Company does not guarantee any particular tax effect for income provided to Executive pursuant to this Agreement. In anyevent, except for the Company’s responsibility to withhold applicable income and employment taxes from compensation paid or provided to Executive, theCompany shall not be responsible for the payment of any applicable taxes on compensation paid or provided to Executive pursuant to this Agreement.7.8 Release of Claims. Executive shall provide the Company with a signed general release of all claims against the Company and its AffiliatedCompanies in a form reasonably acceptable to the Company (a “Release of Claims”). Executive shall not be entitled to the payments and benefits underSections 6.1(a), 6.1(b), 6.1(c) and 6.1(d) of this Agreement unless such Release of Claims is signed and delivered and no longer subject to revocation (ifapplicable) within the time specified in the Release of Claims, but in no event later than the sixtieth (60th) day following the Termination Date.7.9 Unfunded Obligation. Any amounts payable to Executive pursuant to this Agreement are unfunded obligations. The Company shall not berequired to segregate any monies from its general funds, or to create any trusts (other than in accordance with Section 7.7(a) of this Agreement), or establishany special accounts with respect to such obligations. The Company shall retain at all times beneficial ownership of any investments, including trustinvestments, which the Company may make to fulfill its payment obligations hereunder. Any investments or the creation or maintenance of any trust or anyaccount shall not create or constitute a trust or fiduciary relationship between the Board or the Company and Executive, or otherwise create any vested orbeneficial interest in Executive or Executive’s creditors in any assets of the Company.7.10 No Duty to Mitigate. Executive shall not be required to mitigate the amount of any payment or benefit contemplated by this Agreement byseeking employment with a new employer or otherwise, nor shall any such payment or benefit be reduced by any compensation or benefits that Executivemay receive from employment by another employer other than as provided in Section 6.1(d) of this Agreement.7.11.Waiver. No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreedto in writing and signed by Executive and by a duly authorized representative of the Board. No waiver by either party of any breach of, or of compliancewith, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the samecondition or provision at another time.7.12.Whole Agreement. This Agreement represents the entire understanding of the parties hereto with respect to the subject matter hereofand supersede all prior arrangements and understandings regarding same, including, but not limited to, the Amended and Restated Severance Agreement thatwas made and entered into by and between Executive and the Company, effective as of March 11, 2016.7.13.Tax Withholding. All payments made pursuant to this Agreement will be subject to withholding of applicable taxes.7.14.Choice of Law; Venue. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws ofthe State of California without giving effect to any conflict of law principles. For purposes of litigating any dispute that arises directly or indirectly from therelationship of the parties pursuant to this Agreement that is not subject to arbitration pursuant to Section 7.5 of this Agreement, the parties hereby submit toand consent to the jurisdiction of the State of California and agree that such litigation shall be conducted only in the courts of the County of San Diego,California, or the federal courts of the United States for the Southern District of California, and no other courts.7.15.Severability. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity orenforceability of any other provision hereof, which shall remain in full force and effect.7.16.Benefits Not Assignable. Except as otherwise provided herein or by law, no right or interest of Executive under this Agreement shallbe assignable or transferable, in whole or in part, either directly or by operation of law or otherwise, including, without limitation, by execution, levy,garnishment, attachment, pledge or in any other manner, and no attempted transfer or assignment thereof shall be effective. No right or interest of Executiveunder this Agreement shall be liable for, or subject to, any obligation or liability of Executive.7.17.Further Assurances. From time to time, at the Company’s request and without further consideration, Executive shall execute anddeliver such additional documents and take all such further action as reasonably requested by the Company to be necessary or desirable to make effective, inthe most expeditious manner possible, the terms of this Agreement and the Release of Claims, and to provide adequate assurance of Executive’s dueperformance thereunder.7.18.Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which togetherwill constitute one and the same instrument.7.19.Acknowledgment. Executive acknowledges that Executive has had the opportunity to discuss this matter with and obtain advice fromhis private attorney, has had sufficient time to, and has carefully read and fully understands all the provisions of this Agreement, and is knowingly andvoluntarily entering into this Agreement.IN WITNESS WHEREOF, each of the parties has executed this Agreement, as of the day and year set forth below.PICO HOLDINGS, INC.By: _______________ Date: _______________Name:Title:EXECUTIVE___________________ Date: _______________Name:EXHIBIT BDESIGNATED DUTIES•Actively assist the Company in recruiting a permanent or temporary Financial Controller to be located in the Carson City, NVoffice of Vidler Water Company, Inc. (“Vidler”).•Actively assist the Company in recruiting financial accounting and reporting staff that will report to the new FinancialController (positions to be located in Vidler’s Carson City, NV office).•Assist in transitioning the new Financial Controller in all day to day oversight of: SEC financial reporting and filing, internalcontrols over financial reporting, preparation of internal management accounts and analyses, IT function, 401(k) reporting,treasury and payroll.•Actively assist in closing the Company’s corporate offices located in La Jolla, CA.•Actively assist in implementing and transitioning new accounting staff and function to Vidler’s Carson City, NV office.•Overseeing all of the Company’s SEC and other regulatory requirements, as well as overseeing all interactions between theCompany and its independent auditors.Subsidiaries of Registrant Exhibit 21.1Name of Subsidiary Jurisdiction of Incorporation/OrganizationFish Springs Ranch, LLC NevadaNevada Land and Resource Holdings, Inc. NevadaVidler Water Company, Inc. NevadaExhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in Registration Statement Nos. 333-141321, 333-134296, and 333-125362 on Form S-3 and RegistrationStatement Nos. 333-198065 on Form S-8 of our reports dated March 14, 2019, relating to the consolidated financial statements and financial statementschedules of PICO Holdings, Inc. and subsidiaries (the “Company”), and the effectiveness of the Company's internal control over financial reporting,appearing in this Annual Report on Form 10-K of the Company for the year ended December 31, 2018./s/ DELOITTE & TOUCHE LLPSan Diego, CaliforniaMarch 14, 2019Exhibit 31.1CERTIFICATION BY CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13a-14(a)/15d-14(a)AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, Dorothy Timian-Palmer, certify that:1.I have reviewed this annual report on Form 10-K of PICO Holdings, Inc. (the “Registrant”);2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by otherswithin those entities, particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's mostrecent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant's internal control over financial reporting; and5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting.Date: March 14, 2019/s/ Dorothy Timian-PalmerDorothy Timian-PalmerPresident and Chief Executive OfficerExhibit 31.2CERTIFICATION BY CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13a-14(a)/15d-14(a)AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, John T. Perri, certify that:1.I have reviewed this annual report on Form 10-K of PICO Holdings, Inc. (the “Registrant”);2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by otherswithin those entities, particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's mostrecent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant's internal control over financial reporting; and5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting.Date: March 14, 2019/s/ John T. PerriJohn T. PerriChief Financial OfficerExhibit 32.1CERTIFICATION BY CHIEF EXECUTIVE OFFICER PURSUANT TO18 U.S.C. SECTION 1350(SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)In connection with the Annual Report of PICO Holdings, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2018, as filed withthe Securities and Exchange Commission on the date hereof (the “Report”), I, Dorothy Timian-Palmer, President and Chief Executive Officer of theCompany, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (“Section 906”), that to the bestof my knowledge:(1) The Report fully complies with requirements of section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Date: March 14, 2019/s/ Dorothy Timian-PalmerDorothy Timian-PalmerPresident and Chief Executive OfficerExhibit 32.2CERTIFICATION BY CHIEF FINANCIAL OFFICER PURSUANT TO18 U.S.C. SECTION 1350(SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)In connection with the Annual Report of PICO Holdings, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2018, as filed withthe Securities and Exchange Commission on the date hereof (the “Report”), I, John T. Perri, Chief Financial Officer of the Company, certify, pursuant to 18U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (“Section 906”), that to the best of my knowledge:(1) The Report fully complies with requirements of section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Date: March 14, 2019/s/ John T. PerriJohn T. PerriChief Financial Officer

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