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Exhibit 99.5

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

 

The unaudited pro forma condensed combined balance sheet as of June 30, 2015 gives effect to the Insurance Companies acquisitions as if they had occurred on June 30, 2015. The unaudited pro forma condensed combined balance sheet is derived from the unaudited historical financial statements of HC2 and the Insurance Companies as of June 30, 2015.

The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2014 and the unaudited pro forma condensed combined statement of operations for the six months ended June 30, 2015 give effect to the Schuff, Bridgehouse Marine, and Insurance Companies acquisitions as if they had occurred on January 1, 2014. The unaudited pro forma condensed combined statement of operations is derived from the audited historical financial statements of HC2 and Insurance Companies as of and for the year ended December 31, 2014, the unaudited historical financial statements of Bridgehouse Marine for the nine months ended September 30, 2014 and Schuff for the five months ended May 26, 2014, and the unaudited historical financial statements of HC2 and Insurance Companies as of and for the six months ended June 30, 2015.

The unaudited pro forma condensed combined financial statements and the notes to the unaudited pro forma condensed combined financial statements were based on, and should be read in conjunction with:

·

Our historical audited and unaudited consolidated financial statements and related notes and the sections entitled Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, filed on March 16, 2015, and Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015, filed on August 10, 2015.

·

UTAIC’s and CGIC’s historical audited financial statements and related notes for the fiscal years ended December 31, 2014 and 2013, and the related consolidated statements of earnings, comprehensive income, changes in equity and cash flows for each of the three fiscal years ended December 31, 2014, which is attached hereto as Exhibit 99.5 and is incorporated herein by reference.

·

Schuff’s historical audited financial statements and related notes as of and for the year ended December 29, 2013, and the unaudited historical financial statements of Schuff and related notes as of and for the three-month period ended March 31, 2014, which were previously filed as Exhibit 99.1 and Exhibit 99.2, respectively, to the Company’s Current Report on Form 8-K/A, filed on August 14, 2014.

·

Bridgehouse Marine’s historical audited financial statements and related notes as of December 31, 2013 and for the year then ended, which were previously filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K/A, filed on December 8, 2014.

The unaudited pro forma adjustments, which the Company believes are reasonable under the circumstances, are preliminary and are based upon available information and certain assumptions described in the accompanying notes to the unaudited pro forma condensed combined financial information. Actual results and valuations may differ materially from the assumptions within the accompanying unaudited pro forma condensed combined financial information.

The unaudited pro forma condensed combined financial statements have been prepared by HC2’s management in accordance with SEC Regulation S-X Article 11 and are not necessarily indicative of the combined financial position or results of operations that would have been realized had the transactions been completed as of the dates indicated, nor are they meant to be indicative of any anticipated combined financial position or future results of operations that the Company will experience after the transactions. In addition, the accompanying unaudited pro forma condensed combined statements of operations do not include any pro forma adjustments to reflect expected cost savings that may be achievable or the impact of any non-recurring activity or one-time transaction related costs.

 

The historical consolidated financial statements have been adjusted to reflect factually supportable items that are directly attributable to the acquisition and, with respect to the unaudited pro forma condensed combined statements of operations and are not expected to have a continuing impact on the results of operations of the combined company.

 

 

HC2 HOLDING, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET As of June 30, 2015 (in thousands, except share data amounts)
																		Pro Forma Adjustments
		HC2				UTAIC				CGIC				Combined UTAIC and CGIC				UTAIC and CGIC Acquisition				Ref.				Pro Forma As Adjusted
ASSETS
Investments
Fixed maturities, available for sale at fair value		$	1,032			$	1,003,150			$	231,487			$	1,234,637			$	-							$	1,235,669
Equity securities, available for sale at fair value			27,329				67,407				11,757				79,164				-								106,493
Mortgage loans			-				-				2,113				2,113				-								2,113
Policy loans			-				15,831				2,764				18,595				-								18,595
Other investments			55,697				3,666				223				3,889				-								59,586
Total investments			84,058				1,090,054				248,344				1,338,398				-								1,422,456
Cash and cash equivalents			68,941				21,760				6,651				28,411				(9,296	)			(6a	)			88,056
Restricted cash			7,188				-				-				-				-								7,188
Accounts receivable, net			214,027				-				-				-				-								214,027
Cost and recognized earnings in excess of billings on uncompleted contracts			35,573				-				-				-				-								35,573
Inventories			17,796				-				-				-				-								17,796
Recoverables from reinsurers			-				179,262				420,504				599,766				-								599,766
Accrued investment income			-				12,100				2,634				14,734				-								14,734
Deferred tax asset			22,699				-				19,759				19,759				16,448				(6b	)			58,906
Property and equipment, net			235,862				-				-				-				-								235,862
Goodwill			29,649				2,146				-				2,146				22,697				(6c	)			54,492
Intangibles including DAC, net			27,987				49,472				18,546				68,018				(65,323	)			(6d	)			30,682
Other assets			42,175				2,405				487				2,892				(581	)			(6e	)			44,486
Assets held for sale			8,597				-				-				-				-								8,597
Total assets			794,552				1,357,199				716,925				2,074,124				(36,055	)							2,832,621
LIABILITIES AND STOCKHOLDERS’ EQUITY
Life, accident and health reserves		$	-			$	947,004			$	559,315			$	1,506,319			$	196,190				(6f	)		$	1,702,509
Annuity benefits accumulated			-				191,760				75,931				267,691				-								267,691
Accounts payable and other current liabilities			187,816				-				-				-				-								187,816
Billings in excess of costs and recognized earnings on uncompleted contracts			29,859				-				-				-				-								29,859
Deferred tax liability			-				289				-				289				(289	)			(6g	)			-
Long-term obligations			387,073				-				-				-				13,000				(6h	)			400,073
Pension liability			34,538				-				-				-				-								34,538
Other liabilities			7,754				12,705				14,063				26,768				22,249				(6i	)			56,771
Total liabilities			647,040				1,151,758				649,309				1,801,067				231,150								2,679,257
Commitments and contingencies
Temporary equity
Preferred stock			53,013				-				-				-				-								53,013
Stockholders' equity:
Common stock			26				2,500				4,197				6,697				(6,696	)			(6j	)			27
Additional paid-in capital			150,537				149,524				96,792				246,316				(240,206	)			(6k	)			156,647
Retained earnings (accumulated deficit)			(58,157	)			33,772				(38,048	)			(4,276	)			4,017				(6l	)			(58,416	)
Treasury stock, at cost			(378	)			-				-				-				-								(378	)
Accumulated other comprehensive loss (income)			(20,139	)			19,645				4,675				24,320				(24,320	)			(6m	)			(20,139	)
Total HC2 Holdings, Inc. stockholders’ equity before noncontrolling interest			71,889				205,441				67,616				273,057				(267,205	)							77,741
Noncontrolling interest			22,610				-				-				-				-								22,610
Total stockholders' equity			94,499				205,441				67,616				273,057				(267,205	)							100,351
Total liabilities and stockholders' equity		$	794,552			$	1,357,199			$	716,925			$	2,074,124			$	(36,055	)						$	2,832,621

See notes to unaudited pro forma condensed combined financial statements

 

 

HC2 HOLDING, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS For the Six Months Ended June 30, 2015 (in thousands, except per share data amounts)
																		Pro Forma Adjustments
		HC2				UTAIC				CGIC				Combined UTAIC and CGIC				UTAIC and CGIC Acquisition Adjustments				Ref.				Pro Forma As adjusted
Services revenue		$	221,559			$	-			$	-			$	-			$	-							$	221,559
Sales revenue			261,231				-				-				-				-								261,231
Life, accident and health net earned premiums			-				35,947				5,263				41,210				-								41,210
Net investment income			-				30,213				7,081				37,294				(3,088	)			(7a	)			34,206
Realized gains/(losses) on investments							(1,485	)			(844	)			(2,329	)			-								(2,329	)
			.
Net revenue			482,790				64,675				11,500				76,175				(3,088	)							555,877
Operating expenses:
Cost of revenue-services			196,509				-				-				-				-								196,509
Cost of revenue-sales			221,445				-				-				-				-								221,445
Life, accident and health benefits			-				40,735				8,917				49,652				(4,250	)			(7b	)			45,402
Annuity benefits			-				3,628				1,179				4,807				-								4,807
Insurance acquisition expenses, net			-				8,435				1,966				10,401				(5,031	)			(7c	)			5,370
Selling, general and administrative			49,529				7,029				2,530				9,559				-								59,088
Depreciation and amortization			10,242				-				-				-				-								10,242
(Gain) loss on sale or disposal of assets			971				-				-				-				-								971
Total operating expenses			478,696				59,827				14,592				74,419				(9,281	)							543,834
Income (loss) from operations			4,094				4,848				(3,092	)			1,756				6,193								12,043
Interest expense			(18,649	)			-				-				-				-								(18,649	)
Amortization of debt discount			(176	)			-				-				-				-								(176	)
Other income (expense), net			(4,744	)			19				2,342				2,361				-								(2,383	)
Foreign currency transaction gain (loss)			1,051				-				-				-				-								1,051
Income (loss) from continuing operations before income taxes and income (loss) from equity investees			(18,424	)			4,867				(750	)			4,117				6,193								(8,114	)
Income (loss) from equity investees			(1,259	)			-				-				-				-								(1,259	)
Income tax benefit (expense)			3,369				(1,431	)			277				(1,154	)			(2,168	)			(7d	)			47
Income (loss) from continuing operations			(16,314	)			3,436				(473	)			2,963				4,025								(9,326	)
Less: Net (income) loss from continuing operations attributable to the noncontrolling interest			57				-				-				-				-								57
Net income (loss) from continuing operations attributable to HC2 Holdings, Inc.		$	(16,257	)		$	3,436			$	(473	)		$	2,963			$	4,025							$	(5,778	)
Less: Perferred stock and dividends accretion			2,177				-				-				-				-								2,177
Net income (loss) from continuing operations attributable to common stock and participating preferred stockholders		$	(18,434	)		$	3,436			$	(473	)		$	2,963			$	4,025							$	(11,446	)
Basic income (loss) per common share
Net loss from continuing operations attributable to HC2 Holdings, Inc.		$	(0.74	)																						$	(0.45	)
Diluted income (loss) per common share
Net loss from continuing operations attributable to HC2 Holdings, Inc.		$	(0.74	)																						$	(0.45	)
Common shares outstanding
Basic			24,838																867				(9	)			25,705
Diluted			24,838																867				(9	)			25,705

See notes to unaudited pro forma condensed combined financial statements

 

 

HC2 HOLDING, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS For the Year Ended December 31, 2014 (in thousands, except per share data amounts)

See notes to unaudited pro forma condensed combined financial statements

 

1.

Description of the Transaction

Acquisition of UTAIC and CGIC

On April 13, 2015, the Company entered into a Stock Purchase Agreement (the “Purchase Agreement”) with Continental General Corporation, a Nebraska corporation, and Great American Financial Resources, Inc., a Delaware corporation (collectively, the “Sellers”), pursuant to which the Company agreed to purchase from the Sellers all of the issued and outstanding shares of common stock of the Insurance Companies, as well as all assets owned by the Sellers or their affiliates that are used exclusively or primarily in the business of the Insurance Companies, subject to certain exceptions. The Insurance Companies are providers of long-term care and life insurance policies and annuity contracts.

Previous acquisitions reflected within the pro forma

On May 29, 2014, the Company completed the acquisition of 2.5 million shares of common stock of Schuff, a steel fabrication and erection company and negotiated an agreement to purchase an additional 198,411 shares, representing an approximately 65% interest in Schuff. Schuff repurchased a portion of its outstanding common stock in June 2014, which had the effect of increasing the Company’s ownership interest to 70%. During the fourth quarter of 2014 and the first quarter of 2015, the final results of a tender offer for all outstanding shares of Schuff were announced and various open-market purchases were made, which resulted in the acquisition of 815,843 shares and an increase in our ownership interest to 91%. Schuff and its wholly-owned subsidiaries primarily operate as integrated fabricators and erectors of structural steel and heavy steel plates with headquarters in Phoenix, Arizona and operations in Arizona, Georgia, Texas, Kansas and California. Schuff’s construction projects are primarily in the aforementioned states. In addition, Schuff has construction projects in select international markets, primarily Panama. The Company acquired Schuff to expand the business that it engages in and saw Schuff as an opportunity to enter the steel fabrication and erection market. The Company purchased 2.5 million shares of common stock of Schuff for $78.75 million. The purchase price of Schuff was valued at $31.50 per share which represented both the cash paid by the Company for its 60% interest, and the fair value of the noncontrolling interest of 40%.

On September 22, 2014, the Company completed the acquisition of Bridgehouse Marine and its subsidiary, Global Marine Systems Limited (“GMSL”). The purchase price is reflective of an enterprise value of approximately $260 million, including assumed indebtedness of approximately $130 million leaving a net enterprise value of approximately $130 million. GMSL is a leading provider of engineering and underwater services on submarine cables.

2.

Basis of Presentation

The unaudited pro forma condensed combined balance sheet as of June 30, 2015 and the unaudited pro forma condensed combined statements of operations for the year ended December 31, 2014 and six months ended June 30, 2015 are based on the historical combined financial statements of HC2, UTAIC, CGIC, after giving effect to the completion of the acquisition and the assumptions and adjustments described in the accompanying notes. In addition, the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2014 is inclusive of the Schuff and GMSL historical operations prior to the acquisition by HC2. Such pro forma adjustments are (1) factually supportable, (2) directly attributable to the acquisition, and (3) with respect to the unaudited pro forma condensed combined statements of operations, expected to have a continuing impact on the results of operations of the combined company.

At this preliminary stage, no identifiable finite lived intangible assets were identified for the acquisition of the Insurance Companies. The estimated identifiable indefinite lived intangible asset represents state licenses, which are not amortized, but will be subject to periodic impairment testing. Reserves were calculated using actuarial assumptions for future morbidity, persistency, premiums and future expenses as of June 30, 2015. In addition, the reserves reflect current and forward interest rates based on the current economic environment. A provision for adverse deviation was included on future interest rates and premiums. Goodwill represents the excess of the estimated purchase price over the estimated fair value of the Insurance Companies’ assets and liabilities, and will not be amortized, but will be subject to periodic impairment testing. Upon consummation of the acquisition, the estimated fair value of the assets and liabilities will be updated.

The unaudited pro forma condensed combined financial statements are presented solely for informational purposes and are not necessarily indicative of the combined financial position or the results of operations that might have been achieved had the transaction been completed as of the dates indicated, nor are they meant to be indicative of any anticipated combined financial position or future results of operations that the combined company will experience after the transaction. In addition, the accompanying unaudited pro forma condensed combined statements of operations do not reflect expected revenue synergies, expected cost savings or restructuring actions that may be achievable, or the impact of any non-recurring activity and one-time transaction related costs.

 

3.

Accounting Policies

As part of preparing the unaudited pro forma condensed combined financial statements, the Company conducted a review of the accounting policies of the Insurance Companies to determine if differences in accounting policies require restatement or reclassification of results of operations or reclassification of assets or liabilities to conform to HC2’s accounting policies and classifications. The Company did not become aware of any material differences between the accounting policies of HC2 and the Insurance Companies during the preparation of these unaudited pro forma condensed combined financial statements, with the exception of certain insurance specific accounting policies, which have not been applicable to HC2 prior to the Insurance Companies acquisition and certain reclassifications necessary to conform to HC2’s financial presentation. Accordingly, these unaudited pro forma condensed combined financial statements do not assume any material differences in accounting policies between HC2 and the Insurance Companies. The results of this review are included in Note 4. Upon consummation of the Insurance Companies acquisition, a more comprehensive review of the accounting policies of the Insurance Companies will be performed which may identify other differences among the accounting policies of HC2 and the Insurance Companies that, when confirmed, could have a material impact on the unaudited pro forma condensed combined financial statements.

4.

Historical HC2, and Insurance Companies conforming adjustments

HC2 has historically reported a classified balance sheet, with assets and liabilities separated between current and non-current, while the Insurance Companies have historically reported their balance sheets on an unclassified basis. However, after giving consideration to the nature of the Insurance Companies businesses and the impact of their inclusion of their balance sheets on HC2’s consolidated balance sheet upon completion of the acquisition, HC2 will report its consolidated balance sheet on an unclassified basis, and HC2’s consolidated balance sheet presentation and captions will be generally based on the SEC’s Regulation §S-X 210-7.03. Accordingly, HC2’s historical amounts reflected in the unaudited combined pro forma balance sheet as of June 30, 2015 have been reclassified to conform to the unclassified presentation. A reconciliation of the significant reclassifications made to HC2’s historical balance sheet is provided below.

 

Financial information of HC2 column of the unaudited pro forma condensed combined balance sheet represents the historical reported balances of HC2 reclassified to conform to the go-forward presentation as a result of the acquisition of UTAIC and CGIC in HC2’s consolidated financial statements as set forth below. Unless otherwise indicated, defined line items included in the notes have the meanings given to them in the historical financial statements of HC2.

 

_________________________

1.

Adjustment to reclassify $12,265 of “Short-term investments” into $1,032 of “Fixed maturities”, $11,214 of “Equity securities”, and $19 of “Other Investments”

2.

Adjustment to reclassify $71,793 of “Long-term investments” into $16,115 of “Equity securities” and $55,678 of “Other investments”

3.

Adjustment to reclassify “Deferred tax asset - current” and “Deferred tax asset - long-term” to “Deferred tax asset”

4.

Adjustment to reclassify “Prepaid expenses and other current assets” to “Other assets”

5.

Adjustment to reclassify “Accounts payable”, “Accrued interconnection costs”, “Accrued payroll and employee benefits”, “Accrued expenses and other current liabilities”, “Accrued income taxes”, and “Accrued interest” to “Accounts payable and other current liabilities”

6.

Adjustment to reclassify “Current portion of long-term obligations” to “Long-term obligations”

7.

Adjustment to reclassify “Current portion of pension liability” to “Pension liability”

 

Financial information of the Insurance Companies in the “UTAIC Historical” and “CGIC Historical” columns of the unaudited pro forma condensed combined financial statements represents the historical audited balances of UTAIC and CGIC reclassified to conform to the presentation in HC2’s condensed consolidated financial statements as set forth below. Unless otherwise indicated, defined line items included in the notes have the meanings given to them in the historical financial statements of the Insurance Companies.

Insurance Companies' Reclassification and classification of the unaudited condensed combined pro forma balance sheet as of June 30, 2015

		UTAIC												CGIC												Ref.
		Before Reclassification				Reclassification Amount				After Reclassification				Before Reclassification				Reclassification Amount				After Reclassification
(dollars in thousands)
Assets:
Deferred policy acquisition costs			49,472				(49,472	)		-					15,851				(15,851	)		-					1
Other assets			4,551				(2,146	)			2,405				3,182				(2,695	)			487				1
Intangibles including DAC, net			-				49,472				49,472				-				18,546				18,546				1
Goodwill			-				2,146				2,146				-				-				-				1

_______________________

1.

Adjustment to reclassify “Deferred policy acquisition costs” and intangible assets within “Other assets” into “Intangibles including DAC, net” and “Goodwill”

UTAIC and CGIC reclassification of the Unaudited Pro Forma Condensed Combined Statement of Operations for the Six Months ended June 30, 2015

		UTAIC												CGIC												Ref.
(dollars in thousands)		Before Reclassification				Reclassification Amount				After Reclassification				Before Reclassification				Reclassification Amount				After Reclassification
Other Income			19				(19	)			-				2,342				(2,342	)			-				1
Other income (expense), net			-				19				19				-				2,342				2,342				1
Other operating and general expenses			7,029				(7,029	)			-				2,530				(2,530	)			-				2
Selling, general and administrative			-				7,029				7,029				-				2,530				2,530				2