Item 4: Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision of and with the participation of our management, including our principal executive officer and principal financial officer, we evaluated the effectiveness of our disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and 15(d)-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report on Form 10-Q.

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 ended ~~March 31,~~September 30, 2017, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II: Other Information

Item 1: Legal Proceedings

None.

Item 1A: Risk Factors

The following information sets out factors that could cause our actual results to differ materially from those contained in forward-looking statements we have made in this Quarterly Report on Form 10-Q and those we may make from time to time. You should carefully consider the following risks, together with other matters described in this Form 10-Q or incorporated herein by reference in evaluating our business and prospects. If any of the following risks occurs, our business, financial condition or operating results could be harmed. In such case, the trading price of our securities could decline, in some cases significantly.

The risk factors in this report have been revised to incorporate changes to our risk factors from those included in our Annual Report on Form 10-K for the year ended December 31, 2016. The risk factors set forth below with an asterisk (*) next to the title are new risk factors or risk factors containing changes, including any material changes, from the risk factors previously disclosed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016, as filed with the SEC.

* If the conditions set forth in the Agreement and Plan of Merger between UCP and Century are not satisfied, the resulting merger may not be completed and UCP’s business could be impaired.

On April 10, 2017, UCP entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Century. The completion of the transaction is subject to the satisfaction or waiver of certain conditions, including the adoption of the Merger Agreement by UCP’s stockholders and certain other customary conditions.

In the event UCP is unable to satisfy the conditions set forth in the Merger Agreement to obligate Century to effect the Merger, it could delay or prevent the completion of the Merger and could create uncertainty for UCP and its business could be adversely affected. In addition, in the event that the Merger is not consummated, UCP will be subject to significant costs, including legal, accounting and advisory fees related to the Merger, and the market price of UCP’s common stock may decline to the extent that the current market price of its common stock reflects a positive market assumption that the Merger will be completed.

General economic conditions could have a material adverse effect on our financial results, financial condition and the demand for and the fair value of our assets.

All of our businesses are sensitive to general economic conditions, whether internationally, nationally, regionally, or locally. General poor economic conditions and the resulting effect of non-existent or slow rates of growth in the markets in which we operate could have a material adverse effect on the demand for ~~both~~ our ~~real estate and~~ water assets. These poor economic conditions include higher unemployment, inflation, deflation, decreases in consumer demand, changes in buying patterns, a weakened dollar, higher consumer debt levels, and higher tax rates and other changes in tax laws or other economic factors that may affect commercial and residential real estate development.

Specifically, high national, regional, or ~~regional~~local unemployment may arrest or delay any significant recovery of the residential real estate markets in which we operate, which could adversely affect the demand for our ~~real estate and~~ water assets. Any prolonged lack of demand for our ~~real estate and~~ water assets could have a significant adverse effect 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 our assets volatile.

Our future revenue and profitability related to our water resource and water storage operations will primarily be dependent on our ability to develop and sell or lease water assets. In light of the fact that our water resource and water storage operations represent a large percentage 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 will 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 storage development projects. Moreover, our profitability and the fair value of the assets related to our water resource and water storage operations is significantly affected 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, our water rights could be subordinated to superior water rights holders. The factors described above are not within our control.

Our future revenue, growth, and the demand for and the fair value of our assets related to our land development and homebuilding activities depends, in part, upon our ability to successfully identify and acquire attractive land parcels for development of single-family homes at reasonable prices. Our ability to acquire land parcels for new single-family homes may be adversely affected by changes in the general availability of land parcels, the willingness of land sellers to sell land prices at reasonable prices, competition for available land parcels, availability of financing to acquire land parcels, zoning and other market conditions. If the supply of land parcels appropriate for development of single-family homes is limited because of these factors, or for any other reason, our ability to grow and increase the fair value of our assets related to our land development and homebuilding business could be significantly limited, and our land development and homebuilding revenue and gross margin could remain static or decline and it could adversely affect the return on our investment from these assets.

One or more of the above factors in one or more of our operating segments could impact our revenue and profitability, negatively affect our financial condition and cash flows, cause our results of operations to be volatile, and could negatively impact our rate of return on our ~~real estate and~~ water assets and cause us to divest such assets for less than our intended return on our investment.

A downturn in the recent improvement that the homebuilding and land development industry has experienced would materially adversely affect our business, results of operations, and the 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 not limited to, weak general economic and employment growth, a lack of consumer confidence, large supplies of resale and foreclosed homes, a significant number of homeowners whose outstanding principal balance on their mortgage loan exceeds the market value of their home, and tight lending standards and practices for mortgage loans that limit consumers’ ability to qualify for mortgage financing to purchase a home. These factors resulted in an industry-wide weakness in demand for new homes and caused a material adverse effect on the growth of the local economies and the homebuilding industry in the southwestern United States (“U.S.”) markets where a substantial amount of our ~~real estate and~~ water assets are located, including the states of Nevada, Arizona, California, Colorado, and New Mexico. However, in 2012, we noted a significant improvement in the housing market which led to increased levels of real estate development activity. The continuation of the recent improvement in residential and commercial real estate development process and activity is essential for our ability to generate operating income in our water resource and water storage, and land development and homebuilding businesses. We are unable to predict whether and to what extent this recovery will continue or its timing. Any future slow-down in real estate and homebuilding activity could adversely impact various development projects within the markets in which our real estate and water 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 and weak conditions in the U.S. housing market have reduced our revenues and created losses in our water resource and water storage, and land development and homebuilding businesses in prior years and could do so in the future.

We may not be able to realize the anticipated value of our ~~real estate and~~ 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 markets perform 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 in a decline in the value of our existing ~~real estate and~~ water assets, or result in our having to retain such assets for longer than we initially expected, which would negatively impact our rate of return on our ~~real estate and~~ water assets, cause us to divest such assets for less than our intended return on investment, or cause us to incur impairments on the 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 ~~real estate and~~ water assets are linked to growth factors concerning the local markets in which our assets are concentrated and may be impacted by broader economic issues.

Both the demand and fair value of our ~~real estate~~ and water assets are significantly affected by the growth in population and the general state of the local economies where our real estate and water assets are located. ~~These~~The local economies ~~may be affected by factors such as the local level of employment and the availability of financing and interest rates,~~ where ~~(1)~~ our real estate and water assets are located, primarily in Arizona and northern Nevada, but also in Colorado and New Mexico, may be affected by factors such as the local level of employment and ~~(2) our land development~~the availability and ~~homebuilding assets are located, primarily in California and also Washington, North Carolina, South Carolina and Tennessee.~~cost of financing for real estate transactions. The unemployment rate in these states, as well as issues related to the credit markets, may prolong a slowdown of the local economies where our real estate and water assets are located. This could materially and adversely affect the demand for and the fair value of our real estate and water assets and, consequently, adversely affect our growth and revenues, results of operations, cash flows and the return on our investment from these assets.

*The fair values of our ~~real estate and~~ water assets may decrease which could adversely affect our results of operations by impairments and write-downs.

The fair value of our water resource and water storage assets ~~and our land and homebuilding assets~~ depends on market conditions. We ~~acquire~~acquired water resources and land for expansion into new markets and for replacement of inventory and expansion within our current markets. The valuation of real estate and water assets is inherently subjective and based on the individual characteristics of each asset. Factors such as changes in regulatory requirements and applicable laws, political conditions, the condition of financial markets, local and national economic conditions, change in efficiencies of water use, the financial condition of customers, potentially adverse tax consequences, and interest and inflation rate fluctuations subject valuations to uncertainties. In addition, our valuations are made on the basis of assumptions that may not prove to reflect economic or demographic reality. If population growth and, as a result, water and/or housing demand in our markets 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 able to recover our costs when we sell our real estate and water assets. We regularly review the value of our ~~real estate and~~ water assets. These reviews have resulted in significant impairments to our water resource ~~assets and /or land development~~ assets. Such impairments have adversely affected our results of operations and our financial condition in those years.

If future market conditions adversely impact the anticipated timing of and amount of sales of our ~~real estate and~~ water assets we may be required to record further significant impairments to the carrying value of our ~~real estate and~~ water assets, which would adversely affect our results of operations and our financial condition.

* ~~If the proposed merger between UCP and Century is consummated, the~~The majority of our remaining assets and operations ~~will~~ consist of our existing water resource and water storage operations that are concentrated in a limited number of assets, making our cash flows, profitability and the fair value of those assets difficult to ~~predicts~~predict and vulnerable to conditions and fluctuations in a limited number of local economies.

We anticipate that a significant amount of our water resource and water storage segment revenue, results of operations and cash flows will come from a limited number of assets, which primarily consist of our water resources in Nevada and Arizona and our water storage operations in Arizona. Our two most significant assets are our water storage operations in Arizona and our water resources to serve the northern valleys of Reno, Nevada. As a result of this concentration, we expect our invested capital and results of operations will be vulnerable to the conditions and fluctuations in these local economies, ~~and potentially to~~along with changes in local and regional government ~~regulations.~~

land use, zoning, and other regulatory action.

Our Arizona Recharge Facility is one of the few private sector water storage sites in Arizona. At ~~March 31,~~September 30, 2017, we had approximately 251,000 acre-feet of water stored at the facility. In addition, we had approximately ~~57,000~~56,400 acre-feet of water stored in the Phoenix Active Management Area at ~~March 31,~~September 30, 2017. We have not stored any water on behalf of any customers and as of ~~March 31,~~September 30, 2017, had not generated any material revenue from the recharge 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 economic profit, if at all.

We constructed a pipeline approximately 35 miles long to deliver water from Fish Springs Ranch to the northern valleys of Reno, Nevada. As of ~~March 31,~~September 30, 2017, the total cost of the pipeline project, including our water credits (net of impairment losses incurred to date) carried on our balance sheet was approximately $83.9 million. To date, we have sold only a small amount of the water credits and we cannot provide any assurance that the sales prices we may obtain in the future will provide an adequate economic return, if at all. Any prolonged weak demand for new homes, residential and ~~residential~~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 both local and national developers planning to construct new projects in the northern valleys. The success of these projects is dependent on numerous factors beyond our control, including local government approvals, employment growth in the greater Reno area, and the ability of the developers to finance these projects.

~~We are subject to laws and regulations, which may increase our costs, result in liabilities, limit the areas in which we can build homes and delay completion of our projects.~~

Our real estate operations are subject to a variety of local, state, federal and other laws, statutes, ordinances, rules and regulations concerning the environment, hazardous materials, the discharge of pollutants and human health and safety. The particular environmental requirements which apply to any given project site vary according to multiple factors, including the site’s location, its environmental conditions, the current and former uses of the site, the presence or absence of state- or federal-listed endangered or threatened plants or animals or sensitive habitats, and conditions at nearby properties. We may not identify all of these concerns during any pre-acquisition or pre-development review of project sites. Environmental requirements and conditions may result in delays, may cause us to incur substantial compliance and other costs, and can prohibit or severely restrict development and homebuilding activity in environmentally sensitive regions or in areas contaminated by others before we commence development. We are also subject to third-party challenges, such as by environmental groups or neighborhood associations, under environmental laws and regulations governing the permits and other approvals for our real estate projects and operations. Sometimes regulators from different governmental agencies do not concur on development, remedial standards or property use restrictions for a project, and the resulting delays or additional costs can be material for a given project.

In addition, in cases where a state-listed or federally-listed endangered or threatened species is involved and related agency rule-making and litigation are ongoing, the outcome of such rule-making and litigation can be unpredictable and can result in unplanned or unforeseeable restrictions on, or the prohibition of, development and building activity in identified environmentally sensitive areas.

Our real estate operations are also subject to numerous other laws and regulations that affect the land development and homebuilding process, including laws and regulations related to zoning, permitted land uses, levels of density, building design, water and waste disposal and use of open spaces. We are typically required to obtain permits, entitlements and approvals from local authorities to start and carry out residential development or home construction. Such permits, entitlements and approvals may, from time-to-time, be opposed or challenged by local governments or other interested parties, adding delays, costs and risks of non-approval to the process. Our obligation to comply with the laws and regulations under which we operate, and our need to ensure that our subcontractors and other agents comply with these laws and regulations may result in delays in construction and land development and may also cause us to incur substantial additional and unbudgeted costs.

~~We will face significant competition in marketing and selling new homes.~~

We have entered the homebuilding business by constructing, marketing and selling single-family homes on certain of our finished residential lots that we own in California, Washington, North Carolina, South Carolina and Tennessee. We aim to build homes only in those markets where we have identified that a sufficient demand exists for new homes. However, the homebuilding industry is highly competitive and we will be competing with a number of national and local homebuilders in selling homes to satisfy expected demand. These competitors, especially the national homebuilders, have greater resources and experience in this industry than we have. Such competition could result in lower than anticipated sales volumes and/or profit margins that are below our expectations. In addition, we will have to compete with the resale of existing homes, including foreclosed homes, which could also negatively affect the number and price of homes we are able to sell and the time our homes remain on the market.

~~We use leverage to finance a portion of the cost to acquire our land development assets and to construct homes.~~

We currently use, and expect to continue to use, debt to finance a portion of the cost of constructing our homes and acquiring and developing our lots. Such debt is primarily comprised of project-level secured acquisition, development and construction loans, with recourse limited to the securing collateral.

~~Incurring debt could subject us to many risks that, if realized, would adversely affect us, including the risk that:~~

our cash flow from our land development and homebuilding operations may be insufficient to make required payments of principal of and interest on the debt which is likely to result in acceleration of the maturity of such debt;

~~our debt may increase our vulnerability to adverse economic and industry conditions with no assurance that investment yields will increase with higher financing cost;~~

we may be required to dedicate a portion of our cash flow from our land development and homebuilding operations to payments on our debt, thereby reducing funds available for the operations and capital expenditures; and

~~the terms of any refinancing may not be as favorable as the terms of the debt being refinanced.~~

If we do not have sufficient funds to repay our debt at maturity, it may be necessary to refinance the debt through additional debt or additional equity financings which could dilute our interest in our land development and homebuilding business. If, at the time of any refinancing, prevailing interest rates or other factors result in higher interest rates on refinancing, increases in interest expense could adversely affect our cash flows and results of operations. If we are unable to refinance our debt on acceptable terms, we may be forced to dispose of our land development and housing assets on disadvantageous terms, potentially resulting in losses. To the extent we cannot meet any future debt service obligations, we will risk losing some or all of our assets that may be pledged to secure our obligations to foreclosure. Defaults under our debt agreements used to finance a portion of the cost of constructing homes and acquiring and developing lots could have a material adverse effect on our land development and homebuilding business, prospects, liquidity, financial condition, results of operations, and the return on our investment from those assets.

~~We may be subject to significant warranty, construction defect and liability claims in the ordinary course of our homebuilding business.~~

As a homebuilder, we may be subject to home warranty and construction defect claims arising in the ordinary course of business. We may also be subject to liability claims for injuries that occur in the course of construction activities. Due to the inherent uncertainties in such claims, we cannot provide assurance that our insurance coverage or our subcontractors’ insurance and financial resources will be sufficient to meet any warranty, construction defect and liability claims we may receive in the future. If we are subject to claims beyond our insurance coverage, our profit from our homebuilding activities may be less than we expect and our financial condition and the return on our investment from those assets may be adversely affected.

~~We will be relying on the performance of our subcontractors to build horizontal infrastructure and homes according to our budget, timetable and quality.~~

We rely on subcontractors to perform the actual construction of horizontal infrastructure (in the cases where we are completing the development of entitled lots to finished lots) and of the homes we are building on certain of our finished lots. In certain cases, we will also rely on the subcontractor to select and obtain raw materials. Our subcontractors may fail to meet either our quality control or be unable to build and complete the horizontal infrastructure or homes in the expected timetable due to subcontractor related issues such as being unable to obtain sufficient materials or skilled labor, or due to external factors such as delays arising from severe weather conditions.

Any such failure by our subcontractors could lead to increases in construction costs and construction delays. Such increases could negatively impact the price and number of finished lots and homes we are able to sell.

~~Our homebuilding operations may be adversely impacted by the availability of and the demand for mortgage financing and any changes to the tax benefits associated with owning a home.~~

To successfully market and sell the homes we construct depends on the ability of home buyers to obtain mortgage financing for the purchase of these new homes. Current credit requirements for mortgage financing are significantly greater than in the past which makes it more difficult for a potential home buyer to obtain mortgage financing. In addition, any significant increase in interest rates from current rates may also lead to increased mortgage finance costs leading to a decline in demand and availability of mortgage financing. Any decline in the availability of mortgage financing may lead to a reduced demand for the homes we have already constructed, or intend to construct. Furthermore, the demand for homes in general, and the homes we intend to construct, may be affected by changes in federal and state income tax laws. Current federal, and many state, tax laws allow the deduction of, among other homeowner expenses, mortgage interest and property taxes against an individual’s taxable income. Any changes to the current tax laws which reduce or eliminate these deductions, or reduce or eliminate the exclusion of taxable gain from the sale of a principal residence, would likely lead to a greatly reduced demand for homes. This would lead to a materially adverse impact on the homebuilding business, and the fair value of those assets in general, and our revenues, cash flows, financial condition, and the return on our investment from those assets specifically.

* UCP has substantial indebtedness, which may exacerbate the adverse effect of any declines in UCP’s business, industry or the general economy and exposes UCP to the risk of default. UCP may be unable to service their debt.

As of March 31, 2017, UCP had approximately $161.6 million of outstanding debt. UCP’s substantial outstanding debt, and the limitations imposed on UCP by the instruments and agreements governing its outstanding indebtedness, could have significant adverse consequences, including the following:

~~UCP’s cash flow may be insufficient to meet its required principal and interest payments;~~

UCP may use a substantial portion of their cash flows to make principal and interest payments and UCP may be unable to obtain additional financing as needed or on favorable terms, which could, among other things, have a material adverse effect on their ability to complete our development pipeline, capitalize upon emerging acquisition opportunities, fund working capital or capital expenditures, or meet their other business needs;

~~UCP may be unable to refinance its debt at maturity or the refinancing terms may be less favorable than the terms of their original debt;~~

~~UCP may be forced to dispose of one or more of their properties, possibly on unfavorable terms or in violation of certain covenants to which UCP may be subject;~~

UCP may be required to maintain certain debt and coverage and other financial ratios at specified levels, which may limit their ability to obtain additional financing in the future, thereby reducing their financial flexibility to react to changes in their business;

~~UCP’s vulnerability to general adverse economic and industry conditions may be increased;~~

~~approximately $82.2 million of UCP’s debt bears interest at variable rates, which exposes it to increased interest expense in a rising interest rate environment;~~

~~UCP may be at a competitive disadvantage relative to its competitors that have less debt;~~

~~UCP’s flexibility in planning for, or reacting to, changes in their business and the markets in which UCP operates may be limited; and~~

UCP may default on its debt by failure to make required payments or to comply with certain covenants, which could result in an event of default entitling a creditor to declare all amounts owed to it to be due and payable, and possibly entitling other creditors (due to cross-default or cross-acceleration provisions) to accelerate the maturity of amounts owed to such other creditors or, if such debt is secured, to foreclose on UCP’s assets that secure such obligation.

In addition, in October 2014, UCP completed a private offering of $75 million in aggregate principal amount of 8.5% Senior Notes, which mature on October 21, 2017 (the “2017 Notes”). UCP’s ability to satisfy this maturity when it becomes due will depend on its future operating performance and financial results, which will be subject, in part, to factors beyond its control, including interest rates and general economic, financial and competitive conditions. UCP’s sources of capital to satisfy this maturity may include retained capital, the issuance of equity securities, debt financing and refinancing, and asset sales or a combination of any of the foregoing. However, no assurance can be given that any of these sources of capital will be available to UCP on favorable terms, or at all, or that such sources will enable UCP to be able to satisfy this maturity. Any refinancing of the 2017 Notes may be on terms less favorable than those applicable to the 2017 Notes. As a result, we can provide no assurance that UCP will be able to refinance or repay the 2017 Notes. UCP’s failure to refinance or repay the 2017 Notes at their stated maturity would have a material adverse impact on UCP’s financial condition, results of operations, cash flow, liquidity, the market price of its Class A common stock and its ability to achieve its objectives.

~~The occurrence of any one of these events could have a material adverse effect on our financial condition, liquidity, results of operations and/or business.~~

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 fully recoverable by insurance. In addition, certain types of risks, such as personal injury claims, may be, or may become in the future, either uninsurable or not economically 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 the affected 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 that are 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 water rights applications in Nevada and New Mexico. In Nevada this is primarily as part of the water teaming agreement with Lincoln County. We deploy the capital required to enable the filed applications to be converted into permitted water rights over time as and when we deem appropriate or as otherwise required. We only expend capital in those areas where our initial investigations lead us to believe that we can obtain a sufficient volume of water to provide an adequate economic return on the capital employed in the project. These capital expenditures largely consist of drilling and engineering costs for water production, costs of monitoring wells, legal and consulting costs for hearings with the State Engineer, and ~~NEPA~~other compliance 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 be awarded 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 are able to ascertain the final volume of water rights, if any, that will be permitted by the State Engineers. Any significant reduction in the volume of water awarded 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 could adversely affect the return on our investment from those assets, our revenues, results of operations, and cash flows.

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 our permitted 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 by the laws concerning water rights in the states of Arizona, Colorado, Nevada, and New Mexico. The volumes of water actually derived from the water rights applications or permitted rights may vary considerably based upon physical availability and may be further limited by applicable legal restrictions.

As a result, the volume of water anticipated from the water rights applications or permitted rights may not in every case represent a reliable, firm annual yield of water, but in some cases describe the face amount of the water right claims or management’s best estimate of such entitlement. Additionally, we may face 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 our water 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 are only released once the financing has been fully paid off. Purchasers of our real estate and water assets may default on their financing obligations. Such defaults 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 the United States Safe Drinking Water ~~Act.~~Act along with other federal, state and local regulations. While environmental regulations domay not directly affect us, the regulations regarding the quality of water distributed affects our intended customers and may, therefore, depending on the quality of our water, impact the price and terms upon which we may in the future sell our water assets. If we need to reduce the price of our water assets in order to make a sale to our intended customers, our balance sheet, return on investment, results of operations and financial condition could suffer.

* Our water ~~asset sales~~assets may ~~meet with~~be impacted by legal and political opposition in certain ~~locations, thereby limiting our growth in these areas.~~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 regulations concerning water rights in the states of Arizona, Nevada, Colorado and New ~~Mexico.~~Mexico and may be directly or indirectly affected by other federal, state and local 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 all necessary regulatory approvals and permits. Additionally, the transfer of water resources from one use to another may affect the economic base or impact other issues of a community including development, and will, in some instances, be met with local opposition. Moreover, municipalities who will likely regulate 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 convey water 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 businesses or investments otherwise fail or decline in value, our financial condition and the return on our investment could suffer.

Historically, we have acquired and invested in businesses and assets that we believed were undervalued or that would benefit from additional capital, restructuring of operations, strategic initiatives, or improved competitiveness through operational efficiencies. If any previously acquired business, investment or 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 managing our previous acquisitions and investments, our business, financial condition, results of operations and cash flows could be materially affected. Such business failures, declines in fair values, and/or failure to manage acquisitions or investments, could result in a negative return on equity. We could also lose part or all of our capital in these businesses and experience reductions in our net income, cash flows, assets and equity.

Future dispositions of our businesses, assets, operations and investments, if unsuccessful, could reduce the value of our common shares. Any future dispositions may result in significant changes in the composition of our assets and liabilities. Consequently, our financial condition, results of operations and the trading price of our common shares may be affected by factors different from those historically affecting our financial condition, results of operations and trading 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 to our shareholders.

We currently anticipate that our available capital resources and operating cash flows will be sufficient to meet our expected working capital and capital expenditure requirements for at least the next 12 months. However, we cannot provide any assurance that such resources will be sufficient to fund our business. We may raise additional funds through public or private debt, equity or hybrid securities financings, including, without limitation, through the issuance of securities. We currently have an effective shelf registration statement which allows us to sell up to $400 million of a variety of securities in one or more offerings in the public markets.

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. Increasingly stringent rating standards could make it more difficult for us to obtain financing. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our shareholders could be significantly diluted, and these newly issued securities may have rights, preferences or privileges senior to those of existing shareholders. Indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations. The additional financing we may need 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, our ability to fund our operations or otherwise execute our strategic plan would be significantly limited. In any such case, our business, operating results or financial 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 our Company undergoes 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-change tax attributes to offset our post-change income may be limited. ~~We may~~Notwithstanding our adoption of a tax benefit preservation plan, it is possible that we could experience ownership changes in the future as a result of shifts in our stock ownership. As of ~~March 31,~~September 30, 2017, we had federal and state net operating loss carryforwards of approximately ~~$125.1~~$187.1 million and ~~$194.4~~$235.5 million, respectively, which, depending on our value at the time of any ownership changes, could be limited.

We may not be able to retain key management personnel we need to succeed, which could adversely affect our ability to successfully operate our businesses.

To run our day-to-day operations and to successfully manage our businesses we must, among other things, continue to retain key management. We rely on the services of a small team of key executive officers. If they depart, it could have a significant adverse effect upon our business. Also, increased competition for skilled management and staff employees in our businesses could cause us to experience significant increases in operating costs and reduced profitability.

~~Because our operations are diverse, analysts~~*Analysts and investors may not be able to evaluate us adequately, which may negatively influence the price of our stock.

We ~~are a diversified holding company with significant operations in different business segments. We~~ own ~~businesses~~assets that are unique, complex in nature, and difficult to understand. In particular, ~~the~~our water resource business is a developing industry in the United States with very little historical and comparable data, very complex valuation issues and a limited following of analysts. Because weour assets are ~~complex,~~unique, analysts and investors may not be able to adequately evaluate our operations and enterprise as a going concern. This could cause analysts and investors 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 and may be subject to excessive volatility.

* 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 common stock may be significantly impacted by:

~~UCP’s ability to consummate its merger with Century;~~

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 assets ~~including assets~~ related to our water resource ~~and real estate businesses,~~business for an adequate economic ~~return;~~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 could fluctuate significantly from quarter to quarter and from year to year. Causes of such fluctuations may include the inclusion or exclusion of operating earnings from sold operations, 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 business or 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 price of 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 by employees, shareholders or customers could be very costly and substantially disrupt our business. Additionally, from time to time we or our subsidiaries will have disputes with companies or individuals which may result in litigation that could necessitate our management’s attention and require us to expend our resources. 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 able to 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 resolution could have a material adverse impact on our consolidated financial condition or results of operations.

We have been, and continue to be, the subject of stockholder activism efforts that could cause a material disruption to our business.

Certain investors have taken 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 the governance and strategic direction of our Company. Such stockholder activism efforts could result in substantial costs and diversion of management’s attention and resources, harming our business and adversely affecting the market price of our common stock.

~~Our governing~~*Anti-takeover provisions in our charter documents ~~could prevent~~and under Delaware law may make an acquisition of us more complicated and the removal and replacement of our ~~company or limit the price that investors might be willing to pay for our common stock.~~directors and management more difficult.

~~Certain provisions~~Provisions of our ~~articles~~certificate of incorporation and ~~the California General Corporation Law~~bylaws, as well as provisions of Delaware law, could ~~discourage a third party from acquiring, or~~ make it more difficult for a third party to acquire ~~control of~~us, even if doing so would benefit our ~~company without approval of~~stockholders. These provisions may also make it difficult for stockholders to remove and replace our board of ~~directors.~~directors and management. For example, ~~our bylaws require~~these provisions limit who may call a special meeting of stockholders and establish advance notice requirements for ~~stockholder proposals and~~ nominations for election to the board of directors or for proposing matters that can be acted upon at stockholder meetings. In addition, on July 24, 2017, our board of ~~directors. We are also subject~~directors adopted a tax benefits preservation plan designed to preserve our ability to utilize our net operating losses as a result of certain stock ownership changes, which may have the ~~provisions~~effect of ~~Section 1203 of the California General Corporation Law, which requires a fairness opinion to be provided to~~discouraging transactions involving an actual or potential change in our shareholders in connection with their consideration of any proposed “interested party” reorganization transaction. All or any of these factors could limit the price that certain investors might be willing to pay in the future for shares of our common stock.ownership.

If equity analysts do not publish research or reports about our business or if they issue unfavorable commentary or downgrade our common stock, the price 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 our business. 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 issue other unfavorable commentary or cease publishing reports about us or our business.

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 various cyber security threats, including cyber security attacks to our information technology infrastructure and attempts by others to gain access to our proprietary or sensitive information. The procedures and controls we use to monitor these threats and mitigate our exposure may not be sufficient to prevent cyber security incidents. The result of these incidents could include disrupted operations, lost opportunities, misstated financial data, liability for stolen assets or information, increased costs arising from the implementation of additional security protective measures, litigation and reputational damage. Any remedial costs 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 AND CASH FLOWS AND FINANCIAL CONDITION AND COULD MAKE COMPARISON OF ~~HISTORIC~~HISTORICAL FINANCIAL STATEMENTS, INCLUDING RESULTS OF OPERATIONS AND CASH FLOWS AND BALANCES, DIFFICULT OR NOT MEANINGFUL.

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

The following table summarizes repurchases of our common stock made during the three months ended ~~March 31,~~September 30, 2017:

Period Total number of shares of common stock purchased Average price paid per share of common stock (including commissions) Total number of shares of common stock purchased as part of publicly announced plans of programs
Maximum dollar value of shares of common stock that may yet be purchased under the plans of programs (in thousands) ⁽¹⁾
January 1 to January 31, 2017
February 1 to February 28, 2017
March 1 to March 31, 2017 13,400
$ 13.70
13,400
$ 49,816
Total 13,400
$ 13.70
13,400
$ 49,816



Period	Total number of shares of common stock purchased	Average price paid per share of common stock (including commissions)		Total number of shares of common stock purchased as part of publicly announced plans of programs	Maximum dollar value of shares of common stock that may yet be purchased under the plans of programs (in thousands) ⁽¹⁾
July 1 to July 31, 2017					$	49,310
August 1 to August 31, 2017
September 1 to September 30, 2017
Total	—	$	—	—	$	49,310

⁽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 and there is no set expiration date.

Item 3: Defaults Upon Senior Securities

None.

Item 4: Mine Safety Disclosures

Not applicable.

Item 5: Other Information

None.

Item 6. Exhibits



Exhibit Number			Description
2.1			Asset Purchase Agreement dated July 13, 2015, by and between PICO Northstar Hallock, LLC and CHS Hallock, LLC.⁽¹⁾
3.1			~~Amended and Restated Articles~~Certificate of Incorporation of PICO Holdings, Inc.⁽²⁾
3.2			~~Certificate of Amendment of Amended and Restated Articles of Incorporation~~By laws of PICO Holdings, Inc.^(5) (2)
3.3			~~Amended and Restated By laws~~Certificate of Designation of Series A Junior Participating Preferred Stock of PICO Holdings, Inc.⁽³⁾
~~3.4~~			~~Amendment to Amended and Restated Bylaws of PICO Holdings, Inc.~~⁽⁵⁾
4.1			~~Indenture,~~Section 382 Rights Agreement, dated ~~October 21, 2014, among UCP,~~as of July 24, 2017, by and between PICO Holdings, Inc.~~, the guarantors named therein,~~ and ~~Wilmington~~Computershare Trust ~~National Association, as trustee.~~ Company, N.A.⁽³⁾
4.2			PICO Holdings, Inc. Stock Certificate⁽⁴⁾
~~10.1~~			Voting Support and Transfer Restriction Agreement, dated as of April 10, 2017, by and among Century Communities, Inc., Casa Acquisition Corp., PICO Holdings, Inc., and for the limited purposes set forth therein, UCP, Inc. (incorporated by reference to the Current Report on Form 8-K filed by Century Communities, Inc. on April 11, 2017, File No. 001-36491)
~~10.2~~			Agreement to Exchange, entered into as of April 10, 2017, by and among UCP, Inc., UCP, LLC and PICO Holdings, Inc. (incorporated by reference to the Current Report on Form 8-K filed by UCP, Inc. on April 11, 2017, File No. 001-36001)
~~10.3~~4.3			~~Bandera Settlement Agreement.~~ ⁽⁶⁾
~~10.4~~			PICO Holdings, Inc. ~~Nonemployee Director Compensation Policy.~~ Executive Change in Control Bonus Plan⁽⁷⁾
~~10.5~~			~~UCP Settlement Agreement.~~ ⁽⁸⁾⁽⁵⁾
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 Act of 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 of 2002.
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 Document
101.SCH			XBRL Taxonomy Extension Schema Document
101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF			XBRL Taxonomy Extension Definition Linkbase Document
101.LAB			XBRL Taxonomy Extension Label Linkbase Document
101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document



⁽¹⁾	Incorporated by reference to the Current Report om Form 8-K filed with the SEC on July 17, 2015.
⁽²⁾	Incorporated by reference to the ~~Quarterly~~Current Report onom Form ~~10-Q~~8-K filed with the SEC on ~~November 7, 2007.~~June 1, 2017.
⁽³⁾	Incorporated by reference to the Current Report om Form 8-K filed with the SEC on ~~May 19, 2009.~~July 24, 2017.
⁽⁴⁾	Incorporated by reference to the Quarterly Report on Form ~~8-K~~10-Q filed with the SEC on ~~October 24, 2014.~~August 9, 2017.
⁽⁵⁾	Incorporated by reference to the Current Report om Form 8-K filed with the SEC on ~~July 13, 2016.~~
⁽⁶⁾	~~Incorporated by reference to Form 8-K filed with the SEC on January 30, 2017.~~
⁽⁷⁾	~~Incorporated by reference to the Annual Report on Form 10-K filed with the SEC on March 30, 2017.~~
⁽⁸⁾	~~Incorporated by reference to Form 8-K filed with the SEC on March 30,~~October 2, 2017.

PICO HOLDINGS, INC. AND SUBSIDIARIES

SIGNATURE

Pursuant to the requirements of the United States Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		PICO HOLDINGS, INC.


Date:	~~May 4,~~November 7, 2017	By: /s/ John T. Perri
		John T. Perri
		Chief Financial Officer ~~and Secretary~~
		(Principal Financial Officer and Authorized Signatory)

3635



Large accelerated filer ¨	Accelerated filer x	Non-accelerated filer ¨	Smaller reporting company ¨	Emerging growth company ¨



		Page No.

Part I: Financial Information

Item 1:	Condensed Consolidated Financial Statements (Unaudited)	1

	Condensed Consolidated Balance Sheets as of ~~March 31,~~September 30, 2017 and December 31, 2016	1

	Condensed Consolidated Statements of Operations and Comprehensive Income or Loss for the Three and Nine Months Ended ~~March 31,~~September 30, 2017 and 2016	2

	Condensed Consolidated Statements of Equity for the ~~Three~~Nine Months Ended ~~March 31,~~September 30, 2017 and 2016	4

	Condensed Consolidated Statements of Cash Flows for the ~~Three~~Nine Months Ended ~~March 31,~~September 30, 2017 and 2016	56

	Notes to the Condensed Consolidated Financial Statements	67

Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1619

Item 3:	Quantitative and Qualitative Disclosure About Market Risk	2326

Item 4:	Controls and Procedures	2426

Part II: Other Information

Item 1:	Legal Proceedings	2427

Item 1A:	Risk Factors	2427

Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	3433

Item 3:	Defaults Upon Senior Securities	3433

Item 4:	Mine Safety Disclosures	3433

Item 5:	Other Information	3433

Item 6:	Exhibits	3534

Signatures		3635

PICO Holdings, Inc. and Subsidiaries Condensed Consolidated Balance Sheets - Unaudited (In thousands, except par value)	PICO Holdings, Inc. and Subsidiaries Condensed Consolidated Balance Sheets - Unaudited (In thousands, except par value)						PICO Holdings, Inc. and Subsidiaries Condensed Consolidated Balance Sheets - Unaudited (In thousands, except par value)

	March 31, 2017			December 31, 2016			September 30, 2017			December 31, 2016
Assets
Cash and cash equivalents	$	52,827		$	19,611		$	25,000		$	19,611
Investments ($22,853 and $25,071 measured at fair value at March 31, 2017 and December 31, 2016, respectively)	24,166			26,383
Investments ($131,260 and $25,071 measured at fair value at September 30, 2017 and December 31, 2016, respectively)							132,571			26,383
Real estate and tangible water assets, net	45,170			57,691			45,166			57,691
Intangible assets	126,759			126,796			126,907			126,796
Other assets	3,794			4,624			2,292			4,624
Assets held-for-sale	435,567			440,689						440,689
Total assets	$	688,283		$	675,794		$	331,936		$	675,794

Liabilities and equity
Deferred compensation	$	27,240		$	27,322		$	4,066		$	27,322
Severance payable and other liabilities	12,966			12,322
Other liabilities							2,266			12,322
Accounts payable and accrued expenses	1,063			1,015			1,644			1,015
Liabilities held-for-sale	213,697			207,566						207,566
Total liabilities	254,966			248,225			7,976			248,225

Commitments and contingencies

Common stock, $0.001 par value; authorized 100,000 shares, 23,137 issued and 23,081 outstanding at March 31, 2017, and 23,125 issued and 23,070 outstanding at December 31, 2016	23			23
Preferred stock, $0.001 par value; authorized 10,000 shares, none issued
Common stock, $0.001 par value; authorized 100,000 shares, 23,148 issued and 23,147 outstanding at September 30, 2017, and 23,125 issued and 23,070 outstanding at December 31, 2016							23			23
Additional paid-in capital	495,311			495,468			495,207			495,468
Accumulated deficit	(168,588		)	(173,231		)	(171,652		)	(173,231		)
Accumulated other comprehensive income	6,087			6,661			407			6,661
Treasury stock, at cost (common shares: 55 at March 31, 2017 and December 31, 2016, respectively)	(927		)	(927		)
Treasury stock, at cost (common shares: 1 and 55 at September 30, 2017 and December 31, 2016, respectively)							(25		)	(927		)
Total PICO Holdings, Inc. shareholders’ equity	331,906			327,994			323,960			327,994
Noncontrolling interest in subsidiaries	101,411			99,575						99,575
Total equity	433,317			427,569			323,960			427,569
Total liabilities and equity	$	688,283		$	675,794		$	331,936		$	675,794

PICO Holdings, Inc. and Subsidiaries Condensed Consolidated Statements of Operations and Comprehensive Income or Loss - Unaudited (In thousands, except per share data)	PICO Holdings, Inc. and Subsidiaries Condensed Consolidated Statements of Operations and Comprehensive Income or Loss - Unaudited (In thousands, except per share data)						PICO Holdings, Inc. and Subsidiaries Condensed Consolidated Statements of Operations and Comprehensive Income or Loss - Unaudited (In thousands, except per share data)

	Three Months Ended March 31,						Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016			2017			2016
Revenues and other income:
Sale of real estate and water assets	$	25,097		$	98		$	136		$	476		$	25,276		$	607
Other income, net	1,096			687			69			689			9,756			2,193
Total revenues and other income	26,193			785			205			1,165			35,032			2,800

Cost of sales and expenses:
Cost of real estate and water assets sold	12,532			45			55			252			12,604			316
General, administrative, and other	4,090			5,082			2,943			5,649			9,865			16,054
Impairment loss on intangible and long-lived assets										201						201
Depreciation and amortization	98			359			24			162			159			702
Total cost of sales and expenses	16,720			5,486			3,022			6,264			22,628			17,273
Income (loss) from continuing operations before income taxes	9,473			(4,701		)	(2,817		)	(5,099		)	12,404			(14,473		)
Provision for federal and state income taxes	(180		)	(89		)
Benefit (provision) for federal and state income taxes							(292		)	530			(3,419		)	712
Income (loss) from continuing operations	9,293			(4,790		)	(3,109		)	(4,569		)	8,985			(13,761		)
Income (loss) from discontinued operations, net of tax	3,887			(203		)	(5,269		)	2,710			3,053			4,195
Loss on sale or impairment loss on classification of assets as held-for-sale, net of tax	(7,146		)	(1,849		)
Net loss from discontinued operations, net of tax	(3,259		)	(2,052		)
Gain (loss) on sale and impairment loss on classification of assets as held-for-sale, net of tax							2,094			2			(9,309		)	(1,858		)
Net income (loss) from discontinued operations, net of tax							(3,175		)	2,712			(6,256		)	2,337
Net income (loss)	6,034			(6,842		)	(6,284		)	(1,857		)	2,729			(11,424		)
Net (income) loss attributable to noncontrolling interests	(1,391		)	41			1,645			(1,043		)	(1,150		)	(1,676		)
Net income (loss) attributable to PICO Holdings, Inc.	$	4,643		$	(6,801	)	$	(4,639	)	$	(2,900	)	$	1,579		$	(13,100	)

PICO Holdings, Inc. and Subsidiaries Condensed Consolidated Statements of Operations and Comprehensive Income or Loss - Unaudited, Continued (In thousands, except per share data)	PICO Holdings, Inc. and Subsidiaries Condensed Consolidated Statements of Operations and Comprehensive Income or Loss - Unaudited, Continued (In thousands, except per share data)						PICO Holdings, Inc. and Subsidiaries Condensed Consolidated Statements of Operations and Comprehensive Income or Loss - Unaudited, Continued (In thousands, except per share data)

	Three Months Ended March 31,						Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016			2017			2016
Other comprehensive income (loss):
Other comprehensive loss:
Net income (loss)	$	6,034		$	(6,842	)	$	(6,284	)	$	(1,857	)	$	2,729		(11,424		)
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities, net of deferred income tax and reclassification adjustments	(590		)	40			(387		)	954			(6,286		)	1,484
Foreign currency translation	16			9			6			31			32			57
Total other comprehensive income (loss), net of tax	(574		)	49			(381		)	985			(6,254		)	1,541
Comprehensive income (loss)	5,460			(6,793		)
Comprehensive loss							(6,665		)	(872		)	(3,525		)	(9,883		)
Comprehensive (income) loss attributable to noncontrolling interests	(1,391		)	41			1,645			(1,043		)	(1,150		)	(1,676		)
Comprehensive income (loss) attributable to PICO Holdings, Inc.	$	4,069		$	(6,752	)
Comprehensive loss attributable to PICO Holdings, Inc.							$	(5,020	)	$	(1,915	)	$	(4,675	)	$	(11,559	)

Net income (loss) per common share – basic and diluted:
Income (loss) from continuing operations	$	0.40		$	(0.21	)	$	(0.13	)	$	(0.20	)	$	0.39		$	(0.60	)
Loss from discontinued operations	(0.20		)	(0.08		)
Income (loss) from discontinued operations							(0.07		)	0.07			(0.32		)	0.03
Net income (loss) per common share – basic and diluted	$	0.20		$	(0.29	)	$	(0.20	)	$	(0.13	)	$	0.07		$	(0.57	)
Weighted average shares outstanding	23,072			23,038			23,138			23,068			23,112			23,049



~~California~~Delaware (State or other jurisdiction of incorporation)	94-2723335 (IRS Employer Identification No.)


	Shares of Common Stock Issued		Common Stock		Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income			Shares of Treasury Stock		Treasury Stock, at Cost			Noncontrolling Interest			Total			Shares of Common Stock Issued		Common Stock		Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income			Shares of Treasury Stock		Treasury Stock, at Cost			Noncontrolling Interest			Total
Beginning balance, January 1, 2017	23,125		$	23	$	495,468		$	(173,231	)	$	6,661		55		$	(927	)	$	99,575		$	427,569		23,125		$	23	$	495,468		$	(173,231	)	$	6,661		55		$	(927	)	$	99,575		$	427,569
Stock-based compensation expense					717														181			898							1,723														299			2,022
Exercise of restricted stock units	25																					—			71																					—
Withholding taxes paid on vested restricted stock units					(279		)												(121		)	(400		)					(723		)												(121		)	(844		)
Changes in ownership of noncontrolling interest					(411		)												411			—							(465		)												465			—
Distribution to noncontrolling interest																			(26		)	(26		)																			(26		)	(26		)
Purchases of treasury stock														13		(184		)				(184		)														47		(690		)				(690		)
Retirement of treasury stock	(13	)			(184		)							(13	)	184						—			(47	)			(690		)							(47	)	690						—
Distribution of treasury stock to deferred compensation plan participant (former CEO)																													(106		)							(54	)	902						796
Deconsolidation of noncontrolling interest in conjunction with sale of consolidated subsidiary																																											(101,342		)	(101,342		)
Net income								4,643											1,391			6,034										1,579											1,150			2,729
Unrealized loss on investments, net of deferred income tax of $313 and reclassification adjustments of $740											(590		)									(590		)
Unrealized loss on investments, net of deferred income tax of $3,385 and reclassification adjustments of $9,781																																			(6,286		)									(6,286		)
Foreign currency translation											16											16													32											32
Ending balance, March 31, 2017	23,137		$	23	$	495,311		$	(168,588	)	$	6,087		55		$	(927	)	$	101,411		$	433,317
Ending balance, September 30, 2017																									23,149		$	23	$	495,207		$	(171,652	)	$	407		1		$	(25	)	$	—		$	323,960



		Page No.
1. Basis of Presentation and Summary of Significant Accounting Policies		67
2. Real Estate and Tangible Water Assets		78
3. Intangible Assets		79
4. Investments		79
5. Disclosures About Fair Value		910
6. Commitments and Contingencies		1012
7. Accumulated Other Comprehensive Income		1112
8. Related-Party Transactions		1213
9. Segment Reporting		1314
10. Discontinued Operations and Assets and Liabilities Held-for-Sale		14


March 31, 2017	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Carrying Value
Debt securities: corporate bonds	$	4,304	$	101	$	(29	)	$	4,376
September 30, 2017										Cost		Gross Unrealized Gains		Gross Unrealized Losses			Carrying Value
Debt securities: corporate bonds and U.S. Treasuries										$	70,850	$	42	$	(12	)	$	70,880
Marketable equity securities	9,093		9,410		(26		)	18,477		59,716		671		(7		)	60,380
Total	$	13,397	$	9,511	$	(55	)	$	22,853	$	130,566	$	713	$	(19	)	$	131,260


	Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)	Balance at March 31, 2017		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)	Balance at September 30, 2017
Assets
Available-for-sale equity securities⁽¹⁾	$	10,580	$	7,897		$	18,477	$	60,136	$	244		$	60,380
Available-for-sale debt securities⁽¹⁾	4,376					4,376		70,880					70,880
Total	$	14,956	$	7,897		$	22,853	$	131,016	$	244		$	131,260



Asset Description	Quoted Prices In Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)		Total Loss
Oil and gas wells ⁽¹⁾			$	—	$	201
Investments in unconsolidated affiliates ⁽²⁾			$	—	$	2,170


Year ended December 31,
2017	$	174	$	86
2018	166		348
2019	171		356
2020	73		166
2021	—		—
Thereafter	—		—
Total	$	584	$	956



	Shares and Per Share Amounts		Totals
Shares of UCP owned by the Company	10,402
Cash expected to be received	$	5.32	$	55,337
Shares of Century common stock expected to be received (0.2309 per share of UCP owned)	2,402
Value of Century common stock received (priced as of the announcement date)	$	26.10	$	62,686
Total consideration expected to be received			$	118,023
Carrying value of UCP at March 31, 2017 (reduced by $2.4 million in estimated tax distributions)			$	(125,171	)
Impairment loss on assets classified as held-for-sale			$	(7,148	)



	Year Ended December 31,
	2016			2015			2014
Revenues and other income:
Sale of real estate and water assets	$	633		$	3,856		$	1,220
Impairment loss on investment in unconsolidated affiliate	(2,170		)	(20,696		)	(1,078		)
Other income, net	9,471			4,472			1,077
Total revenues and other income	7,934			(12,368		)	1,219

Cost of sales and expenses:
Cost of real estate and water assets sold	326			1,239			738
General, administrative, and other	32,830			20,027			24,156
Impairment loss on intangible and long-lived assets	201			2,085			10,219
Depreciation and amortization	865			1,660			2,385
Total cost and expenses	34,222			25,011			37,498
Loss from continuing operations before income taxes and equity in loss of unconsolidated affiliates	(26,288		)	(37,379		)	(36,279		)
Benefit for federal and state income taxes	1,135			2,961			2,450
Equity in loss of unconsolidated affiliate				(3,422		)	(2,076		)
Loss from continuing operations	(25,153		)	(37,840		)	(35,905		)
Income (loss) from discontinued operations, net of tax	13,899			(24,310		)	(23,700		)
Loss on sale or impairment loss on classification of assets as held-for-sale, net of tax	(1,775		)	(18,729		)
Net income (loss) from discontinued operations, net of tax	12,124			(43,039		)	(23,700		)
Net loss	(13,029		)	(80,879		)	(59,605		)
Net (income) loss attributable to noncontrolling interests	(8,836		)	(979		)	7,180
Net loss attributable to PICO Holdings, Inc.	$	(21,865	)	$	(81,858	)	$	(52,425	)



•	~~Water Resource and Water Storage Operations; and~~
•	~~Corporate.~~


	Payments Due by Period								Payments Due by Period
Contractual Obligations	Less than 1 year		1-3 years		3-5 years	More than 5 years	Total		Less than 1 year		1-3 years		3-5 years	More than 5 years	Total
Operating leases	$	174	$	410			$	584	$	86	$	870			$	956
Other⁽¹⁾	33,572						33,572		4,066						4,066
Total	$	33,746	$	410			$	34,156	$	4,152	$	870			$	5,022


	March 31, 2017		December 31, 2016		Change		September 30, 2017		December 31, 2016		Change
Shareholders’ equity	$	331,906	$	327,994	$	3,912	$	323,960	$	327,994	$	(4,034	)
Shareholders’ equity per share	$	14.38	$	14.22	$	0.16	$	14.00	$	14.22	$	(0.22	)


Thousands of dollars	Three Months Ended March 31,								Three Months Ended September 30,									Nine Months Ended September 30,
	2017		2016			Change			2017			2016			Change			2017		2016			Change
Revenue and other income:
Sale of real estate and water assets	$	25,097	$	98		$	24,999		$	136		$	477		$	(341	)	$	25,276	$	607		$	24,669
Other	95		83			12			211			100			111			490		283			207
Total revenue and other income	25,192		181			25,011			347			577			(230		)	25,766		890			24,876

Cost of sales and expenses:
Cost of real estate and water assets sold	12,532		45			12,487			55			252			(197		)	12,604		316			12,288
Depreciation and amortization	32		203			(171		)	21			37			(16		)	82		316			(234		)
Overhead expense	1,654		1,282			372			856			1,040			(184		)	3,200		3,345			(145		)
Project expense	461		325			136			380			252			128			1,216		1,099			117
Segment total expenses	14,679		1,855			12,824			1,312			1,581			(269		)	17,102		5,076			12,026
Income (loss) before income taxes	$	10,513	$	(1,674	)	$	12,187		$	(965	)	$	(1,004	)	$	39		$	8,664	$	(4,186	)	$	12,850



•	~~Water resource and water storage operations segment held cash of $2.5 million.~~
•	Corporate segment held cash of $50.4 million and marketable equity and debt securities with a market value of $22.9 million. The securities are held in deferred compensation rabbi trust accounts, which will be used to pay the related and offsetting deferred compensation liabilities.