Document


FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities and Exchange Act of 1934
Date of Report (Date of earliest event reported): May 3, 2018

HC2 HOLDINGS, INC.
 
Delaware
001-35210
54-1708481
(State or other jurisdiction
of incorporation)
(Commission File Number)
(IRS Employer
Identification No.)
 
 
 
 
450 Park Avenue, 30th Floor
 
 
New York, NY 10022
 
 
(Address of principal executive offices)
 
 
(212) 235-2690
(Registrant’s telephone number, including area code)
 
Not Applicable
(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 ☐
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 ☐
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 ☐
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 ☐
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company
 ☐
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐






Item 7.01 Regulation FD Disclosure
On May 3, 2018, HC2 Holdings, Inc. (“HC2”) announced that it commenced a private offering of $105 million aggregate principal amount of its 11.000% Senior Secured Notes due 2019 (the “Notes Offering”) to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and to certain persons in offshore transactions in accordance with Regulation S under the Securities Act.  HC2 previously issued $400 million aggregate principal amount of its 11.000% Senior Secured Notes due 2019.

A copy of the press release announcing the Notes Offering is furnished with this Current Report on Form 8-K as Exhibit 99.1 and is incorporated herein by reference.

In connection with the Notes Offering, HC2 is providing prospective investors with certain financial and other information of HC2, which HC2 is furnishing with this report as outlined below. This information, which has not been previously reported, is excerpted from a preliminary offering memorandum that is being disseminated in connection with the Notes Offering or from an investor presentation related thereto, as outlined below:

Information
Furnished as Exhibit
Press Release, dated May 3, 2018
99.1
Non-GAAP Financial Measures
99.2
Recent Developments
99.3
Risk Factors
99.4
Unaudited Pro Forma and Historical Condensed Combined Financial Statements
99.5
Selected Investor Presentation Materials
99.6

This Current Report on Form 8-K does not constitute an offer to sell or the solicitation of an offer to buy any security and shall not constitute an offer, solicitation or sale of any security in any jurisdiction in which such offering, solicitation or sale would be unlawful. The Senior Secured Notes being offered in the Notes Offering will not be and have not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act.

This information shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, and shall not be deemed to be incorporated by reference into any of HC2’s filings under the Securities Act or the Exchange Act, whether made before or after the date hereof and regardless of any general incorporation language in such filings, except to the extent expressly set forth by specific reference in such a filing.

Forward Looking Statements

This Current Report on Form 8-K, including Exhibits 99.1 and 99.2, contains forward-looking statements.  Actual results, events or developments may differ materially from those anticipated or discussed in any forward-looking statement.  These statements are subject to risks, uncertainties and other factors, as discussed further in the press release attached hereto as Exhibit 99.1.






Item 9.01 Financial Statements and Exhibits
(d)    Exhibits
Exhibit No.
 
99.1
99.2
99.3
99.4
99.5
99.6






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.

 
HC2 Holdings, Inc.
 
 
 
May 3, 2018
By:
/s/ Michael J. Sena
 
 
 
 
 
Name: Michael J. Sena
 
 
Title: Chief Financial Officer



Exhibit




Exhibit 99.1
https://cdn.kscope.io/b8017f67961ce3370c9b068df39b8b26-hc2logoa18.jpg


FOR IMMEDIATE RELEASE

HC2 Holdings Announces Launch of Private Offering of $105 Million Senior Secured Notes

Net Proceeds to Refinance Senior Secured Bridge Loans,
for Working Capital and General Corporate Purposes

New York, May 3, 2018 (GlobeNewswire) - HC2 Holdings, Inc. (“HC2”) (NYSE: HCHC), a diversified holding company, announced today a private offering of $105 million aggregate principal amount of its 11.000% Senior Secured Notes due 2019 (the “Notes”). The Company expects to use the net proceeds from the issuance of the notes to refinance all of its outstanding senior secured bridge loans (the “Bridge Loans”), for working capital for the Company and its subsidiaries and for general corporate purposes, including the financing of future acquisitions and investments.

The net proceeds from the Bridge Loans were used by HC2 to complete various acquisitions, including the majority equity interest in DTV America Corporation, the assets of Mako Communications, LLC and Three Angels Broadcasting Network, Inc., as well as certain entities from OTA Broadcasting, LLC, Azteca America, and the acquisition of substantially all of the assets of Northstar and to pay fees and expenses relating to these acquisitions.

The Notes will be issued under the same indenture as the Company’s existing 11.000% Senior Secured Notes due 2019 (the “Existing Notes”). The Notes will constitute part of a single class of securities with, the Existing Notes. The offering of Notes is subject to market conditions and other factors.

The Notes will be offered only to “qualified institutional buyers” in reliance on Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and outside the United States to non-U.S. persons in compliance with Regulation S under the Securities Act.

The Notes have not been and will not be registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act.

This press release does not constitute an offer to sell or the solicitation of an offer to buy any security and shall not constitute an offer, solicitation or sale of any security in any jurisdiction in which such offering, solicitation or sale would be unlawful.

About HC2

HC2 Holdings, Inc. is a publicly traded (NYSE: HCHC) diversified holding company, which seeks opportunities to acquire and grow businesses that can generate long-term sustainable free cash flow and attractive returns in order to maximize value for all stakeholders. HC2 has a diverse array of operating subsidiaries across eight reportable segments, including Construction, Marine Services, Energy, Telecommunications, Life Sciences, Broadcasting, Insurance and Other. HC2’s largest operating subsidiaries include DBM Global Inc., a family of companies providing fully integrated structural and steel construction services, and Global Marine Systems Limited, a leading provider of engineering and underwater services on submarine cables. Founded in 1994, HC2 is headquartered in New York, New York. Learn more about HC2 and its portfolio companies at www.hc2.com.






Cautionary Statement Regarding Forward Looking Statements

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: This release contains, and certain oral statements made by our representatives from time to time may contain, forward-looking statements, including statements regarding the commencement or completion of the offering. Generally, forward-looking statements include information describing the offering and other actions, events, results, strategies and expectations and are generally identifiable by use of the words “believes,” “expects,” “intends,” “anticipates,” “plans,” “seeks,” “estimates,” “projects,” “may,” “will,” “could,” “might,” or “continues” or similar expressions. The forward-looking statements in this press release include, without limitation, statements regarding our expectation regarding building shareholder value. Such statements are based on the beliefs and assumptions of HC2’s management and the management of HC2’s subsidiaries and portfolio companies. The Company believes these judgments are reasonable, but you should understand that these statements are not guarantees of performance or results, and the Company’s actual results could differ materially from those expressed or implied in the forward-looking statements due to a variety of important factors, both positive and negative, that may be revised or supplemented in subsequent reports on Forms 10-K, 10-Q and 8-K. Such important factors include, without limitation, the ability of our subsidiaries (including target businesses following their acquisition) to generate sufficient net income and cash flows to make upstream cash distributions, capital market conditions, our subsidiaries’ ability to identify any suitable future acquisition opportunities, efficiencies/cost avoidance, cost savings, income and margins, growth, economies of scale, combined operations, future economic performance, conditions to, and the timetable for, completing the integration of financial reporting of acquired or target businesses with HC2 or the applicable subsidiary of HC2, completing future acquisitions and dispositions, litigation, potential and contingent liabilities, management’s plans, changes in regulations and taxes. These risks and other important factors discussed under the caption “Risk Factors” in our most recent Annual Report on Form 10- K filed with the Securities and Exchange Commission (“SEC”), and our other reports filed with the SEC could cause actual results to differ materially from those indicated by the forward-looking statements made in this press release.

You should not place undue reliance on forward-looking statements. All forward-looking statements attributable to HC2 or persons acting on its behalf are expressly qualified in their entirety by the foregoing cautionary statements. All such statements speak only as of the date made, and HC2 undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.


For information on HC2 Holdings, Inc., please contact: Andrew G. Backman
Managing Director Investor Relations & Public Relations abackman@hc2.com 212-339-5836





Exhibit




Exhibit 99.2

NON-GAAP FINANCIAL MEASURES

Adjusted EBITDA is a “non-GAAP financial measure” as defined under the rules of the SEC.
 Adjusted EBITDA represents EBITDA net income (loss) attributable to HC2 Holdings, Inc., adjusted for depreciation and amortization, interest expense and income tax (benefit) expense), adjusted to exclude our Insurance segment and add back or deduct certain items that management believes are non-recurring in nature or not comparable from period to period. See below for the definition of Adjusted EBITDA employed by HC2.
 Our management uses Adjusted EBITDA as a supplemental financial measure to assess:
l
the financial performance of our assets without regard to our Insurance segment, financing methods, capital structure, taxes, historical cost basis or non-recurring expenses;
 
 
l
our liquidity and operating performance over time in relation to other companies that own similar assets and calculate Adjusted EBITDA in a similar manner; and
 
 
l
the ability of our assets to generate cash sufficient to pay potential interest cost.
We use Adjusted EBITDA as presented in this offering memorandum as a supplemental measure of our performance. Adjusted EBITDA is not defined under generally accepted accounting principles in the United States (“GAAP” or “US GAAP”) and is not a measure of operating income, operating performance or liquidity presented in accordance with GAAP.
Adjusted EBITDA has limitations as an analytical tool and when assessing our operating performance or liquidity, investors and others should not consider this data in isolation or as a substitute for net income (loss) attributable to HC2 Holdings, Inc., cash flow from operating activities or other cash flow data calculated in accordance with GAAP.
Further, the results presented by Adjusted EBITDA cannot be achieved without incurring the costs that the measure excludes: interest, taxes, depreciation and amortization. Please see the audited and unaudited financial statements and the notes thereto of HC2 incorporated by reference into this offering memorandum.
 Adjusted EBITDA Reconciliations

The calculation of Adjusted EBITDA, as defined by us, consists of net income (loss) attributable to HC2, excluding our Insurance segment, as adjusted for depreciation and amortization; amortization of equity method fair value adjustments at acquisition; (gain) loss on sale or disposal of assets; lease termination costs; asset impairment expense; interest expense; net gain (loss) on contingent consideration; loss on early extinguishment or restructuring of debt; other (income) expense, net; foreign currency transaction (gain) loss included in cost of revenue; income tax (benefit) expense; (gain) loss from discontinued operations; noncontrolling interest; bonus to be settled in equity; share-based compensation expense; non-recurring items; and acquisition costs.

Adjusted EBITDA is not a measurement recognized under U.S. GAAP. In addition, other companies may define Adjusted EBITDA differently than we do, which could limit its usefulness. Management believes that Adjusted EBITDA provides investors with meaningful information for gaining an understanding of our results as it is frequently used by the financial community to provide insight into an organization's operating trends and facilitates comparisons between peer companies, since interest, taxes, depreciation, amortization and the other items listed in the definition of Adjusted EBITDA below can differ greatly between organizations as a result of differing capital structures and tax strategies. Adjusted EBITDA can also be a useful measure of a company's ability to service debt. While management believes that non-U.S. GAAP measurements are useful supplemental information, such adjusted results are not intended to replace our U.S. GAAP financial results. Using Adjusted EBITDA as a performance measure has inherent limitations as an analytical tool as compared to net income (loss) or other U.S. GAAP financial measures, as this non-GAAP measure excludes certain items, including items that are recurring in nature, which may be meaningful to investors. As a result of the exclusions, Adjusted EBITDA should not be considered in isolation and does not purport to be an alternative to net income (loss) or other U.S. GAAP financial measures as a measure of our operating performance. Adjusted EBITDA excludes the results of operations of our Insurance segment.





The following table provides the reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable GAAP measure:
(in thousands):
 
December 31, 2017
 
 
Core Operating Subsidiaries
 
Early Stage and Other
 
 
 
HC2
 
Construction
Marine Services
 
Energy
 
Telecom
 
Life Sciences
Other and Eliminations
Non-operating Corporate
 
Net loss attributable to HC2 Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
(46,911
)
Less: Net Income attributable to HC2 Holdings Insurance Segment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7,066

Net Income (loss) attributable to HC2 Holdings, Inc., excluding Insurance Segment
 
$
23,624

 
$
15,173

 
$
(516
)
 
$
6,163

 
$
(18,098
)
 
$
(18,005
)
 
$
(62,318
)
 
$
(53,977
)
Adjustments to reconcile net income (loss) to Adjusted EBITDA:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
 
5,583

 
22,898

 
5,071

 
371

 
186

 
1,508

 
71

 
35,688

Depreciation and amortization (included in cost of revenue)
 
5,254

 

 

 

 

 

 

 
5,254

Amortization of equity method fair value adjustment at acquisition
 

 
(1,594
)
 

 

 

 

 

 
(1,594
)
Asset impairment expense
 

 

 

 

 

 
1,810

 

 
1,810

(Gain) loss on sale or disposal of assets
 
292

 
(3,500
)
 
247

 
181

 

 

 

 
(2,780
)
Lease termination costs
 

 
249

 

 
17

 

 

 

 
266

Interest expense
 
976

 
4,392

 
1,181

 
41

 

 
4,373

 
44,135

 
55,098

Net gain on contingent consideration
 

 

 

 

 

 

 
(11,411
)
 
(11,411
)
Other (income) expense, net
 
(41
)
 
2,683

 
1,488

 
149

 
(17
)
 
6,541

 
(92
)
 
10,711

Foreign currency gain (included in cost of revenue)
 

 
(79
)
 

 

 

 

 

 
(79
)
Income tax (benefit) expense
 
10,679

 
203

 
(4,243
)
 
7

 
(820
)
 
(1,129
)
 
(10,185
)
 
(5,488
)
Noncontrolling interest
 
1,941

 
260

 
(681
)
 

 
(3,936
)
 
(1,164
)
 

 
(3,580
)
Bonus to be settled in equity
 

 

 

 

 

 

 
4,130

 
4,130

Share-based compensation expense
 

 
1,527

 
364

 

 
319

 
279

 
2,754

 
5,243

Non-recurring items
 

 

 

 

 

 

 

 

Acquisition costs
 
3,280

 
1,815

 

 

 

 
2,648

 
3,764

 
11,507

Adjusted EBITDA
 
$
51,588

 
$
44,027

 
$
2,911

 
$
6,929

 
$
(22,366
)
 
$
(3,139
)
 
$
(29,152
)
 
$
50,798

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Core Operating Subsidiaries
 
$
105,455

 
 
 
 
 
 
 
 
 
 
 
 
 
 






(in thousands):
 
December 31, 2016
 
 
Core Operating Subsidiaries
 
Early Stage and Other
 
 
 
HC2
 
Construction
Marine Services
 
Energy
 
Telecom
 
Life Sciences
Other and Eliminations
Non-operating Corporate
 
Net loss attributable to HC2 Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
(94,549
)
Less: Net loss attributable to HC2 Holdings Insurance Segment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(14,028
)
Net Income (loss) attributable to HC2 Holdings, Inc., excluding Insurance Segment
 
$
28,002

 
$
17,447

 
$
7

 
$
1,435

 
$
(7,646
)
 
$
(24,800
)
 
$
(94,966
)
 
$
(80,521
)
Adjustments to reconcile net income (loss) to Adjusted EBITDA:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
 
1,892

 
22,007

 
2,248

 
504

 
124

 
1,480

 
9

 
28,264

Depreciation and amortization (included in cost of revenue)
 
4,370

 

 

 

 

 

 

 
4,370

Amortization of equity method fair value adjustment at acquisition
 

 
(1,371
)
 

 

 

 

 

 
(1,371
)
(Gain) loss on sale or disposal of assets
 
1,663

 
(9
)
 

 
708

 

 

 

 
2,362

Lease termination costs
 

 

 

 
179

 

 

 

 
179

Interest expense
 
1,239

 
4,774

 
211

 

 

 
1,164

 
35,987

 
43,375

Net loss (gain) on contingent consideration
 

 
(2,482
)
 

 

 

 

 
11,411

 
8,929

Other (income) expense, net
 
(163
)
 
(2,424
)
 
(8
)
 
(87
)
 
(3,213
)
 
9,987

 
(1,277
)
 
2,815

Foreign currency gain (included in cost of revenue)
 

 
(1,106
)
 

 

 

 

 

 
(1,106
)
Income tax (benefit) expense
 
18,727

 
1,394

 
(535
)
 
2,803

 
1,558

 
3,250

 
11,245

 
38,442

Noncontrolling interest
 
1,834

 
974

 
(4
)
 

 
(3,111
)
 
(2,575
)
 

 
(2,882
)
Bonus to be settled in equity
 

 

 

 

 

 

 
2,503

 
2,503

Share-based compensation expense
 

 
1,682

 
597

 

 
251

 
273

 
5,545

 
8,348

Non-recurring items
 

 

 

 

 

 

 
1,513

 
1,513

Acquisition costs
 
2,296

 
290

 
27

 
18

 

 

 
2,312

 
4,943

Adjusted EBITDA
 
$
59,860

 
$
41,176

 
$
2,543

 
$
5,560

 
$
(12,037
)
 
$
(11,221
)
 
$
(25,718
)
 
$
60,163

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Core Operating Subsidiaries
 
$
109,139

 
 
 
 
 
 
 
 
 
 
 
 
 
 






(in thousands):
 
December 31, 2015
 
 
Construction
 
Marine Services
 
Telecom
 
Energy
 
Life Sciences
 
Other and Eliminations
 
Non-operating Corporate
 
HC2
Net Income (loss) attributable to HC2 Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
(35,565
)
Less: Net Income (loss) attributable to HC2 Holdings Insurance Segment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,327

Net Income (loss) attributable to HC2 Holdings, Inc., excluding Insurance Segment
 
$
24,451

 
$
20,855

 
$
2,779

 
$
(274
)
 
$
(4,575
)
 
$
(18,276
)
 
$
(61,852
)
 
$
(36,892
)
Adjustments to reconcile net income (loss) to Adjusted EBITDA:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Depreciation and amortization
 
2,016

 
18,772

 
417

 
1,635

 
20

 
1,934

 

 
24,794

Depreciation and amortization (included in cost of revenue)
 
7,659

 

 

 

 

 

 

 
7,659

Amortization of equity method fair value adjustments at acquisition
 

 
(1,516
)
 

 

 

 

 

 
(1,516
)
(Gain) loss on sale or disposal of assets
 
257

 
(138
)
 
50

 

 

 
1

 

 
170

Lease termination costs
 

 

 
1,184

 

 

 
1

 

 
1,185

Asset impairment expense
 

 
547

 

 

 

 

 

 
547

Interest expense
 
1,379

 
3,803

 

 
42

 

 

 
33,793

 
39,017

Other (income) expense, net
 
(443
)
 
(1,340
)
 
(2,304
)
 
(42
)
 
(1
)
 
5,764

 
5,242

 
6,876

Foreign currency (gain) loss (included in cost of revenue)
 

 
(2,039
)
 

 

 

 

 

 
(2,039
)
Income tax (benefit) expense
 
15,572

 
400

 
(237
)
 
(347
)
 
(1,037
)
 
(7,733
)
 
(16,052
)
 
(9,434
)
Loss from discontinued operations
 
20

 

 

 

 

 
1

 

 
21

Noncontrolling interest
 
1,136

 
616

 

 
(267
)
 
(1,681
)
 
(1
)
 

 
(197
)
Share-based payment expense
 

 

 

 
49

 
71

 

 
10,982

 
11,102

Acquisition and nonrecurring items
 

 
2,181

 
121

 
70

 
23

 

 
8,362

 
10,757

Adjusted EBITDA
 
$
52,047

 
$
42,141

 
$
2,010

 
$
866

 
$
(7,180
)
 
$
(18,309
)
 
$
(19,525
)
 
$
52,050







Exhibit




Exhibit 99.3


RECENT DEVELOPMENTS

Preliminary Data for the First Quarter of 2018

While we do not have complete financial results for the fiscal quarter ended March 31, 2018, we do have certain preliminary information for certain of our businesses, investments and segments.

GMSL Preliminary Data

Based on preliminary data for GMSL, our Marine Services segment, we currently anticipate its income from joint ventures and associates (accounted for under the equity method) will be adversely affected by the operations of Huawei Marine Networks (“HMN”, in which GMSL holds a 49% stake) in China. Two of HMN’s major turn-key projects that commenced in prior periods booked negligible revenue during the quarter as a result of the normal project cycle. The fixed costs of the operations (manufacturing, distribution and SG&A) were still incurred and this led to a significant loss after tax in the quarter, although the volume and profitability of these two projects are expected to ramp up across the remainder of 2018. As a result, we expect the Marine Services segment to report slightly negative Adjusted EBITDA for the quarter. However, we believe the above represent short term timing issues and do not believe this indicates an ongoing problem or a deterioration in GMSL’s (our Marine Services segment’s) long-term performance. We expect GMSL to report backlog at levels consistent with those reported at year end, reflective of normal burn off recognized in the first quarter on its maintenance contracts, in addition to strong backlog from HMN.

Other Core Segment Preliminary Data

Based on preliminary data, we currently expect to report Adjusted EBITDA in aggregate for our other core segments, which include Construction, Energy and Telecommunications, at levels consistent with the first quarter of the prior year. Because the reporting period for the first quarter of 2018 has recently ended, these preliminary anticipated results reflect assumptions and estimates based only upon preliminary information available to us as of the date of this offering memorandum. Neither our independent registered public accounting firm nor any other independent registered public accounting firm has audited or reviewed these preliminary results, nor have they expressed any opinion or any other form of assurance on the preliminary results. As a result of the foregoing, while this information is presented in a manner that is considered reasonable by us, it is subject to change pending finalization. Actual results for the first quarter of 2018 could differ materially from the above expectations. In addition, our Marine Services segment’s results and our Construction segment’s results could be materially adversely affected by any of the risks set forth under “Risk Factors-Risks Related to Our Business”, including any of the risks set forth under “-Risks Related to GMSL”, or items described under “Special Note Regarding Forward-Looking Statements.”

BeneVir Disposition

On May 2, 2018, we announced that BeneVir Biopharm, Inc. (“BeneVir”), a development stage company focused on the development of a patent-protected oncolytic virus, BV-2711, for the treatment of solid cancer tumors, entered into a definitive agreement to be acquired by Janssen Biotech, Inc. (“Janssen”) for upfront consideration of $140.0 million, subject to adjustment, and potential development and commercial milestones of up to $900.0 million in cash (the “BeneVir Disposition”). BeneVir is a portfolio company of Pansend Life Sciences, LLC (“Pansend”), our Life Sciences segment. Pansend is the owner of all of BeneVir’s outstanding preferred stock, through which Pansend holds an approximate 80%, or 76% on a fully diluted basis, controlling interest in BeneVir. The closing of the transaction is subject to customary closing conditions, including clearance under the Hart-Scott-Rodino Antitrust Improvements Act. The transaction is expected to close in the second quarter of 2018. HC2 expects to receive in excess of $80.0 million in net proceeds from the upfront consideration of the BeneVir Disposition, including approximately $10.0 million of amounts to be held in escrow.


 





Exhibit




Exhibit 99.4

RISK FACTORS

Risks Related to Our Businesses
We rely on information systems to conduct our businesses, and failure to protect these systems against security breaches and otherwise to implement, integrate, upgrade and maintain such systems in working order could have a material adverse effect on our results of operations, cash flows or financial condition.
The efficient operation of our businesses is dependent on computer hardware and software systems. For instance, HC2 and its subsidiaries rely on information systems to process customer orders, manage inventory and accounts receivable collections, purchase products, manage accounts payable processes, track costs and operations, maintain client relationships and accumulate financial results. Despite our implementation of industry-accepted security measures and technology, our information systems are vulnerable to and have been in the past subject to computer viruses, malicious codes, unauthorized access, phishing efforts, denial-of-service attacks and other cyber attacks and we expect to be subject to similar attacks in the future as such attacks become more sophisticated and frequent. There can be no assurance that our cyber-security measures and technology will adequately protect us from these and other risks, including external risks such as natural disasters and power outages and internal risks such as insecure coding and human error. Attacks perpetrated against our information systems could result in loss of assets and critical information, theft of intellectual property or inappropriate disclosure of confidential information and could expose us to remediation costs and reputational damage. In addition, the unexpected or sustained unavailability of the information systems or the failure of these systems to perform as anticipated for any reason, including cyber-security attacks and other intentional hacking, could subject us to legal claims if there is loss, disclosure or misappropriation of or access to our customers’ information and could result in service interruptions, safety failures, security violations, regulatory compliance failures, an inability to protect information and assets against intruders, sensitive data being lost or manipulated and could otherwise disrupt our businesses and result in decreased performance, operational difficulties and increased costs, any of which could adversely affect our business, results of operations, financial condition or liquidity.
Foreign currency fluctuations can impact our financial results.
Foreign currency fluctuations can impact our financial results. During the years ended December 31, 2017, 2016, and 2015, approximately 11.5%, 28.4%, and 36.4% respectively, of our net revenue from continuing operations was derived from sales and operations outside the U.S. The reporting currency for our Consolidated Financial Statements is the United States dollar (“USD”). The local currency of each country is the functional currency for each of our respective entities operating in that country.
In the future, we expect to continue to derive a portion of our net revenue and incur a portion of our operating costs from outside the U.S., and therefore changes in exchange rates may continue to have a significant, and potentially adverse, effect on our results of operations. Our risk of loss regarding foreign currency exchange rate risk is caused primarily by fluctuations in the USD/British pound sterling (“GBP”) exchange rate. Changes in the exchange rate of USD relative to the GBP could have an adverse impact on our future results of operations. We have agreements with certain subsidiaries for repayment of a portion of the investments and advances made to these subsidiaries. As we anticipate repayment in the foreseeable future, we recognize the unrealized gains and losses in foreign currency transaction gain (loss) on the Consolidated Financial Statements. The exposure of our income from operations to fluctuations in foreign currency exchange rates is reduced in part because certain of the costs that we incur in connection with our foreign operations are also denominated in local currencies.
We are exposed to financial statement gains and losses as a result of translating the operating results and financial position of our international subsidiaries. We translate the local currency statements of operations of our foreign subsidiaries into USD using the average exchange rate during the reporting period. Changes in foreign exchange rates affect the reported profits and losses and cash flows of our international subsidiaries and may distort comparisons from year to year . By way of example, when the USD strengthens compared to the GBP, there could be a negative or positive effect on the reported results for our Telecommunications segment, depending upon whether such businesses are operating profitably or at a loss. More profits in GBP are required to generate the same amount of profits in USD and a greater loss in GBP to generate the same amount of loss in USD, and vice versa. For instance, when the USD weakens against the GBP, there is a positive effect on reported profits and a negative effect on reported losses.





We are subject to risks associated with our international operations.
Furthermore, significant developments stemming from the change in the U.S. Presidential Administration could have a material adverse effect on HC2. The U.S. Presidential Administration has expressed antipathy towards existing trade agreements, like NAFTA, and proposed restrictions on free trade generally and significant increases on tariffs on goods imported into the United States, particularly from China. Further changes in U.S. social, political, regulatory and economic conditions or in laws and policies governing foreign trade, manufacturing, development and investment in the territories and countries where we currently develop and sell products, and any negative sentiments towards the United States as a result of such changes, could adversely affect our business. In addition, negative sentiments towards the United States among non-U.S. customers and among non-U.S. employees or prospective employees could adversely affect sales or hiring and retention, respectively.





Exhibit

Exhibit 99.5

HC2 HOLDINGS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

 
The following unaudited pro forma condensed combined balance sheet as of December 31, 2017 and the unaudited pro forma condensed combined statements of operations for the year ended December 31, 2017 of HC2 Holdings, Inc. ("HC2", "we", "us", "the Company", or "our") give effect to the following acquisition of Humana Inc.’s (NYSE:HUM) ("Humana") long-term care insurance business of KMG America Corporation (“KMG”) which KMG operates through it's wholly owned subsidiary Kanawha Insurance Company ("KIC") (the “KMG Acquisition”), acquisition of the trenching and cable laying business ("Furrow") from Fugro N.V. ("Fugro") (the "Furrow Acquisition"), the issuance of $105,000,000 aggregate principal amount of 11.000% Senior Secured Notes due 2019, the issuance of $42,000,000 aggregate principal amount of Bridge Loans in connection with the $33,000,000 acquisition of certain assets affiliated with Azteca International Corporation and Northstar Media, LLC, and refinancing of all of our then outstanding Bridge Loans totaling $102,000,000 (collectively, the "Transactions").
 
The unaudited pro forma condensed combined balance sheet as of December 31, 2017 gives effect to the Transactions as if they had occurred on December 31, 2017. The unaudited pro forma condensed combined balance sheet is derived from the audited historical financial statements of HC2 and KMG as of December 31, 2017.

The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2017 give effect to the Transactions as if they had occurred on January 1, 2017. The unaudited pro forma condensed combined statements of operations are derived from the audited historical financial statements of HC2 and KMG and unaudited historic financial statements of Furrow as of and for the eleven months period ended November 30, 2017.

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

Our historical audited consolidated financial statements, 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, 2017, filed on March 14, 2018.

Furrow’s historical unaudited condensed combined and carve-out interim financial statements and related notes as of and for the nine month periods ended September 30, 2017 (incorporated by reference as Exhibit 99.2 to HC2’s Current Report on Form 8-K, filed on December 19, 2017) (File No. 001-35210) and stub period from October 1, 2017 through November 30, 2017.

KMG’s historical audited consolidated financial statements and related notes as of and for the year ended December 31, 2017 (incorporated by reference as Exhibit 99.1 to HC2’s Current Report on Form 8-K, filed on May 3, 2018).

The unaudited pro forma condensed combined financial statements have been prepared by HC2’s management using the acquisition method of accounting for business combinations under accounting principles generally accepted in the United States of America and are not necessarily indicative of the combined financial position or results of operations that would have been realized had the acquisitions been completed as of the dates indicated, nor are they meant to be indicative of the Company's anticipated combined financial position or future results of operations that the Company will experience after the acquisitions.

The historical consolidated financial statements have been adjusted to reflect factually supportable items that are directly attributable to the acquisitions and, with respect to the unaudited pro forma condensed combined statements of operations, are expected to have a continuing impact on the results of operations of the combined company.

In connection with the post-acquisition integration of the operations of KMG, HC2 anticipates that nonrecurring integration charges will be incurred. HC2 is not able to determine the timing, nature, and amount of these charges as of the date of this filing. However, these charges will impact the results of operations of the combined company in the period in which they are incurred.




HC2 HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
As of December 31, 2017 (in thousands)





Pro Forma Adjustments
Financing Adjustments



Total Pro Forma


HC2

KMG

KMG

Ref.


Ref.

Assets



(4a)










Investments:














Fixed maturity securities, available-for-sale at fair value

$
1,340,626


$
2,337,241


$


 

$




$
3,677,867

Equity securities, available-for-sale at fair value

47,500












47,500

Mortgage loans

52,109


1,216










53,325

Policy loans

17,944


10,644


(7,317
)

(6a)





21,271

Other invested assets

85,419












85,419

Total investments

1,543,598


2,349,101


(7,317
)







3,885,382

Cash and cash equivalents

97,885


210,797


(41,845
)

(6b)

11,951

 
(6m)
278,788

Accounts receivable, net

322,446


2,897










325,343

Recoverable from reinsurers

526,337


559,059


320,600


(6c)





1,405,996

Deferred tax asset

1,661


170,072


(170,072
)

(6d)





1,661

Property, plant and equipment, net

374,660












374,660

Goodwill

131,741












131,741

Intangibles, net

117,105


84,579


(84,579
)

(6e)





117,105

Other assets

102,258


35,394




 





137,652

Total assets

$
3,217,691


$
3,411,899


$
16,787




$
11,951




$
6,658,328















 
Liabilities, temporary equity and stockholders’ equity











 
Life, accident and health reserves

$
1,693,961


$
2,820,125


$
150,662


(6f)

$




$
4,664,748

Annuity reserves

243,156












243,156

Value of business acquired

42,969




300,810


(6g)





343,779

Accounts payable and other current liabilities

347,492


22,252


(6,858
)

(6h)

(28,748
)

(6n)

334,138

Deferred tax liability

10,740




52,470


(6i)





63,210

Debt obligations

593,172








44,047


(6o)
637,219

Other liabilities

70,174


921










71,095

Total liabilities

3,001,664


2,843,298


497,084




15,299




6,357,345

Commitments and contingencies













 
Temporary equity













 
Preferred stock

26,296












26,296

Redeemable noncontrolling interest

1,609












1,609

Total temporary equity

27,905












27,905

Stockholders’ equity













 
Common stock

44












44

Additional paid-in capital

254,685


1,667,487


(1,667,487
)

(6j)




254,685

Treasury stock, at cost

(2,057
)











(2,057
)
Accumulated deficit

(221,189
)

(1,125,700
)

1,214,004


(6k)
(3,348
)

(6p)

(136,233
)
Accumulated other comprehensive income

41,688


26,814


(26,814
)

(6l)





41,688

Total HC2 Holdings, Inc. stockholders’ equity

73,171


568,601


(480,297
)



(3,348
)



158,127

Noncontrolling interest

114,951












114,951

Total stockholders’ equity

188,122


568,601


(480,297
)



(3,348
)



273,078

Total liabilities, temporary equity and stockholders’ equity

$
3,217,691


$
3,411,899


$
16,787




$
11,951




$
6,658,328


See notes to unaudited pro forma condensed combined financial statements





HC2 HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2017
(in thousands, except per share data amounts)
 
 
 
 
 
 
 
 
Pro Forma Adjustments
 
Financing Adjustments
 
 
 
Total Pro Forma
 
 
HC2
 
KMG
 
Furrow
 
KMG
 
Ref.
 
Furrow
 
Ref.
 
 
Ref.
 
 
 
 
 
(4a)
 
(4c)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
1,482,546

 
$

 
$
40,894

 
$

 
 
 
$

 
 
 
$

 
 
 
$
1,523,440

Life, accident and health earned premiums, net
 
80,524

 
156,058

 

 
(120,259
)
 
(7a)
 

 
 
 

 
 
 
116,323

Net investment income
 
66,070

 
97,580

 

 
(9,198
)
 
(7b)
 

 
 
 

 
 
 
154,452

Net realized and unrealized gains on investments
 
4,983

 
7,685

 

 

 
 
 

 
 
 

 
 
 
12,668

Net revenue
 
1,634,123

 
261,323

 
40,894

 
(129,457
)
 
 
 

 
 
 

 
 
 
1,806,883

Operating expenses
 
 
 
 
 

 
 
 
 
 

 
 
 
 
 
 
 

Cost of revenue
 
1,313,069

 

 
42,140

 

 
 
 
(8,116
)
 
(7h)
 

 
 
 
1,347,093

Policy benefits, changes in reserves, and commissions
 
108,695

 
188,825

 

 
(70,221
)
 
(7c)
 

 
 
 

 
 
 
227,299

Selling, general and administrative
 
182,880

 
77,363

 
4,160

 
(68,888
)
 
(7d)
 
(1,767
)
 
(7i)
 

 
 
 
193,748

Depreciation and amortization
 
31,315

 
27,248

 
6,482

 
(47,939
)
 
(7e)
 
(1,428
)
 
(7j)
 

 
 
 
15,678

Other operating (income) expenses
 
(704
)
 

 
(6
)
 

 
 
 

 
 
 

 
 
 
(710
)
Total operating expenses
 
1,635,255

 
293,436

 
52,776

 
(187,048
)
 
 
 
(11,311
)
 
 
 

 
 
 
1,783,108

Income (loss) from operations
 
(1,132
)
 
(32,113
)
 
(11,882
)
 
57,591

 
 
 
11,311

 
 
 

 
 
 
23,775

Interest expense
 
(55,098
)
 

 

 

 
 
 
(636
)
 
(7k)
 
(10,549
)
 
(7l)
 
(66,283
)
Gain on contingent consideration
 
11,411

 

 

 

 
 
 

 
 
 

 
 
 
11,411

Gain on bargain purchase
 

 

 

 
88,407

 
(7f)
 

 
 
 

 
 
 
88,407

Income from equity investees
 
17,840

 

 

 

 
 
 

 
 
 

 
 
 
17,840

Other income (expenses)
 
(12,772
)
 
9

 
(31
)
 

 
 
 

 
 
 

 
 
 
(12,794
)
Income (loss) before income taxes
 
(39,751
)
 
(32,104
)
 
(11,913
)
 
145,998

 
 
 
10,675

 
 
 
(10,549
)
 
 
 
62,356

Income tax (expense) benefit
 
(10,740
)
 
(85,484
)
 
(189
)
 
(12,094
)
 
(7g)
 

 
 
 

 
(7m)
(108,507
)
Net loss
 
(50,491
)
 
(117,588
)
 
(12,102
)
 
133,904

 
 
 
10,675

 
 
 
(10,549
)
 
 
 
(46,151
)
Less: Net loss attributable to noncontrolling interest and redeemable noncontrolling interest
 
3,580

 

 

 

 
 
 

 
 
 

 
 
 
3,580

Net loss attributable to HC2 Holdings, Inc.
 
(46,911
)
 
(117,588
)
 
(12,102
)
 
133,904

 
 
 
10,675

 
 
 
(10,549
)
 
 
 
(42,571
)
Less: Preferred stock and deemed dividends from conversions
 
2,767

 

 

 

 
 
 

 
 
 

 
 
 
2,767

Net loss attributable to common stock and participating preferred stockholders
 
$
(49,678
)
 
$
(117,588
)
 
$
(12,102
)
 
$
133,904

 
 
 
$
10,675

 
 
 
$
(10,549
)
 
 
 
$
(45,338
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Basic and diluted loss per common share
 
$
(1.16
)
 


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
(1.06
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic and diluted weighted average common shares outstanding
 
42,824

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
42,824







See notes to unaudited pro forma condensed combined financial statements





HC2 HOLDINGS, INC.
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(in thousands, except as noted otherwise)

1.
Description of the Transaction

Acquisition of KMG America Corporation

On November 6, 2017, Continental General Insurance Company (“CGI”), an indirect subsidiary of the Company, entered into a Stock Purchase Agreement (the “SPA”) with Humana (the “KMG Acquisition”). Pursuant to the SPA, CGI agreed to acquire Humana's long-term care insurance business, KMG. KMG’s wholly owned subsidiary KIC is a life and accident and health insurance company domiciled in the state of South Carolina and is authorized to sell life, accident and health products therein and in 47 states including the District of Columbia. KIC’s primary business is life and health insurance risk assumption, third-party administration and medical management services. Included in the risk assumptions are the KIC’s traditional product lines of supplemental health, short-term disability, individual life, and annuity, as well as products specifically directed at the senior market including Medicare supplement, final expenses life insurance and a closed block of long-term care products.

As consideration for the KMG Acquisition, (a) CGI agreed to pay $10.0 thousand to Humana for all outstanding KMG shares, and (b) Humana agreed to make a capital contribution of $203.0 million to KIC prior to the closing of the KMG Acquisition.

The obligation of each party to consummate the KMG Acquisition is subject to customary closing conditions, including, among others, receipt of regulatory approvals by the South Carolina and Texas insurance departments, redomestication of KIC to Texas, merger of KIC into CGI, the delivery of a coinsurance and administrative services agreement with respect to the coinsured business between Humana and KIC, customary conditions relating to the accuracy of the other party’s representations and warranties (subject to certain materiality exceptions), and each party having performed in all material respects its obligations under the SPA.

Previous acquisition of Furrow

On November 30, 2017, Global Marine Systems Limited ("GMSL"), an indirect subsidiary of the Company, consummated the transaction contemplated by a Business Purchase Agreement (the "BPA") and a Warranty and Indemnity Agreement, in each case by and among Fugro N.V., a public limited liability company incorporated in the Netherlands (“Fugro”), GMSL and Global Marine Holdings LLC (“GMHL”), an indirect subsidiary of the Company and an indirect parent company of GMSL. Pursuant to the BPA, GMSL acquired the trenching and cable laying business ("Furrow") of Fugro (the “Furrow Acquisition”), consisting of, among other things, 19 employees, one vessel, two trenching systems and two work class remotely operated vehicles ("ROV") and working capital.

As consideration for the Furrow Acquisition, GMSL paid $7.5 million (the "Cash Consideration") to Fugro for a Q1400 Trenching System (the "Trencher"), and (b) GMHL issued to a subsidiary of Fugro (the "Fugro Member") membership units representing a 23.6% equity interest in GMHL (excluding management incentive units), valued at $79.7 million based on the preliminary purchase price allocation. The limited liability company agreement of GMHL was amended and restated upon consummation of the Furrow Acquisition to reflect such issuance and to provide the Fugro Member with certain rights, including the right to designate two of the up to seven members of GMHL's board of directors, the right to approve certain actions outside the ordinary course of business, certain "tag-along" rights to participate in sales of membership units by other members and, after five years and subject to the Fugro Member first offering its membership units to the other members at a price based upon independent valuations, the right to cause GMHL to be put up for sale in a process led by an investment banking firm.

In order to finance the Cash Consideration, GMSL incurred a loan of $7.5 million from a subsidiary of Fugro pursuant to a Vendor Loan Agreement, dated as of November 30, 2017, by and between Fugro Financial Resources B.V. and GMSL (the "Vendor Loan Agreement"). The loan bears interest, payable quarterly, at 4% per annum through December 31, 2017, and at 10% per annum thereafter, and matures 363 days following the closing of the Furrow Acquisition. The Trencher serves as collateral security for the repayment of the loan pursuant to the terms of a lien agreement.

2.
Basis of Presentation

The KMG Acquisition and the Furrow Acquisition are accounted for under the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”).

Acquisition of KMG America Corporation

At this preliminary stage, no identifiable finite lived intangible assets were identified for the KMG Acquisition. Reserves were calculated using actuarial assumptions for future morbidity, persistency, premiums and future expenses as of December 31, 2017. 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. Bargain purchase represents the excess of the estimated fair value of the Target's assets and liabilities over the estimated purchase price and will be recognized as income. Upon consummation of the KMG Acquisition, the estimated fair value of the assets and liabilities will be updated.









Previous Furrow Acquisition

The Furrow Acquisition was accounted for under ASC 805. There were no intangible assets identified. The goodwill recorded represents the excess of the purchase price over the estimated fair value of Furrow’s assets and will not be amortized but will be subject to periodic impairment testing.

Furrow is the aggregate of various parts of legal entities which have not previously been represented by one separate legal reporting entity. Consequently, Fugro management has never prepared a single set of financial statements which represented the Furrow business. Accordingly, to meet the filing requirements of HC2, audited combined and carve-out financial statements as of and for the years ended December 31, 2016 and 2015, and unaudited condensed combined and carve-out financial statements as of September 30, 2017 and for the nine month periods ended September 30, 2017 and 2016 have been prepared in accordance with IFRS as issued by the IASB. The combined and carve-out financial statements reflect income and expenses, assets and liabilities and cash flows of those entities that have historically formed the Furrow business within Fugro and those which can be allocated to the Furrow business.

The Furrow business consisted of one wholly identifiable legal entity and two legal entities that had shared activities and operations with Furrow and other Fugro businesses; these are considered commingled legal entities. As such, the combined and carve-out financial statements of Furrow include the combined financial information of the wholly identifiable legal entity and the respective specifically identifiable assets, liabilities, revenues, and expenses of Furrow within commingled legal entities.

The historical combined and carve-out financial statements reflect the actual historical activities of Furrow and therefore also include certain assets that were not part of the acquisition. Consequently, the combined and carve-out financial statements may not be indicative of Furrow’s future performance. Furthermore, the combined and carve-out financial statements do not necessarily reflect what its combined results of operations, financial position and cash flows would have been had Furrow operated as an independent legal group and had it presented stand-alone financial statements during the periods presented.

The unaudited combined and carve-out financial statements of Furrow as of and for the nine months ended September 30, 2017 were issued on December 19, 2017. As the Furrow Acquisition closed on November 30, 2017, the results of the two months ended November 30, 2017 are included in the pro forma statements of operations within this current filing.

3.    Accounting Policies

Acquisition of KMG America Corporation

As part of preparing the unaudited pro forma condensed combined financial statements, the Company conducted a review of the accounting policies of KMG 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 KMG during the preparation of these unaudited pro forma condensed combined financial statements. Accordingly, these unaudited pro forma condensed combined financial statements do not assume any material differences in accounting policies between HC2 and KMG. The results of this review are included in Note 4. Upon consummation of the the KMG Acquisition, a more comprehensive review of the accounting policies of KMG will be performed which may identify other differences among the accounting policies of HC2 and KMG that, when conformed, could have a material impact on the unaudited pro forma condensed combined financial statements.

Previous acquisition of Furrow

As part of preparing the unaudited pro forma condensed combined financial statements, the Company conducted a review of the accounting policies of Furrow 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.

Furrow's audited combined and carve-out financial statements as of and for the years ended December 31, 2016, unaudited condensed combined and carve-out financial statements as of and for the nine month periods ended September 30, 2017, and unaudited results for the two months ended 30 November 2017 were presented under IFRS. See Note 4 for details of the historical IFRS to US GAAP adjustments.

Other than to conform to HC2's financial presentation, the Company did not become aware of any further material differences between the accounting policies of HC2 and Furrow during the preparation of these unaudited pro forma condensed combined financial statements. The adjustments are detailed in Note 4.















4.
Conforming adjustments

Acquisition of KMG America Corporation

(4a) Both HC2 and KMG's consolidated balance sheets are reported on an unclassified basis, and are generally based on the SEC’s Regulation §S-X 210-7.03. Financial information of KMG was reclassified to conform to the presentation of 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 KMG.
For the year ended December 31, 2017
 
Historical
 
Presentation Adjustment
 
Historical, as adjusted
 
Ref.
 
 
 
 
 
 
 
 
 
Net premiums
 
$
156,058

 
$
(156,058
)
 
$

 
1
Life, accident and health earned premiums, net
 
$

 
$
156,058

 
$
156,058

 
1
Net investment and interest income
 
$
105,264

 
$
(105,264
)
 
$

 
1
Net investment income
 
$

 
$
97,580

 
$
97,580

 
1
Net realized and unrealized gains on investments
 
$

 
$
7,685

 
$
7,685

 
1
Net benefits expense
 
$
190,819

 
$
(190,819
)
 
$

 
1
Commission allowance on reinsurance ceded
 
$
(1,994
)
 
$
1,994

 
$

 
1
Policy benefits, changes in reserves, and commissions
 
$

 
$
188,825

 
$
188,825

 
1
Other revenue
 
$
9

 
$
(9
)
 
$

 
1
Other income (expenses)
 
$

 
$
9

 
$
9

 
1
As of December 31, 2017
 
Historical
 
Presentation Adjustment
 
Historical, as adjusted
 
Ref.
 
 
 
 
 
 
 
 
 
Debt securities, available for sale
 
$
2,289,882

 
$
(2,289,882
)
 
$

 
1
Restricted assets
 
$
52,877

 
$
(52,877
)
 
$

 
1
Fixed maturity securities, available-for-sale at fair value
 
$

 
$
2,337,241

 
$
2,337,241

 
1
Cash and cash equivalents
 
$
205,279

 
$
5,518

 
$
210,797

 
1
Deferred policy acquisition costs
 
$
73,646

 
$
(73,646
)
 
$

 
1
Intangibles, net
 
$
10,933

 
$
73,646

 
$
84,579

 
1
Current income tax receivable
 
$
6,332

 
$
(6,332
)
 
$

 
1
Other assets
 
$
29,062

 
$
6,332

 
$
35,394

 
1
Benefits payable
 
$
54,376

 
$
(54,376
)
 
$

 
1
Future policy benefits payable
 
$
2,761,703

 
$
(2,761,703
)
 
$

 
1
Advance premiums
 
$
4,046

 
$
(4,046
)
 
$

 
1
Life, accident and health reserves
 
$

 
$
2,820,125

 
$
2,820,125

 
1
Book overdraft
 
$
5,928

 
$
(5,928
)
 
$

 
1
Due to Humana Inc.
 
$
5,120

 
$
(5,120
)
 
$

 
1
Accounts payable and other current liabilities
 
$
11,204

 
$
11,048

 
$
22,252

 
1
1. Adjustment to reclassify historical KMG financial statement presentation to HC2 financial statement presentation.

Previous acquisition of Furrow

(4b) The financial information of Furrow was prepared in accordance with IFRS and presented in British pounds sterling. The historical financial information was translated from British pounds sterling to US dollars using the following historical exchange rates:
 
 
Year ended
 
 
December 31, 2017
Average exchange rate ($ / £)
 
$1.29
Period end exchange rate ($ / £)
 
NA(1)
(1) As of December 31, 2017, the Balance Sheet of Furrow were integrated into the Marine Services Segment.

(4c) The following adjustments conform Furrow's results to the presentation of HC2’s consolidated financial statements. Unless otherwise indicated, defined line items included in the notes have the meanings given to them in the historical financial statements of Furrow. References to "Marine Services" are to the Marine Services segment of HC2 as reported in HC2's historical financial statements.






 
 
GBP
 
USD
 
 
Historical
 
Presentation Adjustment
 
Historical, as adjusted
 
 
US GAAP Adjustments
 
 
US GAAP
 
US GAAP
For the eleven months ended November 30, 2017
 
Nine Months Ended September 30, 2017
 
Two Months Ended November 30, 2017
 
 
 
Ref.
Ref.
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
(4b)
Revenue
 
30,243

 
1,501

 

 
31,744

 
 

 
 
31,744

 
40,894

Third party costs
 
24,572

 
1,207

 
(25,779
)
 

 
1

 
 

 

Cost of revenue
 

 

 
28,070

 
28,070

 
1
4,641

2
 
32,711

 
42,140

Personnel expenses
 
3,113

 
363

 
(3,476
)
 

 
1

 
 

 

Selling, general and administrative
 

 

 
3,229

 
3,229

 
1

 
 
3,229

 
4,160

Depreciation and amortization
 
4,858

 
174

 

 
5,032

 
 

 
 
5,032

 
6,482

Other (income)
 
(9
)
 

 
9

 

 
1

 
 

 

Other expenses
 
1,822

 
226

 
(2,048
)
 

 
1

 
 

 

Other operating (income) expenses
 

 

 
(5
)
 
(5
)
 
1

 
 
(5
)
 
(6
)
Net finance income / (expenses)
 
165

 
(6
)