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.

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

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

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

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

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



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

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

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

⁽¹⁾Included within the loss on sale of discontinued agribusiness operations, net of tax for the nine months ended September 30, 2015 is a $16.9 million impairment loss on classification of assets as held-for-sale, which was recorded during the second quarter of 2015.

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):



	September 30, 2015		December 31, 2014
Assets
Cash and cash equivalents	$	1,773	$	301
Accounts receivable	10,756		3,311
Inventory			11,663
Real estate, net	1,276		5,889
Property, plant and equipment, net	223		116,793
Goodwill			4,702
Other assets			9,895
Total assets held-for-sale	$	14,028	$	152,554

Liabilities
Debt			$	84,045
Accounts payable and accrued expenses	$	1,041	8,186
Other liabilities	17		2,357
Total liabilities held-for-sale	$	1,058	$	94,588