FORM 11-K
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
 
FORM 11-K
 
(Mark One)
     
þ   ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the plan year ended December 31, 2008
OR
     
o   TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
Commission file number: 0-18786
 
A.   Full title of the plan and the address of the plan, if different from that of the issuer named below:
PICO HOLDINGS, INC. EMPLOYEES 401(k)
RETIREMENT PLAN AND TRUST
B.   Name of issuer of the securities held pursuant to the plan and the address of its principal executive office:
PICO HOLDINGS, INC.
875 Prospect Street, Suite 301
La Jolla, California 92037
 
 

 


 

PICO HOLDINGS, INC. EMPLOYEES 401(k)
RETIREMENT PLAN AND TRUST
TABLE OF CONTENTS
 
     
    Page
 
   
  1
 
   
FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007:
   
 
   
  2
 
   
  3
 
   
  4—7
 
   
  8
 
   
  9
 
   
NOTE:  All other schedules required by Section 2520.103-10 of the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974 have been omitted because they are not applicable.
   
 
   
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  11
 EX-23.1

 


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(DELOITTE LOGO)
  Deloitte & Touche LLP
155 E. Broad Street
18th floor
Columbus, OH 43215-3611
USA

Tel: +1 614 221 1000
Fax: +1 614 229 4647
www.deloitte.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees and Participants in the
PICO Holdings, Inc. Employees 401(k)
Retirement Plan and Trust
Columbus, Ohio
We have audited the accompanying statements of net assets available for benefits of PICO Holdings, Inc. Employees 401(k) Retirement Plan and Trust (the “Plan”) as of December 31, 2008 and 2007, and the related statement of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with standards generally accepted in the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Plan’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2008 and 2007, and the changes in net assets available for benefits for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule of assets held for investment purposes at end of year as of December 31, 2008, is presented for the purpose of additional analysis and is not a required part of the basic financial statements, but is supplementary information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental schedule is the responsibility of the Plan’s management. Such supplemental schedule has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, is fairly stated in all material respects when considered in relation to the basic financial statements taken as a whole.
/s/ Deloitte & Touche LLP
June 22, 2009
Member of
Deloitte Touche Tohmatsu

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PICO HOLDINGS, INC. EMPLOYEES 401(k)
RETIREMENT PLAN AND TRUST
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
AS OF DECEMBER 31, 2008 AND 2007

 
                 
    2008     2007  
ASSETS:
               
Investments:
               
Mutual funds
  $ 4,796,565     $ 7,123,563  
Common stock
    2,093,569       1,968,478  
Common collective trust fund
    1,409,483       1,357,888  
 
           
 
               
Total investments
    8,299,617       10,449,929  
 
               
Receivables — employer’s profit-sharing contributions
    308,549       282,659  
 
           
 
               
NET ASSETS AVAILABLE FOR BENEFITS AT FAIR VALUE
    8,608,166       10,732,588  
 
               
ADJUSTMENT FROM FAIR VALUE TO CONTRACT VALUE FOR FULLY BENEFIT-RESPONSIVE INVESTMENT CONTRACTS
    79,544       11,129  
 
           
 
               
NET ASSETS AVAILABLE FOR BENEFITS
  $ 8,687,710     $ 10,743,717  
 
           
See notes to financial statements.

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PICO HOLDINGS, INC. EMPLOYEES 401(k)
RETIREMENT PLAN AND TRUST
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

 
                 
    2008     2007  
 
               
ADDITIONS:
               
Contributions:
               
Participant contributions
    408,464       344,621  
Rollover contributions
    62,982       12,757  
Employer contributions
    480,714       445,745  
 
           
 
               
Total contributions
    952,160       803,123  
 
           
 
               
Investment income (loss):
               
Net appreciation (depreciation) in fair value of investments
    (3,002,310 )     (46,554 )
Interest and Dividends
  $ 275,134     $ 736,957  
 
           
 
               
Net investment income (loss)
    (2,727,176 )     690,403  
 
           
 
               
DEDUCTIONS:
               
Benefits paid to participants
    280,991       171,881  
 
           
 
               
Total deductions
    280,991       171,881  
 
           
 
               
INCREASE (DECREASE) IN NET ASSETS
    (2,056,007 )     1,321,645  
 
               
NET ASSETS AVAILABLE FOR BENEFITS:
               
Beginning of year
    10,743,717       9,422,072  
 
           
 
               
End of year
  $ 8,687,710     $ 10,743,717  
 
           
See notes to financial statements.

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PICO HOLDINGS, INC. EMPLOYEES 401(k)
RETIREMENT PLAN AND TRUST
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS Ended december 31, 2008 and 2007

 
1.   DESCRIPTION OF PLAN
 
    The following description of the PICO Holdings, Inc. Employees 401(k) Retirement Plan and Trust (the “Plan”) provides only general information. Participants should refer to the Plan document for a more complete description of the Plan’s provisions.
 
    General — The Plan is a defined contribution 401(k) profit-sharing plan covering eligible employees as defined in the Plan Agreement of PICO Holdings, Inc. (the “Plan Sponsor”). The Plan was adopted to provide retirement benefits to employees of the Plan Sponsor. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA) and has been determined to be qualified for tax-exempt status by the Internal Revenue Service (IRS).
 
    Contributions — Each year, participants may contribute up to the maximum allowed by law of pretax annual compensation, as defined in the Plan, currently $15,500. The Plan Sponsor matches up to 5% of the elective deferral of base compensation that a participant contributes to the Plan. The Plan Sponsor’s matching contribution does not begin until the first day of the quarter after an employee completes one year of service. Additional amounts which represent profit sharing, as defined in the Plan, may be contributed at the option of the Plan Sponsor’s board of directors.
 
    Participant Accounts — Each participant’s account is credited with the participant’s contributions, employer matching contributions and allocations of (a) the Plan Sponsor’s discretionary profit-sharing contributions and (b) Plan earnings, and debited for withdrawals as applicable. Forfeited balances of terminated participants’ nonvested accounts are used to first reinstate previously forfeited account balances of reemployed participants, and any remainder will be used to reduce the Plan Sponsor’s discretionary profit-sharing contribution for the current or subsequent Plan year in which the forfeiture occurs. Forfeitures of $12,550 and $7,700 for the years ended December 31, 2008 and 2007, respectively, were used to reduce the Plan Sponsor’s discretionary profit-sharing contribution.
 
    Vesting — Participants are immediately vested in their contributions, the employer matching contributions, plus earnings thereon. Effective January 1, 2007, the vesting schedule for discretionary employer contributions to the Plan was amended, allowing participants to become partially vested after two years of service and fully vested after six years of service.
 
    Vesting in the Plan Sponsor’s discretionary profit-sharing contribution portion of their accounts plus actual earnings thereon is based on years of credited service in accordance with the following schedule:
         
Years of Service   Percentage
 
       
Less than 2
    %
2
    20  
3
    40  
4
    60  
5
    80  
6 or more
    100  

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    Investment Options — Upon enrollment in the Plan, a participant may direct 100% of elective deferrals, employer matching contributions, and discretionary profit-sharing amounts. A participant chooses from a number of different mutual fund options, including common collective trust funds. In addition, participants are able to invest in the stock of the Plan Sponsor.
 
    Loans to Participants — Loans to participants are not permitted under the Plan.
 
    Payment of Benefits — Upon termination of service, a participant may elect to receive either a lump-sum amount equal to the value of the participant’s vested interest in his or her account or annual installments. If the value of the participant’s account is $1,000 or less, the Trustee shall distribute the entire vested account to the participant. No such amounts were payable at December 31, 2008 and 2007.
 
2.   FAIR VALUE MEASUREMENTS
 
    Effective January 1, 2008, the Plan adopted Statement of Financial Accounting Standards Board (SFAS) No. 157, “Fair Value Measurements” for all financial assets and liabilities disclosed at fair value in the financial statements on a recurring basis. SFAS No. 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS No. 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
  Level 1     Quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access at the measurement date. An active market for the asset or liability is a market in which the transaction for the asset or liability occurs with sufficient frequency and volume to provide pricing information on an ongoing basis.
 
  Level 2    Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted market prices in markets that are not active; or model-derived valuations or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
 
  Level 3    Unobservable inputs for the asset or liability. These inputs reflect our own assumption about the assumptions a market participant would use in pricing the asset or liability. The Plan does not currently hold any Level 3 Assets.
    The asset’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
 
    The table below shows the level and measurement of our assets measured at fair value:
                                 
    Fair Value   Quoted Prices in Active           Significant
    Measurements   Markets for Identical   Significant Other   Unobservable
Description of Financial Instrument   December 31,   Assets   Observable Inputs   Inputs
(In thousands)   2008   (Level 1)   (Level 2)   (Level 3)
 
Mutual Funds
  $ 4,796,565     $ 4,796,565     $      
Common Stock
    2,093,569       2,093,569              
Alternative Investment
    1,409,483             1,409,483        
 
Total
  $ 8,299,617     $ 6,890,134     $ 1,409,483      
 

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3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
    Basis of Presentation — The accounting records of the Plan are maintained on the accrual basis. Purchases and sales of securities are recorded on the trade date. Interest income is recorded as earned and dividend income is recorded on the ex-dividend date. The financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP).
 
    Investment Valuation — Investments in mutual funds and Plan Sponsor common stock fund are valued at quoted market prices. Common collective trust funds are stated at fair value as determined by the issuer of the common/collective trust funds based on the fair market value of the underlying investments. Common collective trust funds with underlying investments in investment contracts are valued at fair market value of the underlying investments and then adjusted by the issuer to contract value.
 
    The Union Bond and Trust Company Stable Value Fund may invest in fixed interest insurance investment contracts, money market funds, corporate and government bonds, mortgage-backed securities, bond funds, and other fixed income securities. Participants may ordinarily direct the withdrawal or transfer of all or a portion of their investment at contract value. Contract value represents contributions made to the fund, plus earnings, less participant withdrawals.
 
    Administrative Expenses — The Plan’s expenses are paid by the Plan Sponsor.
 
    Use of Estimates — The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of net assets and the changes in net assets during the reporting period and disclosure of contingent assets at the date of the financial statements. Actual results could differ from those estimates.
 
    Investment Risk — The Plan utilizes various investment instruments. Investment securities, in general, are exposed to various risks, such as interest rate, credit, and overall market volatility. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the financial statements.
 
4.   TAX STATUS
 
    The IRS has determined and informed the Company, by a letter dated September 17, 2003, that the Plan and related trust are designed in accordance with applicable sections of the Internal Revenue Code (IRC). The Plan has been amended since the latest determination letter. However, the Plan administrator believes the Plan, as currently designed, is in compliance and is being operated within the applicable requirements of the IRC.

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5.   INVESTMENTS
 
    The Plan’s investments which exceeded 5% of net assets available for benefits as of December 31, 2008 and 2007, consisted of the following:
                 
    2008   2007
 
               
PICO Holdings, Inc., common stock
  $ 2,093,569     $ 1,968,478  
Mutual funds:
               
Royce Premier Fund
    742,547       1,150,774  
Columbia Intermediate Bond Z
    937,410       910,887  
Washington Mutual Investors
    511,850       796,372  
Europacific Growth Fund
    474,052       1,021,371  
Growth Fund of America
    448,387       778,919  
Dreyfus Emerging Markets
            623,270  
Common Collective Trusts — Stable Value Fund
    1,489,027          
Common Collective Trusts — MCM Stable Asset Value Fund
            1,369,017  
    During the years ended December 31, 2008 and 2007, the Plan’s investments (including gains and losses on investments bought and sold as well as held during the year) appreciated (depreciated) as follows:
                 
    2008     2007  
 
Net appreciation (depreciation) in fair value of investments whose fair value was determined by quoted market price:
               
Common stock
  $ (426,661 )   $ (73,335 )
Mutual funds
    (2,575,649 )     26,781  
 
           
 
               
Total
  $ (3,002,310 )   $ (46,554 )
 
           
6.   RELATED-PARTY TRANSACTIONS
 
    Plan investments include common stock of PICO Holdings, Inc. PICO Holdings, Inc. is the Plan Sponsor, Smith Barney Corporate Trust Company is the Plan custodian, and ING Institutional Plan Services was the recordkeeper until December 31, 2008 when the company changed recordkeepers to Columbus Retirement Administrators. The Plan Sponsor pays all administrative expenses of the Plan. These totaled approximately $37,000 and $39,000 in 2008 and 2007, respectively.
 
7.   EXEMPT PARTY-IN-INTEREST TRANSACTIONS
 
    At December 31, 2008 and 2007, the Plan held 78,765 and 58,550 shares, respectively, of common stock of, the Plan Sponsor, with a cost basis of $1,487,272 and $939,944, respectively. During the year ended December 31, 2008, the Plan recorded no dividend income from such shares.
 
8.   PLAN TERMINATION
 
    Although it has not expressed any intention to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions set forth in ERISA. In the event that the Plan is terminated, participants would become 100% vested in their accounts.
******

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SUPPLEMENTAL SCHEDULE

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PICO HOLDINGS, INC. EMPLOYEES 401(k)
RETIREMENT PLAN AND TRUST
FORM 5500 — SCHEDULE H, PART IV, LINE 4i — SCHEDULE OF ASSETS
(HELD AT END OF YEAR)
AS OF DECEMBER 31, 2008

 
                         
    Number           Fair
    of           Market
Description   Shares   Cost   Value
 
                       
INVESTMENTS:
                       
Mutual funds:
                       
AIM Energy — Inv
    8,844     $ 409,092     $ 217,463  
AIM Glbl Health Care
    6,853       196,021       137,330  
American Balanced Fn
    3,545       53,077       48,853  
Aston Montag & Caldwel
    5,968       149,055       103,542  
Baron Growth
    3,511       159,097       108,174  
Blackrock Intl Value
    3,005       85,222       49,164  
Cohen & Steers Realt
    3       94       98  
Columbia Intermed Bo
    119,873       1,063,243       937,410  
Dreyfus Emerg Mkts
    33,521       473,824       226,268  
Dreyfus US Treas Lng
    2,940       48,281       56,864  
Europacific Growth Fund
    17,003       629,401       474,052  
Gamco Gold Fund
    1,849       48,255       37,043  
Gamco Growth
    3,461       103,137       67,697  
Growth Fund of America
    22,045       693,941       448,387  
ING GNMA Income
    1,430       12,042       12,323  
Neub Berman Focus
    13,019       328,429       130,975  
Opp Commodity Strategy Total Return Fund
    14,643       123,663       45,540  
Royce Premier
    60,666       883,425       742,547  
T. Rowe Price Intl Bond
    25,041       249,235       239,396  
Wash Mutual Investor
    23,963       692,471       511,850  
Vanguard S&P 500
    2,362       203,171       196,251  
Legg Mason S&P 500
    587       4,998       5,338  
             
 
                       
Total mutual funds
            6,609,174       4,796,565  
 
                       
Common collective trust fund — UBT Stable Value Fund
    68,394       1,501,203       1,489,027  
* PICO Holdings, Inc., common stock
    78,765       1,487,272       2,093,569  
             
 
                       
TOTAL
            9,597,649       8,379,161  
             
 
*   Party-in-interest.

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SIGNATURE
The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.
         
  PICO HOLDINGS, INC. EMPLOYEES 401(k) RETIREMENT PLAN AND TRUST
 
 
  /s/ Maxim C. W. Webb    
Date: June 25, 2009  Chief Financial Officer and Treasurer   
     

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PICO HOLDINGS, INC.
EMPLOYEES 401(k) RETIREMENT PLAN AND TRUST
ANNUAL REPORT ON FORM 11-K
For plan year ended December 31, 2008
INDEX TO THE EXHIBITS
     
Exhibit Number   Description
 
   
23.1
  Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm

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