Discontinued Agribusiness Operations

On July 13, 2015, the Company entered into an agreement to sell substantially all of the assets used in its agribusiness segment to CHS for a net selling price of $105.3 million. The transaction closed on July 31, 2015. The selling price was determined primarily as an amount equal to $127 million less an estimated $22 million working capital balance adjustment. The final sale price is subject to change upon final calculation of the working capital balance to be determined within 90 days from the date the sale closed. If the final working capital balance is less than the estimated working capital balance, the Company will pay CHS for the shortfall, however the Company will receive additional proceeds if the final working capital balance is greater than the estimated working capital balance. After repayment of $80.9 million of outstanding debt and $5.9 million in selling and other related costs of the sale, the Company received net proceeds of $18.4 million on the date of close. Including cash that was not part of the sale, the discontinued agribusiness operation had $22.6 million in total cash after the transaction.

The Company was required to deposit $10.2 million of such net proceeds in two separate escrow accounts. The first escrow account required $6 million to secure general indemnification obligations and for refund of any difference in the final working capital balance. Any balance remaining after payment of indemnification claims will be released 18 months from the closing date of the sale. The second escrow account required $4.2 million for specified operational matters (“operational escrow”). Specified amounts of the operational escrow relate to proposed amendments to two environmental permits related to plant operations that are in process, but were not received prior to the closing date of the sale. The first matter relates to certain waste water issues at the plant that required a deposit of $1.8 million and the second matter relates to plant air quality issues that required a $2.4 million deposit. In the event that one or both permit amendments are not approved by the relevant regulatory authorities, the deposit in the operations escrow for any such non-approved amendment will be paid to CHS in satisfaction of the matter. Conversely, if one or both of the amendments are approved, the entire deposit will be released to the Company. The Company anticipates resolution of these matters within six months from the date of sale. Such escrowed balances have been recorded at an estimated fair value that reflects the Company’s expectation that the majority of these funds will eventually be released to the Company. However, any amounts paid by out of these escrow accounts to CHS in excess of the estimate will result in additional loss on the sale.

The Company also guaranteed up to $8 million for any indemnification claims in excess of the $6 million escrow pursuant to the terms of a guaranty agreement with CHS, which was executed at the closing. This guaranty will remain in force for five years from the date of sale. The guaranty has been recorded at estimated fair value that reflects the Company’s expectation that no significant amounts will be paid out under the guaranty. However, any amounts paid by the Company to CHS in excess of the estimate will result in additional loss on the sale.

During the three and six months ended June 30, 2015, the Company recorded an impairment loss of $16.9 million to write down the assets of discontinued agribusiness operation to their fair values as determined in the sales transaction described above. Such impairment loss is included in impairment loss on classification of assets as held-for-sale in the accompanying condensed consolidated statement of operations and comprehensive income or loss. The impairment loss included an estimated cash expenditure of approximately $2 million for certain selling and other costs associated with the sale. Not included in the impairment loss are $4.4 million in transaction costs and $2 million in deferred debt financing fees that will be expensed at the date of close and reported in the Company’s condensed consolidated financial statements for the three months ended September 30, 2015, along with any additional losses resulting from the resolution of the escrowed amounts and any income or loss from the discontinued agribusiness operations from June 30, 2015 through the sale closing date.

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

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



	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Revenue and other income:
Sales of canola oil and meal	$	33,234		$	48,960		$	72,667		$	83,819
Other	39			957			(68		)	965
Total revenue and other income	33,273			49,917			72,599			84,784

Cost of goods sold:
Cost of canola oil and meal sold	(32,601		)	(36,190		)	(71,025		)	(65,182		)
Depreciation	(2,392		)	(2,063		)	(4,342		)	(4,126		)
Other direct costs of production	(2,264		)	(2,636		)	(4,784		)	(5,754		)
Total cost of goods sold	(37,257		)	(40,889		)	(80,151		)	(75,062		)

Depreciation	(49		)	(37		)	(95		)	(73		)
Impairment loss on intangible and long-lived assets							(1,875		)
Interest	(1,392		)	(1,326		)	(2,830		)	(2,653		)
Plant costs and overhead	(3,388		)	(3,214		)	(6,943		)	(6,737		)
Segment total expenses	(42,086		)	(45,466		)	(91,894		)	(84,525		)
Income (loss) from discontinued agribusiness operations, net of tax	(8,813		)	4,451			(19,295		)	259
Impairment loss on classification of assets classified as held-for-sale, net of tax	(16,903		)				(16,903		)
Net income (loss) from discontinued agribusiness operations, net of tax	(25,716		)	4,451			(36,198		)	259
Net (income) loss from discontinued agribusiness operations attributable to noncontrolling interests	684			(553		)	1,746			(46		)
Net income (loss) from discontinued agribusiness operations attributable to PICO Holdings, Inc.	$	(25,032	)	$	3,898		$	(34,452	)	$	213

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



	June 30, 2015			December 31, 2014
Assets
Cash and cash equivalents	$	300		$	301
Accounts receivable	4,522			3,311
Inventory	4,746			11,663
Real estate, net	4,801			5,889
Property, plant and equipment, net	112,308			116,793
Goodwill	4,702			4,702
Other assets	10,576			9,895
Valuation allowance on assets held-for-sale	(16,903		)
Total assets held-for-sale	$	125,052		$	152,554

Liabilities
Debt	$	81,895		$	84,045
Accounts payable and accrued expenses	6,910			8,186
Other liabilities	3,238			2,357
Total liabilities held-for-sale	$	92,043		$	94,588