<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) November 20, 1996
-----------------
PICO HOLDINGS, INC.
-------------------
(Exact name of registrant as specified in charter)
<TABLE>
<S> <C> <C>
California 0-18786 94-2723335
---------- ------- ----------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
</TABLE>
875 Prospect Street, Suite 301, La Jolla, California 92037
- ---------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (619) 456-2422
CITATION INSURANCE GROUP
One Almaden Boulevard, Suite 300
San Jose, California 95113
---------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
PICO Holdings, Inc., formerly Citation Insurance Group ("PICO" or the
"Registrant") amends Item 7, FINANCIAL STATEMENTS AND EXHIBITS, to read in full
as follows:
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of PICO.
The financial statements of PICO, one of its subsidiaries and
an affiliate and the related Notes and Reports of Independent
or Chartered Accountants listed below (collectively, the "PICO
Financial Statements") are incorporated herein by reference to
pages F-1 through F-72 of the Registrant's Registration
Statement on Form S-4 (File No. 333-06671).
PICO
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1995
and 1994
Consolidated Statements of Operations for the Years
Ended December 31, 1995, 1994 and 1993
Consolidated Statements of Changes in Shareholders'
Equity for the Years Ended December 31, 1995
and 1994
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1995, 1994 and 1993
Notes to the Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 1996
(unaudited) and December 31, 1995
Consolidated Statements of Operations for the six
months ended June 30, 1996 and 1995
(unaudited)
Consolidated Statements of Cash Flows for the six
months ended June 30, 1996 and 1995
(unaudited)
Notes to the Consolidated Financial Statements
GLOBAL EQUITY CORPORATION (FORMERLY THE ONDAATJE
CORPORATION) Report of Chartered Accountants
Consolidated Statements of Financial Position for the
Years Ended March 31, 1995 and 1994
Consolidated Statements of Operations for the Years
Ended March 31, 1995, 1994 and 1993
Consolidated Statements of Deficit for the Years
Ended March 31, 1995, 1994 and 1993
Consolidated Statements of Changes in Financial
Position for the Years Ended March 31, 1995,
1994 and 1993
Notes to the Consolidated Financial Statements
Consolidated Balance Sheets as of September 30, 1995
and 1994
Consolidated Statements of Operations for the six
months ended September 30, 1995
and 1994 (unaudited)
Consolidated Statements of Changes in Financial
Position for the six months ended September
30, 1995 and 1994 (unaudited)
Notes to the Consolidated Financial Statements
(unaudited)
SEQUOIA INSURANCE COMPANY
Report of Independent Accountants
Balance Sheets as of December 31, 1994 and 1993
Statements of Operations for the Years Ended December
31, 1994, 1993 and 1992
Statements of Changes in Shareholder's Equity for the
Years Ended
2
<PAGE> 3
December 31, 1994, 1993 and 1992
Statements of Cash Flows for the Years Ended December
31, 1994, 1993 and 1992
Notes to Financial Statements
Balance Sheets as of June 30, 1995 (unaudited) and
December 31, 1994
Statements of Operations for the six months ended
June 30, 1995 and 1994 (unaudited)
Statements of Changes in Shareholder's Equity for the
six months ended June 30, 1994 and 1995
(unaudited)
Statements of Cash Flows for the six months ended
June 30, 1995 and 1994 (unaudited)
Notes to interim Financial Statements
The Registrant includes in this filing financial statements of
PICO for the nine month period ended and as of September 30,
1996.
(b) Pro forma financial information.
Pro forma financial information for the year ended December
31, 1995, the six months ended June 30, 1996 and as of June
30, 1996, are incorporated herein by reference to pages 54-59
of the Registrant's Registration Statement on Form S-4 (File
No. 333-06671).
The Registrant includes in this filing the pro forma financial
information for the nine month period ended and as of
September 30, 1996.
(c) Exhibits.
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
2.2 Agreement and Plan of Reorganization dated as of May 1, 1996 among the Registrant,
Citation Holdings, Inc. and PICO and amendment thereto dated August 14, 1996,
incorporated herein by reference to exhibit filed with Amendment No. 2 to Registration
Statement on Form S-4 (File No. 333-06671).
2.3* Second Amendment to Agreement and Plan of Reorganization dated November 12, 1996.
3.1* Amended and Restated Articles of Incorporation of the Registrant.
4.1 Rights Agreement dated July 22, 1991 between Citation and Security Pacific National Bank
("Rights Agreement"), incorporated herein by reference to exhibit filed with Form 8-A on
July 22, 1991.
4.2* First Amendment to Rights Agreement dated April 30, 1996.
4.3* Second Amendment to Rights Agreement dated November 20, 1996.
16.1* Letter regarding change in Certifying Accountant from Deloitte & Touche, LLP,
independent auditors.
23.1* Consent of Coopers & Lybrand L.L.P.
23.2* Consent of KPMG Peat Marwick Thorne, Chartered Accountants.
99.1 PICO Financial Statements, incorporated herein by reference to pages F-1 through F-72 of
Registrant's Registration Statement on Form S-4 (File No. 333-06671).
</TABLE>
3
<PAGE> 4
<TABLE>
<S> <C>
99.2 Unaudited financial statements of PICO for the nine month period ended as of September
30, 1996 and 1995.
99.3 Unaudited pro forma combined financial statements for the nine month period ended and as
of September 30, 1996.
</TABLE>
- ---------------
* Filed with Registrant's Form 8-K on December 4, 1996.
4
<PAGE> 5
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PICO HOLDINGS, INC.
<TABLE>
<S> <C>
Date: December 30, 1996 By: /s/ Gary W. Burchfield
---------------------------------------------------------
Gary W. Burchfield, Chief Financial Officer and Treasurer
</TABLE>
5
<PAGE> 6
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
2.2 Agreement and Plan of Reorganization dated as of May 1, 1996 among the Registrant,
Citation Holdings, Inc. and PICO and amendment thereto dated August 14, 1996,
incorporated herein by reference to exhibit filed with Amendment No. 2 to Registration
Statement on Form S-4 (File No. 333-06671).
2.3* Second Amendment to Agreement and Plan of Reorganization dated November 12, 1996.
3.1* Amended and Restated Articles of Incorporation of the Registrant.
4.1 Rights Agreement dated July 22, 1991 between Citation and Security Pacific National Bank
("Rights Agreement") incorporated herein by reference to exhibit filed with Form 8-A on
July 22, 1991.
4.2* First Amendment to Rights Agreement dated April 30, 1996.
4.3* Second Amendment to Rights Agreement dated November 20, 1996.
16.1* Letter regarding change in Certifying Accountant from Deloitte & Touche, LLP,
independent auditors.
23.1* Consent of Coopers & Lybrand L.L.P.
23.2* Consent of KPMG Peat Marwick Thorne, Chartered Accountants.
99.1 PICO Financial Statements, incorporated herein by reference to pages F-1 through F-72 of
Registrant's Registration Statement on Form S-4 (File No. 333-06671).
99.2 Unaudited financial statements of PICO for the nine month period ended as of September
30, 1996 and 1995.
99.3 Unaudited pro forma combined financial statements for the nine month period ended and as
of September 30, 1996.
- ----------------
</TABLE>
* Filed with Registrant's Form 8-K on December 4, 1996.
6
<PAGE> 1
EXHIBIT 99.2
PHYSICIANS INSURANCE COMPANY OF OHIO AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- -------------
(Unaudited)
ASSETS
<S> <C> <C>
Investments:
Available for sale:
Fixed maturities, at fair value (amortized cost $94,784,167 and $81,326,490) $ 93,810,473 81,573,579
Equity securities, at fair value (cost $64,561,467 and $63,945,369) 105,167,535 99,857,295
Investment in affiliate, at equity 28,086,983 32,974,930
Short-term investments, at cost 11,168,338 9,162,925
Real estate 1,623,201 3,038,750
------------- -------------
Total investments 239,856,530 226,607,479
Cash and cash equivalents 19,481,509 43,987,805
Premiums and other receivables, net 7,530,332 10,927,156
Reinsurance receivables 91,929,975 100,719,416
Prepaid deposits and reinsurance premiums 2,848,107 16,623,918
Accrued investment income 1,622,529 1,716,672
Property and equipment, net 5,422,442 5,538,348
Deferred policy acquisition costs 5,123,414 2,894,644
Other assets 5,212,208 6,439,127
Assets held in separate accounts 6,116,068 6,361,040
------------- -------------
Total assets $ 385,143,114 $ 421,815,605
============= =============
LIABILITIES
Policy liabilities and accruals:
Unpaid losses and loss adjustment expenses, net of discount $ 213,293,973 $ 229,796,606
Future policy benefits and claims payable 12,321,044 15,576,716
Annuity and other policyholders' funds 31,711,044 31,976,176
Unearned premiums 21,261,524 30,858,612
Reinsurance balance payable 5,280,268 8,376,110
Deferred gain on retroactive reinsurance 3,270,070 3,500,544
Other liabilities 6,261,076 11,749,700
Deferred tax liability 6,378,610 4,174,461
Liabilities related to separate accounts 6,116,068 6,361,040
------------- -------------
Total liabilities 305,893,677 342,369,965
------------- -------------
Minority Interest (176,842) 96,295
------------- -------------
SHAREHOLDERS' EQUITY
Preferred stock, $1 par value, authorized 1,000,000 shares; none issued Common
stock:
Class A, $1 par value; authorized 8,000,000; issued 5,476,395 shares 5,476,395 5,476,395
Additional paid-in capital 12,007,240 11,933,320
Net unrealized appreciation on investments 26,658,979 23,827,817
Cumulative foreign currency translation adjustment 35,910 (14,792)
Equity changes of investee company (588,814) (979,066)
Retained earnings 42,461,621 39,906,703
------------- -------------
86,051,331 80,150,377
Less treasury stock, at cost (Class A shares 590,198 in 1996 272,498 shares in 1995) 6,625,052 (801,032)
------------- -------------
Total shareholders' equity 79,426,279 79,349,345
------------- -------------
Total liabilities and shareholders equity $ 385,143,114 $ 421,815,605
============= =============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
<PAGE> 2
CONSOLIDATED STATEMENTS OF OPERATIONS
for the nine months ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
Three Months Ended September Nine Months Ended September 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Premium income $ 8,357,061 $ 5,330,979 $ 22,850,617 $ 15,100,278
Investment income, net 2,714,268 3,026,858 7,767,565 10,163,108
Realized gains on investments 2,251,067 4,074,484 3,096,198 4,773,383
Land sales 1,496,123 1,330,501
Commission income 74,344 38,834 406,588 92,143
Other income 320,359 6,157,988 912,435 6,512,664
------------ ------------ ------------ ------------
Total revenues 13,717,099 18,629,143 36,529,526 37,972,077
------------ ------------ ------------ ------------
Expenses:
Loss and loss adjustment expenses 6,445,518 5,275,201 15,542,124 15,404,893
Benefits and claims 462,237 68,473 701,592 409,231
Interest credited to policyholders 573,572 613,135 1,737,346 1,819,218
Policy acquisition costs 38,292 125,905 74,742
Land sales 1,438 (31,260) 1,406,741 1,335,406
Insurance underwriting and other expenses 5,073,637 3,333,675 14,598,064 7,975,399
------------ ------------ ------------ ------------
Total expenses 12,594,694 9,259,224 34,111,772 27,018,889
------------ ------------ ------------ ------------
Equity in earnings of affiliate 577,104 923,537 27,018,889
------------ ------------ ------------ ------------
Income before income taxes 1,699,509 9,369,919 3,341,291 10,953,188
Provision (benefit) for federal income 344,516 (5,507,417) 786,340 (5,468,698)
------------ ------------ ------------ ------------
taxes
Net income $ 1,354,993 $ 14,877,336 $ 2,554,951 $ 16,421,886
============ ============ ============ ============
Net income per common share
and common equivalent share $ 0.27 $ 2.87 $ 0.49 $ 3.20
============ ============ ============ ============
Weighted average shares outstanding 5,074,348 5,132,468 5,265,012 5,190,821
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
<PAGE> 3
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the nine months ended September 30, 1996 and 1995
-------
<TABLE>
<CAPTION>
1996 1995
------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,554,951 $ 16,421,886
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred taxes 745,672 (6,451,515)
Depreciation and amortization 2,677,166 1,748,782
Realized gains on investments and property and equipment (3,184,701) (4,773,388)
Equity in income of affiliate (632,893)
Changes in assets and liabilities, net of effects from acquisitions of
businesses:
Premiums and other receivables 3,396,824 (5,041,067)
Reinsurance recoverable and payable 19,469,410 (69,183,722)
Accrued investment income 94,143 2,380,716
Deferred policy acquisition costs (4,109,648) (1,602,628)
Unpaid losses and loss adjustment expenses (16,502,633) 47,799,001
Claims payable (1,577,789) (120,144)
Unearned premiums (9,597,088) 10,430,777
Other (3,273,052) (1,000,348)
------------- -------------
Net cash (used in) operating activities (9,939,638) (9,391,650)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from the sale of investments:
Available for sale:
Fixed maturities 6,787,590 111,921,092
Equity securities 38,823,287 7,216,031
Proceeds from maturity of investments:
Available for sale:
Fixed maturities 9,345,393 14,418,792
Purchases of investments:
Available for sale:
Fixed maturities (30,061,188) (10,687,098)
Equity securities (35,357,920) (57,331,124)
Net (purchases) sales of short-term investments (2,005,413) 1,641,505
Net sales of real estate 1,457,389 1,193,311
Proceeds from sale of property and equipment 42,709 63,082
Purchases of property and equipment (222,903) (1,073,859)
------------- -------------
Net cash (used in) provided by investing activities (11,191,056) 67,361,732
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of bank and other borrowings (77,129)
Net decrease in future policy benefits (3,255,672) (120,614)
Net decrease in annuity and other policyholders' funds (265,132) 792,434
Issuance of treasury stock 94,500 350,000
------------- -------------
Net cash (used in) provided by financing activities (3,426,304) 944,691
------------- -------------
Effect of exchange rate changes on cash 50,702
------------- -------------
Net (decrease) increase in cash and cash equivalents (24,506,296) 58,914,773
Cash and cash equivalents at beginning of year 43,987,805 21,058,769
------------- -------------
Cash and cash equivalents at end of period $ 19,481,509 $ 79,973,542
============= =============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
<PAGE> 4
PHYSICIANS INSURANCE COMPANY OF OHIO AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
-----------------
1. Basis of Presentation
The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. The interim financial statements include
all adjustments (all of which are normal and recurring, in nature)
which, in the opinion of management, are necessary in order to make the
financial statements not misleading. For further information, refer to
the consolidated financial statements and footnotes included in the
Company's Form S-4 Registration Statement effective October 3, 1996.
Certain reclassifications have been made to conform to the current
presentation.
2. Subsequent Events
On May 9, 1996, Physicians Insurance Company of Ohio ("PICO"), Guinness
Peat Group plc ("GPG"), and the Ondaatje Corporation ("TOC") (TOC
subsequently changed its name to Global Equity Corporation) entered into
an agreement whereby GPG agreed to sell 850,000 Class A Shares of PICO
common stock to TOC in two blocks, subject to regulatory approval at an
average price of approximately US $18.00 per share. GPG agreed to sell
the shares to TOC at a discount to market due to their status as
restricted stock and in consideration of the quantity of shares to be
purchased. On May 13, and June 4, 1996 TOC purchased the shares. Prior
to these transactions, GPG owned approximately 40% of PICO common stock.
Following these transactions, GPG and TOC own approximately 23% and 16%
of PICO, respectively. The shares of PICO owned by TOC have been
accounted for as treasury shares in the PICO consolidated financial
statements.
3. Pending Business Transaction
On March 4, 1996 the Company and The Citation Insurance Group ("CIG")
announced that they had signed a letter of intent for a stock-for-stock
merger, pursuant to which the Company will become a wholly owned
subsidiary of CIG. As a result of the combination, the shareholders of
the Company will own 80 percent of the combined company. The definitive
agreement to merge the two companies was signed on May 3, 1996. On
November 7, 1996, the shareholders of the Company and CIG voted for the
approval of the merger. The closing date of the transaction was November
20, 1996. Upon consummation of the merger, CIG's name was changed to
"PICO Holdings, Inc."
<PAGE> 1
EXHIBIT 99.3
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed balance sheet as
of September 30, 1996 combines the historical consolidated balance sheets of
Citation and PICO as if the pending Merger had been effective on September 30,
1996, after giving effect to the purchase accounting adjustments described in
the accompanying notes. The unaudited pro forma combined condensed statements of
operations present the combined results of operations of Citation and PICO for
the nine months ended September 30, 1996, as if the acquisition had been
effective on January 1, 1996, after giving effect to the purchase accounting
adjustments described in the accompanying notes.
Pursuant to the Merger Agreement between Citation and PICO, PICO
acquired Citation in a reverse merger whereby each holder of a share of PICO
Stock received a number of shares of Citation Common Stock equal to the Exchange
Ratio. The Exchange Ratio was equal to the PICO Share Value divided by $5.03,
and the PICO Share Value was the average of the closing price of one share of
PICO Stock on the Nasdaq National Market for the 20 consecutive trading days
ending with the trading day immediately prior to the Determination Date of
November 17, 1996. The unaudited pro forma combined financial statements are
prepared based on the PICO average trading price at the minimum level of $25.20.
The unaudited pro forma combined condensed financial statements and
accompanying notes reflect the application of the purchase method of accounting.
Under this method of accounting, the purchase price will be allocated to
Citation's assets acquired and liabilities assumed based on their estimated fair
values at the time of the acquisition. As described in the accompanying notes,
preliminary estimates of the fair values of assets and liabilities have been
combined with the recorded values of the assets and liabilities of PICO.
Changes to the adjustments included in the unaudited pro forma combined
condensed financial statements are expected to be made as evaluations of assets
and liabilities are completed and as additional information becomes available.
Accordingly, the final combined amounts will differ from those set forth in the
accompanying unaudited pro forma combined condensed financial statements. The
unaudited pro forma combined condensed financial statements are intended for
informational purposes only and are not necessarily indicative of the future
financial position or future results of operations of the combined company or of
the financial position or the results of operations of the combined company that
would have actually occurred had the acquisition been in effect as of the date
or for the periods presented.
These unaudited pro forma combined condensed financial statements and
the accompanying notes should be read in conjunction with the consolidated
financial statements, including the accompanying notes, of Citation and PICO
incorporated by reference in this Form 8-K.
<PAGE> 2
PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(in thousands)
<TABLE>
<CAPTION>
PHYSICIANS
INSURANCE COMPANY PRO FORMA
OF OHIO AND ADJUSTMENTS
SUBSIDIARIES CITATION FOR MERGER WITH
CONSOLIDATED INSURANCE GROUP CITATION
(AS REPORTED) (AS REPORTED) INSURANCE GROUP (1) PRO FORMA
---------------- --------------- ------------------- ---------
<S> <C> <C> <C> <C>
ASSETS
Cash, cash equivalents, and other invested assets $30,650 $480 $31,130
Marketable securities 227,065 120,215 347,280
Land held for development 1,623 1,623
-------- -------- ------- --------
Total Investments 259,338 120,695 380,033
-------- -------- ------- --------
Premiums due and other receivables 7,530 8,837 16,367
Reinsurance receivables 91,930 11,882 103,812
Prepaid deposits and reinsurance premiums 2,848 2,814 5,662
Accrued investment income 1,623 2,159 3,782
Property and equipment, net 5,423 818 ($818)(d) 5,423
Deferred policy acquisition costs 5,123 2,487 7,610
Assets held in separate accounts 6,116 6,116
Other 5,212 8,650 618 (e) 14,480
-------- -------- ------- --------
TOTAL ASSETS $385,143 $158,342 ($200) $543,285
======== ======== ======= ========
LIABILITIES
Unpaid losses and loss adjustment expense, net of discount $213,294 $100,294 $313,588
Future policy benefits and claims payable 44,812 44,812
Unearned premiums 21,262 19,498 40,760
Reinsurance balances payable 5,280 1,721 7,001
Accrued expenses and other liabilities 5,480 1,566 $2,203 (g) 11,228
1,000 (f)
979 (b)
Deferred tax liability 6,379 6,379
Deferred gain on retroactive reinsurance 3,270 3,270
Liabilities related to separate accounts 6,116 6,116
-------- -------- ------- --------
TOTAL LIABILITIES 305,893 123,079 4,182 433,154
-------- -------- ------- --------
Minority interest (177) (177)
-------- --------
SHAREHOLDERS' EQUITY
Common stock and additional paid in capital 17,483 45,902 (13,021)(h) 50,364
Net unrealized appreciation on investments 26,659 638 (638)(h) 26,659
Cumulative foreign currency translation adjustment 36 36
Retained earnings(deficit) 42,462 (9,277) 9,277 (h) 42,462
Equity changes of investee company (589) (589)
Less common stock in treasury (6,625) (2,000) (8,625)
-------- -------- ------- --------
Total Shareholders' Equity 79,426 35,263 (4,382) 110,307
-------- -------- ------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $385,142 $158,342 ($200) $543,284
======== ======== ======= ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL
PART OF THIS PRO FORMA FINANCIAL INFORMATION
<PAGE> 3
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(in thousands, except share and per share data)
MINIMUM PICO SHARE PRICE OF $25.20
<TABLE>
<CAPTION>
PHYSICIANS
INSURANCE COMPANY PRO FORMA
OF OHIO AND SUBSIDIARIES CITATION INSURANCE ADJUSTMENTS
CONSOLIDATED GROUP FOR
FOR THE NINE MONTHS ENDED FOR THE NINE MONTHS ENDED PURCHASE OF
SEPTEMBER 30, 1996 SEPTEMBER 30, 1996 CITATION
(AS REPORTED) (AS REPORTED) INSURANCE GROUP (1) PRO FORMA
------------------------- ------------------------- ------------------- ---------
OPERATING DATA:
<S> <C> <C> <C> <C>
Premium income $ 22,851 $ 38,002 $ 60,853
Net investment income 10,864 6,683 17,547
Land Sales and other 2,815 110 $165 j 3,090
-------- -------- --------- --------
Total revenues 36,530 44,795 165 81,490
-------- -------- --------- --------
Net losses and lost adjustment expenses 15,542 32,810 48,352
Insurance underwriting and other expenses 14,597 14,159 (286)i 28,470
Land Sales and other 3,973 651 4,624
-------- -------- --------- --------
Total expenses 34,112 47,620 (286) 81,446
-------- -------- --------- --------
Equity in earnings of affiliate 923 923
-------- --------
Income (loss) from continuing operations
before income taxes 3,341 (2,825) 451 967
Income taxes 786 5,390 97 l 6,273
-------- -------- --------- --------
Income (loss) from continuing operations $ 2,555 ($ 8,215) $ 354 ($ 5,306)
======== ======== ========= ========
Per common share:
Income (loss) from continuing operations $ 0.49 ($ 0.16)
Weighted average shares outstanding 5,265 32,466 k
</TABLE>
The accompanying notes are an integral
part of this pro forma financial information
<PAGE> 4
NOTES TO THE PRO FORMA COMBINED FINANCIAL STATEMENTS
(1) The Merger will be accounted for under the purchase method of
accounting as a reverse merger since the PICO shareholders will control 80% of
the newly issued shares of the newly combined corporation. The final allocation
of the purchase price has not yet been determined, and accordingly, the amounts
shown below may differ from the amounts ultimately determined. The allocation of
the purchase price is determined as follows (in thousands):
Purchase Price
<TABLE>
<S> <C>
Value of Citation shares to be exchanged (a) $30,654
Acquisition costs (b) 979
Value of Citation options assumed (c) 227
-------
31,860
Allocation of Purchase Price
Historic Citation Shareholders' Equity 35,263
Adjust assets and liabilities:
Property and equipment (d) (818)
Deferred income taxes (e) 618
Integration liability (f) (1,000)
Negative goodwill (g) (2,203)
-------
31,860
</TABLE>
- ----------
(a) Represents the currently issued and outstanding shares of Citation
Common Stock as of September 30, 1996 valued at $5.03, the implied
share price of Citation Common Stock.
(b) Represents management's estimate of PICO's expenses and fees related to
the Merger, including expenses and fees for legal counsel, investment
advisors, printing and distribution, and accountants.
(c) Represents an adjustment to reflect the fair value of Citation stock
options.
(d) Represents an adjustment to writeoff property and equipment due to
negative goodwill.
(e) Represents an adjustment to deferred income taxes related to the
write-off of property and equipment and integration liability.
(f) Represents management's estimate of integration costs as a result of
the Merger.
(g) Represents negative goodwill related to the excess of Citation's fair
value of net assets in excess of the purchase price.
(h) Represents the elimination of Citation retained earnings and unrealized
appreciation of investments and the adjustment of equity accounts for
the combined corporation.
Citation's pro forma adjustments to its results of operations for the nine
months ended September 30, 1996 for the acquisition are as follows:
(i) Represents adjustment related to the add-back of depreciation expense
related to the nine months ended September 30, 1996.
<PAGE> 5
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
(j) Represents adjustment related to the straight line amortization of
negative goodwill over a 10-year period.
(k) For the nine months ended September 30, 1996, reflects Citation's
weighted average shares of 6,088,251 plus PICO's historic weighted
average shares at the exchange rate of 5.03.
(l) Represents the tax effect of (other than negative goodwill) pro forma
adjustments at an effective tax rate of 34%.
