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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
)
 
(159
)
 
—

 
1
—

 
 
—

 
—

Other (expenses), net
 
—

 
—

 
159

 
159

 
1
(183
)
3
 
(24
)
 
(31
)
Income tax (expense) benefit
 
(146
)
 
1

 
—

 
(145
)
 
 
—

 
 
(145
)
 
(189
)
 
 
1
Adjustment to reclassify historical Furrow financial statement presentation to HC2 financial statement presentation.
 
 
2
This adjustment reflects conversion from IFRS to US GAAP for onerous contract provision ("OCP"), for the Saltire cable-ship, a leased cable-ship within the Furrow business. This cable-ship is not being acquired as part of the Furrow Acquisition. ASC paragraph 420-10-10-1 states that a liability for a cost associated with an exit or disposal activity is recognized and measured at fair value only when the liability has been incurred. Therefore, a liability for costs to terminate a contract before the end of its term shall be recognized when the entity terminates the contract in accordance with the contract terms. A liability for costs that will continue to be incurred under a contract for its remaining term without economic benefit to the entity shall be recognized at the cease-use date. Therefore, a commitment to a plan and exit / cease of activities is not sufficient to recognize a liability. Also, future operating losses to be incurred in connection with an exit or disposal activity should be recognized when incurred.

Using this criteria of US GAAP, the OCP does not meet the recognition criteria under US GAAP, until the moment that Furrow is committed to the termination of the lease contract. The cease-use criteria is also not met earlier as the Saltire cable-ship was used for projects until the summer of 2017. This commitment has been communicated in 2017. Therefore, the recognized onerous contract provision should be recognized 2017. In the period ended November 30, 2017 the OCP was not adjusted for under IFRS and should have been under US GAAP, therefore this adjustment reflects the costs incurred under US GAAP.
 
 
3
This adjustment reflects the reversal of Foreign Currency transaction expense as a result of the conversion of IFRS to US GAAP for onerous contract provision.

5.
Purchase Price Allocation

Under ASC 805, assets acquired and liabilities assumed are recorded at fair value based on the provisions of ASC Topic 820, Fair Value Measurements and Disclosures, (“ASC 820”). ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Acquisition of KMG America Corporation

Fair Value of Consideration

Fair value of consideration to be transferred for the KMG Acquisition will be $10 payable in cash.

Preliminary Purchase Price Allocation

For the purposes of the unaudited pro forma condensed combined financial statements, HC2 made preliminary estimates of the fair value of the assets to be acquired and liabilities to be assumed in the KMG Acquisition. These estimates have been recognized in preparing the unaudited pro forma condensed combined financial statements. The final determination of the fair values of assets to be acquired and liabilities to be assumed will be based on the net assets of KMG that exist as of the date of completion of the transaction. Preliminary amounts could change significantly from those allocations used in the unaudited pro forma condensed combined financial statements presented and could result in a material change.






Allocation of fair value of consideration among identified assets to be acquired, liabilities to be assumed, and residual bargain purchase gain to be recognized for the acquisition of KMG is as follows:
Purchase price allocation
 
 
Fixed maturity securities, available-for-sale at fair value
 
$
2,337,241

Mortgage loans
 
1,216

Policy loans
 
3,327

Cash and cash equivalents
 
168,962

Accounts receivable, net
 
2,897

Recoverable from reinsurers
 
879,659

Other assets
 
35,394

Total assets to be acquired
 
3,428,696

Life, accident and health reserves
 
2,970,787

Value of business acquired
 
300,810

Accounts payable and other current liabilities
 
15,291

Deferred tax liability
 
52,470

Other liabilities
 
921

Total liabilities to be assumed
 
3,340,279

Bargain purchase gain
 
(88,407
)
Total net assets acquired
 
$
10


HC2 estimated fair value of reserves on a fair value basis, using actuarial assumptions consistent with those used for the buyer’s valuation of the acquired business, and discount rates reflecting capital market conditions. The reserve accounts for the present value of all future cash flows, net of reinsurance, of the acquired block of insurance, including premium, benefit payments, and expenses. HC2 estimated fair value of recoverable from reinsurers using the same assumptions as those for reserves of the net retained business, but applied to business ceded through various, existing reinsurance agreements.  

Value of Business Acquired ("VOBA") is a liability that reflects the estimated fair value of in-force contracts in a life insurance company acquisition less the amount recorded as insurance contract liabilities. It represents the portion of the purchase price that is allocated to the value of the rights to receive future cash flows from the business in force at the acquisition date. A VOBA liability (negative asset) occurs when the estimated fair value of in-force contracts in a life insurance company acquisition is less than the amount recorded as insurance contract liabilities. HC2 calculated VOBA by adjusting the purchase price, which was derived on a statutory accounting basis, for differences between statutory and US GAAP accounting requirements. Amortization is based on assumptions consistent with those used in the development of the underlying contract adjusted for emerging experience and expected trends.

The expected amortization related to the preliminary fair value of VOBA and benefit of fair value adjustment to acquire life accident and health reserves for the five years following the acquisition is reflected in as follows:
 
 
 
 
   
 
Year following the acquisition
 
 
December 31, 2017
 
Estimated remaining useful life
 
Year 1
 
Year 2
 
Year 3
 
Year 4
 
Year 5
VOBA
 
$
300,810

 
40 years
 
$
(20,691
)
 
$
(22,053
)
 
$
(23,010
)
 
$
(22,755
)
 
$
(21,336
)
Benefit of fair value adjustment to acquire life accident and health reserves
 
$
150,662

 
40 years
 
(10,363
)
 
(11,045
)
 
(11,525
)
 
(11,397
)
 
(10,686
)
Total expected amortization, after-tax
 
 
 
 
 
$
(24,533
)

$
(26,147
)

$
(27,283
)

$
(26,980
)

$
(25,297
)

Taxes

As a result of the application of the unified loss rules to the sale of KMG by Humana, KIC's pre-closing unamortized deductions relating to changes in basis for computing reserves and the unamortized deferred policy acquisition costs, in each case as determined for US federal income tax purposes, were eliminated, and the tax basis of the assets of KIC as determined for US federal income tax purposes was stepped down. Such step-down is reflected in the net deferred tax liability of $52.5 million with respect to differences between the book fair value and tax bases of the acquired assets. Included in the estimated deferred tax liability is a valuation allowance of $23.0 million due to uncertainty with respect to the future earnings and the realization of KIC's deferred tax assets.

On December 22, 2017, the President signed into law H.R. 1/Public Law 115-97, commonly known as the Tax Cuts and Jobs Act (the “Act”). The proforma includes the impacts of the reduction in the corporate income tax rate from 35% to 21%, as well as changes to the net operating loss rules for life insurance companies. Other provisions of the Act, including modifications to the computation of life insurance tax reserves, are still being assessed by management. The law existing prior to the enactment of the Act is being applied to those items in the proforma. The Tax Cuts and Jobs Acts was not stipulated in the negotiations for the KMG Acquisition and resulted in a material decline in VOBA balance, corresponding deferred tax position and, ultimately, recognition of a bargain purchase gain.






Previous acquisition of Furrow

Fair Value of Consideration

Fair value of consideration transfered for the Furrow Acquisition is as follows:
Notes
 
$
7,500

Equity (43,882,283 Class A-2 Units of GMHL)
 
79,735

Total Preliminary purchase price
 
$
87,235


The fair value of the Class A-2 units was estimated utilizing a contingent claims analysis ("CCA") based on the amended LLC agreement for GMHL. In order to value the combined entity, the following was considered as of the transaction date: (a) fair value of stand-alone GMHL; (b) fair value of the Project Furrow’s Trenching Business ("Trenching Business"); and (c) fair value of the synergies from the transaction.

(a)
A combination of the income approach and market approach was used to estimate the fair value of the stand-alone GMHL. A discounted cash flow analysis was used to estimate the enterprise value of Global Marine Holdings Limited and Huawei Marine Network based on projections prepared by GMHL's management. The weighted average cost of capital, used to discount the projected cash flows, was estimated utilizing public companies considered to be comparable to Global Marine Holdings Limited and Huawei Marine Network.

(b)
The income approach was used to estimate the fair value of the Trenching Business. A discounted cash flow analysis was utilized to estimate the present value of future cash flows for the Trenching Business based on the expected life of the acquired assets, discounted at a rate of return that considered the relative risk of achieving those cash flows and the time value of money.

(c)
The income approach was used to estimate the fair value of the synergies from the Furrow Acquisition. The synergies primarily relate to the stand-alone GMHL no longer needing to purchase the flagship vessel and trenchers, which were included in the stand-alone valuation of GMHL.

A CCA was utilized to estimate the fair value per share of the Class A-2 units. Values were ascribed to the various equity securities of GMHL capital structure based on the Black-Scholes Option Pricing Model, with each participating breakpoint considered as one of a series of call options on the proceeds expected from a liquidation event.

Purchase Price Allocation

Allocation of fair value of consideration among acquired assets and residual goodwill is as follows:
Assets
 
 
Cash and cash equivalents
 
$
2,212

Property, plant and equipment
 
73,320

Goodwill
 
11,783

Other assets
 
596

Total assets acquired
 
87,911

Accounts payable and other current liabilities
 
676

Total liabilities assumed
 
676

Total net assets acquired
 
$
87,235


The fair value was estimated as follows:

(a)
A combination of the income approach and market approach was used to estimate the Fugro Symphony vessel, considering, among other factors (i) estimates of the current market value of the vessel from a number of ship-brokers active in the offshore support vessel sector; (ii) a selection of comparable vessels that had recently been sold, or were being actively marketed for sale, along with the prices achieved / asking prices and; (iii) the current and future state of the market in which the vessel is expected to operate. A discounted cash flow analysis was completed to provide an estimate of the present value of estimated future cash flows for the expected life of the vessel, discounted at a rate of return that considered the relative risk of achieving those cash flows and the time value of money.

(b)
A cost approach was used to estimate the fair value of the trenchers, considering, among other factors, the current quote for the construction of replacement assets and for estimated useful working life from the manufacturer of the trenchers. Additionally, a depreciated replacement cost of the assets was calculated.

(c)
A combination of the cost approach and market approach was used to estimate the fair value of the ROVs, considering, among other factors, (i) estimates of replacement cost, estimated normal useful lives, and residual values from a number of subsea equipment manufacturers and brokers and; (ii) a selection of comparable new build and secondhand assets currently being marketed for sale.






The expected depreciation related to the fair value of the acquired assets for the five years following the acquisition is as follows:
 
 
 
 
   
 
Year following the acquisition
 
 
December 31, 2017
 
Estimated remaining useful life
 
Year 1
 
Year 2
 
Year 3
 
Year 4
 
Year 5
Property, plant, and equipment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cable-ships and submersibles
 
$
71,018

 
Various (1)
 
$
4,499

 
$
3,851

 
$
3,851

 
$
3,851

 
$
3,851

Equipment
 
2,302

 
Various (2)
 
663

 
663

 
663

 
63

 
63

Total expected depreciation (3)
 
$
73,320

 
 
 
$
5,162


$
4,514


$
4,514


$
3,914


$
3,914

(1) Cable-ship and submersibles range from 28 years for the Fugro Symphony vessel to 10 years for Trenchers and 1 year for Trenching modules.
(2) Range from 8 years for accessories to 3 years for ROVs.
(3) There is no income tax effect expected to be recognized on the depreciation amounts as the operating activities are expected to fall within the UK tonnage tax regime. The majority of the GMSL business operations fall within the UK tonnage tax regime and is therefore not subject to income taxes.  The Furrow business is also within the UK tonnage tax regime, and accordingly, no current or deferred income tax expense or benefit is expected to be recognized. 

6.     Unaudited Pro Forma Condensed Combined Balance Sheet Adjustments

The unaudited pro forma condensed combined financial statements are not necessarily indicative of what the financial position and results from operations actually would have been had the Acquisition been completed at the date indicated and includes adjustments which are preliminary and may be revised. Such revisions may result in material changes. The financial position shown herein is not necessarily indicative of what the past financial position of the combined companies would have been, nor necessarily indicative of the financial position of the combined Company in the future. The unaudited pro forma condensed combined financial statements do not give consideration to the impact of expense efficiencies, synergies, integration costs, asset dispositions, or other actions that may result from the Acquisition.

Acquisition of KMG America Corporation

Adjustments included in the "Pro Forma Adjustments" column in the accompanying unaudited pro forma condensed combined balance sheet as of December 31, 2017 are as follows:
 
 
Increase (decrease)
Assets
 
 
(6a)
Adjustments to Policy loans
 
 
 
This adjustment reflects the exclusion of policy loans included within the historical KMG financial statements that are not included in the Acquisition. This is driven by the coinsurance agreement which will be in place prior to the closing in which approximately $245 million in reserves will be ceded to Humana.
 
$
(7,317
)
 
 
 
 
(6b)
Adjustments to Cash and cash equivalents
 
 
 
This adjustment reflects a capital contribution to KIC prior to the closing of the KMG Acquisition.
 
203,000

 
This adjustment reflects the exclusion of investments included within the historical KMG financial statements that are not included in the Acquisition. This is driven by the coinsurance agreement which will be in place prior to the closing in which approximately $245 million in reserves will be ceded to Humana.
 
(239,715
)
 
This adjustment reflects a settlement of historical intercompany payable between KIC and Humana.
 
(5,120
)
 
This adjustment reflects the purchase price to be paid by CGI at closing.
 
(10
)
 
 
 
$
(41,845
)
 
 
 
 
(6c)
Adjustments to Recoverable from reinsurers
 
 
 
 
This adjustment reflects the reinsurance recoverable not included within the historical KMG financial statements. This is driven by the coinsurance agreement which will be in place prior to the closing in which approximately $245 million in reserves will be ceded to Humana.
 
245,189

 
 
This adjustment reflects the Fair Value of recoverable from reinsurers as a result of the KMG Acquisition.
 
75,411

 
 
 
 
$
320,600

 
 
 
 
 
(6d)
Adjustments to Deferred tax asset
 
 

 
 
This adjustment eliminates the historical deferred tax asset of KMG.
 
$
(170,072
)
 
 
 
 
 
(6e)
 
Adjustment to Intangibles, net
 
 
 
 
This adjustment reflects the exclusion of Intangibles and Deferred Acquisition Costs, net included within the historical KMG financial statements that are not included in the Acquisition.
 
(84,579
)
 
 
 
 
 
 
 
Total adjustments to assets
 
$
16,787






 
 
Increase (decrease)
Liabilities
 
 

(6f)
Adjustments to Life, accident and health reserves at fair value
 
 
 
This adjustment reflects Life, accident and health reserves at fair value.
 
$
150,662

 
 
 
 
(6g)
Adjustments to Value of business acquired
 
 
 
This adjustment reflects fair value of business acquired for PGAAP calculations.
 
$
300,810

 
 
 
 
(6h)
Adjustments to Accounts payable and other current liabilities
 
 
 
This adjustment reflects the transaction costs not reflected in the historical financial statements that are directly
attributable to the KMG Acquisition and factually supportable but nonrecurring.
 
103

 
This adjustment reflects a settlement of historical intercompany payable between KIC and Humana.
 
(5,120
)
 
This adjustment reflects the accounts payable and other current liabilities not included within the historical KMG financial statements. This is driven by the coinsurance agreement which will be in place prior to the closing in which approximately $245 million in reserves will be ceded to Humana.
 
(1,841
)
 
 
 
$
(6,858
)
 
 
 
 
(6i)
Adjustments to Deferred tax liability
 
 
 
This adjustment establishes the Deferred tax liability associated with the newly acquired entity.
 
$
52,470

 
 
 
 
 
 
Total adjustments to liabilities
 
$
497,084

 
 
 
 
 
Stockholders' equity
 
 
(6j)
Adjustments to Additional paid-in capital
 
 
 
 
This adjustment reflects a capital contribution to KIC prior to the closing of the KMG Acquisition.
 
203,000

 
 
This adjustment reflects the elimination of historical equity of KMG.
 
(1,870,487
)
 
 
 
 
$
(1,667,487
)
 
 
 
 
 
(6k)
 
Adjustments to Accumulated Deficit
 
 
 
 
This adjustment reflects the elimination of historical equity of KMG.
 
1,125,700

 
 
The adjustment reflects the anticipated bargain purchase gain the Company expects to recognize as a resulting of the Transaction, based on the preliminary purchase price allocation.
 
88,407

 
 
This adjustment reflects the transaction costs not reflected in the historical financial statements that are directly attributable to the KMG Acquisition and factually supportable but nonrecurring.
 
(103
)
 
 
 
 
$
1,214,004

 
 
 
 
 
(6l)
 
Adjustments to Accumulated other comprehensive income (loss)
 
 
 
 
This adjustment reflects the elimination of historical fair value adjustments of KMG.
 
(210,853
)
 
 
This adjustment reflects the elimination of the historical shadow reserves of KMG.
 
184,039

 
 
 
 
$
(26,814
)
 
 
 
 
 
 
 
Total adjustments to stockholders' equity
 
$
(480,297
)
 
 
 
 
 
 
 
Total adjustments to liabilities and stockholders' equity
 
$
16,787


















Financing Adjustments

Adjustments included in the "Financing Adjustments" column in the accompanying unaudited pro forma condensed combined balance sheet as of December 31, 2017 are as follows:
 
 
Increase (decrease)
 
 
Bridge Loan
 
New Notes
 
Total
(6m)
Adjustments to Cash and cash equivalents
 
 
 
 
 
 
 
 
Adjustment to reflect gross borrowings
 
$
42,000

 
$
105,000

 
$
147,000

 
 
Adjustment to reflect accrued interest from 12/1/17 to 5/1/2018
 
—

 
4,813

 
4,813

 
 
Adjustment to reflect original issue premium and deferred financing cost
 
(2,403
)
 
(1,898
)
 
(4,301
)
 
 
 
 
39,597


107,915


147,512

 
 
 
 
 
 
 
 
 
 
 
Adjustment to reflect repayment of the Bridge Loan
 
—

 
(102,000
)
 
(102,000
)
 
 
Adjustment to reflect settlement of accrued interest
 
—

 
(561
)
 
(561
)
 
 
Adjustment to reflect close of Azteca
 
(33,000
)
 
—

 
(33,000
)
 
 
 
 
(33,000
)
 
(102,561
)
 
(135,561
)
 
 
 
 
 
 
 
 
 
 
 
Total financing adjustments to cash and cash equivalents
 
6,597

 
5,354

 
11,951

 
 
 
 
 
 
 
 
 
 
 
Total financing adjustments to assets
 
$
6,597

 
$
5,354

 
$
11,951

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(6n)
Adjustments to Accounts payable and other current liabilities:
 
 
 
 
 
 
 
 
Adjustment to reflect settlement of accrued interest
 
$
—

 
$
(561
)
 
$
(561
)
 
 
Adjustment to reflect close of Azteca
 
(33,000
)
 
—

 
(33,000
)
 
 
Adjustment to reflect accrued interest from 12/1/17 to 5/1/2018
 
—

 
4,813

 
4,813

 
 
 
 
(33,000
)
 
4,252

 
(28,748
)
 
 
 
 
 
 
 
 
 
 
 
Total financing adjustments to accounts payable and other current liabilities
 
(33,000
)
 
4,252

 
(28,748
)
 
 
 
 
 
 
 
 
 
(6o)
Adjustments to Debt obligations:
 
 
 
 
 
 
 
 
Adjustment to reflect gross borrowings
 
42,000

 
105,000

 
147,000

 
 
Adjustment to reflect original issue discount and deferred financing cost
 
945

 
(1,898
)
 
(953
)
 
 
Adjustment to reflect repayment of the Bridge Loan
 
—

 
(102,000
)
 
(102,000
)
 
 
 
 
42,945

 
1,102

 
44,047

 
 
 
 
 
 
 
 
 
 
 
Total financing adjustments to debt obligations
 
42,945

 
1,102

 
44,047

 
 
 
 
 
 
 
 
 
 
 
Total financing adjustments to liabilities
 
9,945

 
5,354

 
15,299

 
 
 
 
 
 
 
 
 
(6p)
Adjustments to Accumulated deficit:
 
 
 
 
 
 
 
 
Adjustment to reflect amortization of deferred financing cost
 
(3,348
)
 
—

 
(3,348
)
 
 
 
 
(3,348
)
 
—

 
(3,348
)
 
 
 
 
 
 
 
 
 
 
 
Total financing adjustments to accumulated deficit
 
(3,348
)
 
—

 
(3,348
)
 
 
 
 
 
 
 
 
 
 
 
Total financing adjustments to stockholders' equity
 
(3,348
)
 
—

 
(3,348
)
 
 
 
 
 
 
 
 
 
 
 
Total financing adjustments to liabilities and stockholders' equity
 
$
6,597

 
$
5,354

 
$
11,951






7.     Unaudited Pro Forma Condensed Combined Statements of Operations Adjustments

Acquisition of KMG America Corporation

Adjustments included in the "Pro Forma Adjustments" column in the accompanying unaudited pro forma condensed combined statements of operations for the year ended December 31, 2017 are as follows:
 
 
Increase (decrease)
 
 
 
 
(7a)
This adjustment reflects the Life, accident and health earned premiums, net included within the historical KMG financial statements generated by approximately $245 million in reserves that would be ceded to Humana as part of the coinsurance agreement which will be in place prior to the closing.
 
$
(120,259
)
 
 
 
 
(7b)
Adjustment to net investment income to amortize the fair value adjustment to KMG's investments.
 
$
(9,198
)
 
 
 
 
(7c)
Adjustments to Policy benefits, changes in reserves, and commissions
 
 
 
Adjustment to amortize the difference between the estimated fair value and the historical value of KMG's Life, accident, and health reserves.
 
(10,363
)
 
This adjustment reflects the Policy benefits, changes in reserves, and commissions included within the historical KMG financial statements generated by approximately $245 million in reserves that would be ceded to Humana as part of the coinsurance agreement which will be in place prior to the closing.
 
(59,858
)
 
 
 
$
(70,221
)
 
 
 
 
(7d)
Adjustment to Selling, general and administrative
 
 
 
This adjustment represents transaction costs that were recognized in the historical financial statements, and should be eliminated as they are nonrecurring charges that are directly attributable to the KMG Acquisition and do not reflect expenses of the combined entity on an ongoing basis.
 
(2,529
)
 
This adjustment reflects the Selling, general and administrative included within the historical KMG financial statements generated by approximately $245 million in reserves that would be ceded to Humana as part of the coinsurance agreement which will be in place prior to the closing.
 
(66,359
)
 
 
 
$
(68,888
)
 
 
 
 
(7e)
Adjustment to Depreciation and amortization expense
 
 
 
Adjustment to eliminate KMG's historical policy acquisition costs following the write-off of the deferred policy acquisition costs asset.
 
(27,248
)
 
This adjustment reflects the amortization of VOBA due to the estimated fair value of in-force contracts being less than the amount recorded as insurance contract liabilities.
 
(20,691
)
 
 
 
$
(47,939
)
 
 
 
 
 
(7f)
 
The adjustment reflects the anticipated bargain purchase gain the Company expects to recognize as a resulting of the Transaction, based on the preliminary purchase price allocation.
 
$
88,407

 
 
 
 
 
(7g)
 
Adjustment to reflect the income tax impact on the unaudited pro forma adjustments.
 
$
(12,094
)
 
 
 
 
 
 
 
Impact of adjustments to Net Income (loss)
 
$
133,904







Previous acquisition of Furrow

Adjustments included in the "Pro Forma Adjustments" column in the accompanying unaudited pro forma condensed combined statements of operations for the eleven months ended November 30, 2017 are as follows:
 
 
Increase (decrease)
 
 
 

(7h)
This adjustment reflects the exclusion of operations included within the historical Furrow financial statements that are not included in the Furrow Acquisition. Specifically an accrued lease termination expense associated with Saltire, a cable-ship which is included within the historical Furrow financial statements that is not included in the Furrow Acquisition.
 
$
(8,116
)
 
 
 
 
(7i)
This adjustment represents transaction costs that were recognized in the historical financial statements, and should be eliminated as they are nonrecurring charges that are directly attributable to the Furrow Acquisition and do not reflect expenses of the combined entity on an ongoing basis.
 
$
(1,767
)
 
 
 
 
(7j)
This adjustment reflects the elimination of historical depreciation expense associated with the Property, plant, and equipment of the Furrow business.
 
$
(6,482
)
 
 
This adjustment reflects the depreciation expense incurred as a result of the adjustment to record the Furrow Property, plant and equipment at fair value as a result of the preliminary Purchase Price Allocation.
 
5,054

 
 
 
 
$
(1,428
)
 
 
 
 
 
(7k)
 
This adjustment reflects the net increase to interest expense resulting from interest on the loan GMSL incurred from a subsidiary of Fugro pursuant to the Vendor Loan Agreement. The loan matures within one year, and as such, is reflected in the proforma financial statements as if it were acquired on January, 1, 2017.
 
$
636

 
 
 
 
 
 
 
Impact of adjustments to Net Income (loss)
 
$
10,675


Financing Adjustments

Adjustments included in the "Financing Adjustments" column in the accompanying unaudited pro forma condensed combined statements of operations for the year ended December 31, 2017 are as follows:
 
 
Increase (decrease)
Interest Expense
 
 
(7l)
 
Adjustment to reflect interest expense on the notes at 11% per annum
 
(10,915
)
 
 
Adjustment to reflect amortization expense of original issue premium and deferred financing cost.
 
366

 
 
 
 
$
(10,549
)
 
 
 
 
 
Income Tax
 
 
(7m)
To reflect the income tax impact of the financing adjustments. (1)
 
$
—

 
 
 
 
 
 
 
Total financing adjustments to net loss
 
$
(10,549
)
(1) For the year ended December 31, 2017 the company does not record a benefit due to their valuation allowance position.




exh996hc2investorpresent
HC2 HOLDINGS, INC. © HC2 Holdings, Inc. 2018 Investor Presentation May 3, 2018

 
© 2 0 1 8 H C 2 H O L D I N G S , I N C . Clear focus on delivering sustainable value for all stakeholders  Value operator with long-term outlook  Acquire controlling equity interests in diverse industries creating value through growth in operating subsidiaries  Strong capital base allows funding of subsidiary growth  Speed of execution gives HC2 a competitive advantage over traditional private equity firms Env i s ion ExecuteEmpower – Seek to build value over the long-term – Leadership team’s expansive network results in unique deal flow – Target a barbell investment strategy • Stable cash flow generation • Early-stage companies with option value E n v i s i o n – Partner with experienced management teams – Establish specific operating objectives and clear growth plans – Provide financial expertise – Help execute strategy E m p o w e r M a n a g e m e nt – Focus on speed of execution – Capitalize on opportunities to create, extract and monetize value – Realize synergies and optimize resources – Deliver sustainable value E x e c u t e How HC2 Builds Value 10

 
© 2 0 1 8 H C 2 H O L D I N G S , I N C . 11 Early Stage and Other Holdings Life Sciences: PANSEND  MediBeacon: Unique non-invasive real-time monitoring of kidney function  R2 Dermatology: Medical device to brighten skin based on Mass. General Hospital technology  BeneVir: Oncolytic viral immunotherapy for treatment of solid cancer tumors  Genovel: Novel, Patented, “Mini Knee” and “Anatomical Knee” replacements  Triple Ring Technologies: R&D engineering company specializing in medical devices, homeland security, imaging, sensors, optics, fluidics, robotics & mobile healthcare  HC2 Broadcasting Holdings Capitalizing on Over-The-Air broadcast opportunities  704Games (Formerly DMR) Owns worldwide exclusive licensing rights to NASCAR® simulation style racing titles Other: Core Operating Subsidiaries  One of the largest steel fabrication and erection companies in the U.S.  Offers full suite of integrated steel construction and professional services  92.5% ownership  FY17 Revenue: $579.0m  FY17 Adjusted EBITDA: $51.6m Construction: DBM GLOBAL (SCHUFF)  Leading provider of subsea cable installation, maintenance and protection in telecom, offshore power and oil & gas  JV’s with Huawei Marine Networks & S.B. Submarine Systems (China Telecom)  72.7% ownership  FY17 Revenue: $169.5m  FY17 Adjusted EBITDA: $44.0m Marine Services: GMSL  Premier distributor of natural gas motor fuel throughout the U.S.  Currently own or operate 44 natural gas fueling stations throughout United States  67.7% ownership  FY17 Revenue: $16.4m  FY17 Adjusted EBITDA: $2.9m Energy: ANG Telecom: PTGI ICS  One of the largest International wholesale telecom service companies  Global sales presence  Internal and scalable offshore back office operations  100% ownership  FY17 Revenue: $701.9m  FY17 Adjusted EBITDA: $6.9m Core Financial Services Subsidiaries  Platform to invest in long-term care (LTC) portfolio of assets  Initially acquired American Financial Group’s LTC assets  Pending acquisition of Humana’s $2.3b LTC assets  100% ownership  ~$74.7m of statutory surplus  ~$86.4m total adjusted capital  ~$2.1b total GAAP assets  ~$1.5b cash & invested assets Insurance: CIG All data as of December 31, 2017 unless otherwise noted Construction formerly Manufacturing; Energy formerly Utilities HC2’s Diversified Portfolio

 
© 2 0 1 8 H C 2 H O L D I N G S , I N C . First Quarter 2018 Update 14 BeneVir:  BeneVir is a portfolio company of Pansend, our Life Sciences segment – Focused on the development of a patent-protected oncolytic virus, BV-2711, for the treatment of solid cancer tumors  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  On May 1st, BeneVir entered into a definitive agreement to be acquired by Janssen Biotech, Inc. (“Janssen”)  Janssen will make an upfront cash payment of $140 million at closing of the transaction, plus additional contingent payments of up to $900 million based on achievement of certain predetermined commercial milestones – HC2 expects to receive an initial payment in excess of $70 million in net proceeds from the sale of BeneVir at close, with an additional $10 million being held in escrow – The total amount of all payments could exceed $1 billion to current BeneVir shareholders if all milestones are met – HC2 has invested ~$8 million to date  The closing of the transaction is subject to customary closing conditions, including clearance under the Hart-Scott-Rodino Antitrust Improvements Act and is expected to close in the second quarter of 2018 *

 
© 2 0 1 8 H C 2 H O L D I N G S , I N C . First Quarter 2018 Update 15 GMSL:  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 GMSL’s Huawei Marine joint venture  As a result of quarterly variability that the Company has highlighted previously, GMSL expects to report slightly negative Adjusted EBITDA for the quarter  Quarterly variability is not unusual  Adjusted EBITDA impacted by: – Timing of two major turnkey projects in the Huawei joint venture, which are expected to ramp up across the remainder of 2018 – Lower offshore power contribution versus strong prior year comparable period – Higher unutilized vessel costs due to mobilization for contracted projects  We believe the above represent short term timing issues and GMSL’s long-term performance outlook is still positive Other Core Operating Segments:  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 *Note: Because the reporting period for the first quarter ended March 31, 2018 has recently ended, these preliminary anticipated results reflect assumptions and estimates based only on preliminary information available to us as of the date of this presentation Actual results for the first quarter of 2018 could differ materially from the above expectations. In addition, GMSL’s results could be materially adversely affected by any of the risks set forth under “Risk Factors – Risks Related to GMSL” or items described under “Disclosure Regarding Forward-Looking Statements” in our offering memorandum. Adjusted EBITDA ($USD millions) Q1 Q2 Q3 Q4 Total 2016 $0.5 $11.8 $14.0 $14.8 $41.2 2017 $16.3 $3.6 $8.8 $15.3 $44.0

 
Financial Overview

 
© 2 0 1 8 H C 2 H O L D I N G S , I N C . $513.8 $502.7 $579.0 $0.0 $100.0 $200.0 $300.0 $400.0 $500.0 $600.0 $700.0 2015 2016 2017 DBM Global Historical Financial Summary 17 Revenue Adjusted EBITDA Free Cash Flow(1) Backlog $52.0 $59.9 $51.6 10.1% 11.9% 8.9% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0% $0.0 $10.0 $20.0 $30.0 $40.0 $50.0 $60.0 $70.0 2015 2016 2017 Adj. EBITDA Adj. EBITDA Margin % $380.8 $503.4 $723.4 $772.4 $0.0 $200.0 $400.0 $600.0 $800.0 2015 2016 2017 ($USD millions) 1. Free Cash Flow defined as Adjusted EBITDA less Maintenance Capital Expenditures. Total Backlog is $772.4 million inclusive of contracts awarded, but not yet signed $2.9 $4.8 $2.4 $2.1 $4.5 $9.3 $49.1 $55.1 $49.2 $0.0 $10.0 $20.0 $30.0 $40.0 $50.0 $60.0 $70.0 2015 2016 2017 Maintenance CapEx Growth CapEx FCF

 
© 2 0 1 8 H C 2 H O L D I N G S , I N C . Global Marine Group Historical Financial Summary 18 $42.1 $41.2 $44.0 31.2% 25.4% 26.0% 0% 10% 20% 30% 40% 50% 60% $0.0 $10.0 $20.0 $30.0 $40.0 $50.0 $60.0 2015 2016 2017 Adj. EBITDA Adj. EBITDA Margin Revenue Adjusted EBITDA Capital Expenditures Free Cash Flow(1) $37.3 $35.5 $40.7 $0.0 $10.0 $20.0 $30.0 $40.0 $50.0 $60.0 2015 2016 2017 ($USD millions) 1. Free Cash Flow defined as Adjusted EBITDA less Maintenance Capital Expenditures. $4.8 $5.7 $3.3 $5.9 $6.5 $7.2 $10.7 $12.2 $10.5 $0.0 $4.0 $8.0 $12.0 $16.0 $20.0 2015 2016 2017 Maintenance Growth $84.6 $114.2 $107.0 $30.9 $38.3 $25.3$19.4 $9.4 $37.2 $134.9 $161.9 $169.5 $0.0 $50.0 $100.0 $150.0 $200.0 2015 2016 2017 Maintenance Telecom Install O&G / Power Install

 
© 2 0 1 8 H C 2 H O L D I N G S , I N C . Historical Consolidated Revenue and Adjusted EBITDA 19 ($USD millions) Core Operating Revenue $460.4 $735.0 $701.9 $513.8 $502.7 $579.0 $134.9 $161.9 $169.5 $6.8 $6.4 $16.4 $1,115.9 $1,406.0 $1,466.8 $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 2015 2016 2017 PTGi ICS DBM Global Global Marine ANG Core Operating Adjusted EBITDA(1) $2.0 $5.6 $6.9 $52.0 $59.9 $51.6 $42.1 $41.2 $44.0 $0.9 $2.5 $2.9$97.1 $109.1 $105.5 $0 $20 $40 $60 $80 $100 $120 2015 2016 2017 PTGi ICS DBM Global Global Marine ANG 1. Adjusted EBITDA does not include results of our Insurance segment. Non-Core Operating Revenue 2015 2016 2017 CIG $2.9 $142.5 $151.6 Pansend - - - Other 2.1 9.7 15.8 Non-Op. Corp. - - - Total Core + Non-Core $1,120.8 $1,558.1 $1,634.1 Non-Core Operating Adjusted EBITDA(1) 2015 2016 2017 Pansend (7.2) (12.0) (22.4) Other (18.3) (11.2) (3.1) Non-Op. Corp. (19.5) (25.7) (29.2) Total Core + Non-Core $52.1 $60.2 $50.8

 
© 2 0 1 8 H C 2 H O L D I N G S , I N C . Free Cash Flow Generation 20 ($USD millions) 1. Free Cash Flow defined as Adjusted EBITDA less Maintenance Capital Expenditures. LTM 12/31/17 Core Operating Adj. EBITDA $105.5 Less: Non-Operating Corporate Adj. EBITDA $29.2 Less: GMSL Maintenance Capex 3.3 Less: DBM Global Maintenance Capex 2.4 Less: ANG Maintenance Capex 2.1 Less: PTGi ICS Maintenance Capex 0.1 Less: HC2 Capex (0.0) Free Cash Flow (1) $68.4 L ss: DBM Global Growth Capex $9.3 Less: GMSL Growth Capex 7.2 Less: ANG Growth Capex 6.4 Less: Pansend Growth Capex 0.5 Less: PTGi ICS Growth Capex - Free Cash Flow after Growth Capex $45.0

 
Appendix

 
© 2 0 1 8 H C 2 H O L D I N G S , I N C . DBM Global Inc. (Schuff Intl.) 22  DBM Global Inc. is focused on delivering world class, sustainable value to its clients through a highly collaborative portfolio of companies which provide better designs, more efficient construction and superior asset management solutions  The Company offers integrated steel construction services from a single source and professional services which include design-assist, design-build, engineering, BIM participation, 3D steel modeling/detailing, fabrication, advanced field erection, project management and state-of-the-art steel management systems  Major market segments include commercial, healthcare, convention centers, stadiums, gaming and hospitality, mixed use and retail, industrial, public works, bridges, transportation and international projects Business Description:  Rustin Roach – President and CEO  Michael Hill – CFO and Treasurer  Scott Sherman – VP, General Counsel  Shane Metzger - COO Select Management: Select Customers: DC United L.A. Rams Sacramento Kings Apple

 
© 2 0 1 8 H C 2 H O L D I N G S , I N C . DBM Global Inc. (Schuff Intl.) 23 Core Activities Products & Service Offerings Industries Served  The largest structural steel fabricator and erector in the U.S.  In-house structural & design engineering expertise  Assets of Mountain States Steel became part of Schuff Steel (4Q17)  Mountain States Steel has a modern fabrication facility located on approximately 32 acres in Lindon, Utah.  Structural Steel fabrication  Steel erection services  Structural engineering & design services  Preconstruction engineering services  BIM (Building Information Modeling)  Project Mgmt (proprietary SIMS platform)  Extensive track record delivering structural steel for iconic projects throughout the Western United States: San Francisco-Oakland Bay Bridge, Alameda Corridor Transportation Authority Bridge, Mile High Stadium, Paris Hotel & Casino in Las Vegas, etc.  Commercial  Conv. & Event Centers  Energy  Government  Healthcare  Bridge  Infrastructure  Leisure  Industrial & Mining  Infrastructure  Leisure  Retail  Transportation  Provides structural steel fabrication & erection services for smaller projects leveraging subcontractors and in-house project managers  Structural Steel fabrication (subcontracted)  Steel erection services (subcontracted)  Project Mgmt (proprietary SIMS platform)  Commercial  Government  Healthcare  Leisure  Retail  Transportation  Manufactures equipment for use in the petrochemical oil & gas industries, such as: pollution control scrubbers, tunnel liners, pressure vessels, strainers, filters & separators  Design engineering  Fabrication services  Petrochemical  Oil & gas infrastructure  Pipelines  A highly experienced global Detailing and 3D BIM Modelling company  Steel Detailing  3D BIM Modelling  BIM Management  Integrated Project Delivery (IPD)  3D Animation and Visualization  Commercial  Conv. & Event Ctrs  Energy  Government  Healthcare  Industrial & Mining  Infrastructure  Leisure  Retail  Transportation  A global Building Information Modelling (BIM), Steel Detailing and Rebar Detailing firm  Steel Detailing  Rebar Detailing  3D BIM Modelling  Connection Design  Forensic Modelling & Animation  Commercial  Conv. & Event Ctrs  Energy  Government  Healthcare  Industrial & Mining  Infrastructure  Leisure  Retail  Transportation  The premiere Bridge and Complex Structures Detailing and Building Information Modelling (BIM) firm in N.A.  Bridge Detailing  Steel Detailing  3D BIM Modelling  Connection Design  Bridge  Commercial  Conv. & Event Ctrs  Energy  Government  Infrastructure

 
© 2 0 1 8 H C 2 H O L D I N G S , I N C . 24 “Engineering a Clean and Connected Future”  Leading provider of offshore marine engineering delivered via three business units  Founded in 1850 - Headquartered in UK with major regional hub in Singapore and an established European base in Germany Global Marine Group - Business Description: Select Customers:  Fiber optic cable solutions to the telecommunications and oil & gas markets  Installed roughly 21% of the world's subsea fiber optic cable, amounting to 300,000km  In maintenance, Global Marine benefits from long-term contracts with high renewal rates; Responsible for 385,000km of the total 1,200,000km of global in-service cable  Significant opportunities in Telecom through 49% owned strategic joint ventures with Huawei Technologies (HMN) and China Telecom (SBSS) Global Marine Highlights:  Power cable and asset management services to the offshore renewables and utilities market  Recognised for power cable repair solutions and the ability to mobilise quickly to minimise system downtime  CWind delivers a broad spectrum of topside and subsea services to developers and has experience at over 40 wind farms to date  CWind is strongly differentiated as the only integrated service provider  CWind is recognized for having the most fuel efficient Crew Transport Vessel (CTV) fleet in the market CWind Highlights:  Trenching and power cable lay services to the oil & gas industry  To date, the Global Offshore team has been involved in the installation of more than 470 power cables  Market-leading Q1400 trenching system effective in the harshest of seas and most challenging of seabed conditions  Completed work on five UK and two European wind farms to date  Multiple operations in oil & gas for major oil companies such as Shell and BP Global Offshore Highlights:  Dick Fagerstal – Executive Chairman  Ian Douglas – Chief Executive Officer Select Management: Global Marine Group 11/30/17: Global Marine Group closes acquisition of Fugro’s Trenching and Cable Lay Services Business

 
© 2 0 1 8 H C 2 H O L D I N G S , I N C . 25 C o re A cti v it ie s Maintenance  Provision of vessels on standby to repair fiber optic telecom cables in defined geographic zones  Location of fault, cable recovery, jointing and re-deployment of cables  Operation of depots storing cable and spare parts across the globe  Management of customer data through the life of the cable system Wind Farm  Offshore wind planning, construction and operations & maintenance support services  Fleet of Crew Transfer Vessels (CTVs) which have a historically high utilisation and are positioned 4th in the overall CTV market  Over 250 certified & experienced personnel including technicians, riggers, slingers, lifting supervisors & foremen  Offshore training facility Trenching  Trenching of cables, rigid & flexible pipelines and umbilicals  Precision installation in challenging seabed environments utilizing the market-leading Q1400 which able to perform jet trenching in soils of up to 100KPA  Providing maximum, long-term protection of assets  Engineering support & project management Fiber Optic Cable Installation  Provision of turnkey repeated telecom systems via Huawei Marine (“HMN”) joint-venture  Installation contracts for telecom customers  Services include route planning, route survey, cable mapping, route engineering, laying, trenching and burial at all depths  Fiber optic communications infrastructure to offshore platforms  Permanent Reservoir Monitoring (“PRM”) systems Power Cable Installation & Repair  Installation for inter-array power cables for offshore wind market  Maintenance provision, including cable storage, power joint development and vessel availability  Offshore wind planning, Interconnector installation  Services include route planning, route survey, cable mapping, route engineering, laying, trenching and burial at all depths Power Cable Installation  Planning, installation, burial, storage, testing, locating, recovering and maintaining subsea cables and other subsea assets  Modern assets including the Global Symphony and the Q1400 trenching system  Approximately 400 m² of available space aft of the cable lay spread, allowing space for up to ten 20 foot containers of cable protection system  470 power cables installed to date Ve ss el s  Cable Retriever  Pacific Guardian  Wave Sentinel  Cable Innovator  C.S. Sovereign  CS Recorder  Networker  Global Symphony  16 owned Crew Transfer Vessels in CWind Fleet  C.S. Sovereign  CS Recorder  Global Symphony  Global Symphony Joi n t Vent u re s  Sino British Submarine Systems in Asia (SBSS); Joint venture (49%) with China Telecom  Huawei Marine; Joint venture (49%) with Huawei Technologies  International Cableship Pte Ltd (“ICPL”)  Joint venture (30%) with SingTel and ASEAN Cableship  SCDPL; Joint venture (40%) with SingTel  National Wind Farm Training Centers (100%)  Sino British Submarine Systems in Asia; Joint venture (49%) with China Telecom Global Marine Group

 
© 2 0 1 8 H C 2 H O L D I N G S , I N C . American Natural Gas 26  Designs, builds, owns, operates and maintains compressed natural gas commercial fueling stations for transportation  Building a premier nationwide network of publically accessible heavy duty CNG fueling stations throughout the United States designed and located to serve fleet customers – Completed the integration & upgrade of 18 fueling stations; 44 stations owned or operated nationwide – Expect to expand station footprint via organic and select M&A opportunities  Founded in 2011, with headquarters in Saratoga Springs, New York Business Description:  American transportation sector is rapidly converting from foreign-dependent diesel fuel to clean burning natural gas: – Dramatically reduces emissions – Extends truck life – Significantly reduces fuel cost  Given the cost effectiveness of CNG, its environmental friendliness and the abundance of natural gas reserves in the United States, CNG is the best candidate for alternatives to gasoline and diesel for the motor vehicle market Why CNG?:“Fueling the Future” Currently 44 stations owned or operated in 15 states across the United States*  Drew West – Founder and Chief Executive Officer Select Management:

 
© 2 0 1 8 H C 2 H O L D I N G S , I N C . PTGi International Carrier Services (“PTGi ICS”) 27  Leading international wholesale telecom service company providing voice and data call termination to the telecom industry worldwide  Provides transit and termination of telephone calls through its own global network of next-generation IP soft switches and media gateways, connecting the networks of incumbent telephone companies, mobile operators and OTT companies worldwide  Restructured in 2014, PTGi ICS now delivers industry leading technology via best of breed sales and operational support teams – 4Q17: Eleventh consecutive quarter of positive Adjusted EBITDA – 4Q17: Sixth consecutive quarter of cash dividend to HC2  In business since 1997, recognized as a trusted business partner globally  Headquartered in Herndon, Virginia with representation across North America, South America, the Middle East and Europe Business Description:  Craig Denson – Chief Executive Officer Select Management:

 
© 2 0 1 8 H C 2 H O L D I N G S , I N C . Continental Insurance Group 28  The formation of Continental Insurance Group (“CIG”) in April 2015 to invest in the long-term care and life insurance sector is consistent with HC2’s overall strategy of taking advantage of dislocated and undervalued operating businesses  Through CIG, HC2 intends to build an attractive platform of insurance businesses  In December 2015, HC2 completed the acquisition of American Financial Group’s long-term care and life insurance businesses, United Teacher Associates Insurance Company and Continental General Insurance Company  Key measures as of December 31, 2017: – Statutory Surplus ~$74.7 million / Total Adjusted Capital ~$86.4 million – GAAP Assets of ~$2.1 billion / Cash and Invested Assets ~$1.5 billion Business Description:  James P. Corcoran – Executive Chair – James has extensive experience in the insurance industry on both the corporate and regulatory side as the former Superintendent of Insurance of the State of New York Select Management: Signed Definitive Agreement to Acquire Humana’s Long-Term Care Insurance Business *  Total Statutory Capital ~$150 million; ~$2.3 billion of cash and invested assets as of September 30, 2017  Immediately accretive to Continental’s Risk Based Capital ratio and Statutory Capital  Once completed, Continental will have approximately $3.5 billion in cash and invested assets All data as of December 31, 2017 unless otherwise noted * Humana acquisition expected to close by 3Q18

 
© 2 0 1 8 H C 2 H O L D I N G S , I N C . Pansend 29 HC2’s Pansend Life Sciences Segment Is Focused on the Development of Innovative Healthcare Technologies and Products  80% equity ownership of company focused on immunotherapy; Oncolytic virotherapy for treatment of solid cancer tumors  Founded by Dr. Matthew Mulvey & Dr. Ian Mohr (who co-developed T-Vec); Biovex (owner of T-Vec) acquired by Amgen for ~$1billion  BeneVir’s T-Stealth is a second generation oncolytic virus with new features and new intellectual property  BeneVir holds exclusive worldwide license to develop BV-2711 (T-Stealth)  Granted new patent entitled “Oncolytic Herpes Simplex Virus and Therapeutic Uses Thereof”, covering the composition of matter for Stealth-1H, BeneVir’s lead oncolytic immunotherapy, as well as other platform assets (2Q17)  74% equity ownership of dermatology company focused on lightening and brightening skin  Founded by Pansend in partnership with Mass. General Hospital and inventors Dr. Rox Anderson, Dieter Manstein and Dr. Henry Chan  Over $20 billion global market  Received Food and Drug Administration approval for the R2 Dermal Cooling System (4Q16)  Received Food and Drug Administration approval for second generation R2 Dermal Cooling System (2Q17)  80% equity ownership in company with unique knee replacements based on technology from Dr. Peter Walker, NYU Dept. of Orthopedic Surgery and one of the pioneers of the original Total Knee.  “Mini-Knee” for early osteoarthritis of the knee; “Anatomical Knee” – A Novel Total Knee Replacement  Strong patent portfolio  50% equity ownership in company with unique technology and device for monitoring of real-time kidney function  Current standard diagnostic tests measure kidney function are often inaccurate and not real-time  MediBeacon’s Optical Renal Function Monitor will be first and only, non-invasive system to enable real-time, direct monitoring of renal function at point-of-care  $3.5 billion potential market  Successfully completed a key clinical study of its unique, real-time kidney monitoring system on subjects with impaired kidney function at Washington University in St. Louis. (1Q17)  Profitable technology and product development company  Areas of expertise include medical devices, homeland security, imaging systems, sensors, optics, fluidics, robotics and mobile healthcare  Located in Silicon Valley and Boston area with over 90,000 square feet of working laboratory and incubator space  Contract R&D market growing rapidly  Customers include Fortune 500 companies and start-ups Note: Equity ownership percentages do not reflect fully diluted amounts. All data as of December 31, 2017 unless otherwise noted

 
© 2 0 1 8 H C 2 H O L D I N G S , I N C . 704Games (Formerly Dusenberry Martin Racing (DMi, Inc.)) 30  Owns worldwide exclusive licensing rights to NASCAR® simulation style racing titles on interactive entertainment platforms – Owns all the code, artwork and animation previously developed for legacy games – License also extends to NASCAR® racetracks and all the leading NASCAR® race teams and drivers – Since inception, 704Games developed an all-new NASCAR® racing simulation game, NASCAR® Heat Evolution, for PlayStations 4, Xbox One and PC, as well as NASCAR-themed mobile trivia and slots games  In April 2016, DMR secured $8.0m in additional equity growth capital from consortium of new investors including superstar drivers Joey Logano and Brad Keselowski – NASCAR® Heat Evolution successfully released September 2016 – NASCAR® Heat Evolution announced 2017 Team Update available February 2017  Team & Roster Updates, New Drivers, New Paint Schemes, 2017 NASCAR® Schedule, etc. – DMR Re-brands to 704Games – Appoints racing industry veteran Paul Brooks as CEO and Brad Keselowski to Board of Directors (March 2017) – NASCAR® Heat Mobile game released (May 2017) – NASCAR® Heat 2 released (September 2017)  Headquartered in Charlotte, NC in NASCAR® Headquarters building (NASCAR® Plaza) Business Description: All data as of December 31, 2017 unless otherwise noted

 
© 2 0 1 8 H C 2 H O L D I N G S , I N C . Consolidated Financial Summary 31 Q4 2017 Q4 2016 FY 2017 FY 2016 Statement of Operations (Selected Financial Data) Total Net Revenue $458.5 $454.0 $1,634.1 $1,558.1 Total Operating Expenses $460.0 $449.0 $1,635.3 $1,559.5 Income Loss From Operations ($1.5) $5.0 ($1.1) ($1.4) Interest Expense ($15.7) ($11.8) ($55.1) ($43.4) Income From Equity Investees $5.2 $7.6 $17.8 $10.8 Income (loss) Before Taxes ($11.2) ($6.7) ($39.8) ($45.8) Net Loss attributable to common and participating preferred ($9.2) ($67.3) ($49.7) ($105.4) Non-GAAP Measures Core Operating Adjusted EBITDA $32.4 $37.9 $105.5 $109.1 Total Adjusted EBITDA $19.7 $26.5 $50.8 $60.2 Insurance AOI $2.6 ($6.9) $8.0 ($15.9) Note: Reconciliations of Adjusted EBITDA and Adjusted Operating Income to U.S. GAAP Net Income in appendix. Table may not foot due to rounding. Adjusted Operating Income for Q1 2016 was adjusted to exclude certain intercompany eliminations to better reflect the results of the Insurance segment, and remain consistent with internally reported metrics. Additional details in appendix. All data as of December 31, 2017 unless otherwise noted Construction formerly Manufacturing; Energy formerly Utilities ($USD millions)

 
© 2 0 1 8 H C 2 H O L D I N G S , I N C . Segment Financial Summary 32All data as of December 31, 2017 Construction formerly Manufacturing; Energy formerly Utilities. FY 2017 Q4 2017 Q3 2017 Q2 2017 Q1 2017 FY 2016 Adjusted EBITDA Core Operating Subsidiaries Construction $51.6 $15.1 $16.8 $11.1 $8.6 $59.9 Marine Services 44.0 15.3 8.8 3.6 16.3 41.2 Energy 2.9 0.4 0.3 1.0 1.2 2.5 Telecom 6.9 1.6 1.5 2.2 1.7 5.6 Total Core Operating $105.5 $32.4 $27.3 $17.9 $27.8 $109.1 Early Stage and Other Holdings Life Sciences ($22.4) ($5.2) ($8.2) ($4.9) ($4.1) ($12.0) Other (3.1) 1.3 (1.1) (2.2) (1.2) (11.2) Total Early Stage and Other ($25.5) ($3.9) ($9.3) ($7.1) ($5.2) ($23.2) Non-Operating Corporate ($29.2) ($8.7) ($8.3) ($6.3) ($5.9) ($25.7) Total HC2 (excluding Insurance) $50.8 $19.7 $9.8 $4.6 $16.7 $60.2 Adjusted Operating Income Core Financial Services Insurance $8.0 $2.6 $3.7 $2.6 ($1.0) ($15.9) Note: Reconciliations of Adjusted EBITDA and Adjusted Operating Income to U.S. GAAP Net Income in appendix. Table may not foot due to rounding. Adjusted Operating Income for Q1 2016 was adjusted to exclude certain intercompany eliminations to better reflect the results of the Insurance segment, and remain consistent with internally reported metrics. Additional details in appendix. Adjusted EBITDA for “Core Operating Subsidiaries” $105.5m for FY 2017 ($USD millions)

 
© 2 0 1 8 H C 2 H O L D I N G S , I N C . Reconciliation of U.S. GAAP Net Income (Loss) to Adjusted EBITDA Full Year Ended December 31, 2017 33 ($USD thousands) Construction Marine Energy Telecom Life Sciences Other & Elimination Net loss attributable to HC2 Holdings, Inc. (46,911)$ 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 loss (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) loss (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 Shar - ase 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$ Year Ended December 31, 2017 Core Operating Subsidiaries Early Stage & Other Non- operating Corporate Total HC2

 
© 2 0 1 8 H C 2 H O L D I N G S , I N C . Reconciliation of U.S. GAAP Net Income (Loss) to Adjusted EBITDA Full Year Ended December 31, 2016 34 ($USD thousands) Construction Marine Energy Telecom Life Sciences Other & Elimination Net loss attributable to HC2 Holdings, Inc. (94,549)$ 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) loss (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 Shar - ase 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$ Year Ended December 31, 2016 Core Operating Subsidiaries Early Stage & Other Non- operating Corporate Total HC2

 
© 2 0 1 8 H C 2 H O L D I N G S , I N C . Reconciliation of U.S. GAAP Net Income (Loss) to Adjusted EBITDA Full Year Ended December 31, 2015 35 ($USD thousands) Construction Marine Energy Telecom Life Sciences Other & Elimination Net Income (loss) attributable to HC2 Holdings, Inc. (35,565)$ 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$ (274)$ 2,779$ (4,575)$ (18,276)$ (61,852)$ (36,892)$ Adjustments to reconcile net income (loss) to Adjusted EBITDA: Depreciation and amortization 2,016 18,772 1,635 417 20 1,934 - 24,794 Depreciation and amortization (included in cost of revenue) 7,659 - - - - - - 7,659 Amortization of equity method fair value adjustment at acquisition - (1,516) - - - - - (1,516) Asset impairment expense - 547 - - - - - 547 (Gain) loss on sale or disposal of assets 257 (138) - 50 - 1 - 170 Lease termination costs - - - 1,184 - 1 - 1,185 Interest expense 1,379 3,803 42 - - - 33,793 39,017 Other (income) expense, net (443) (1,340) (42) (2,304) (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 (347) (237) (1,037) (7,733) (16,052) (9,434) Loss from discontinued operations 20 - - - - 1 - 21 No contr lling 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 70 121 23 - 8,362 10,757 Adjusted EBITDA 52,047$ 42,141$ 866$ 2,010$ (7,180)$ (18,309)$ (19,525)$ 52,050$ Total Core Operating Subsidiaries 97,064$ Year Ended December 31, 2015 Core Operating Subsidiaries Early Stage & Other Non- operating Corporate Total HC2

 
© 2 0 1 8 H C 2 H O L D I N G S , I N C . Reconciliation of U.S. GAAP Net Income (Loss) to Adjusted EBITDA Three Months Ended December 31, 2017 36 ($USD thousands) Construction Marine Energy Telecom Life Sciences Other & Elimination Net loss attributable to HC2 Holdings, Inc. (8,537)$ Less: Net Income attributable to HC2 Holdings Insurance segment 3,383 Net Income (loss) attributable to HC2 Holdings, Inc., excluding Insurance Segment 9,160$ 6,230$ 1,485$ 1,253$ (3,822)$ (8,218)$ (18,008)$ (11,920)$ Adjustments to reconcile net income (loss) to Adjusted EBITDA: Depreciation and amortization 1,389 6,337 1,195 86 57 575 21 9,660 Depreciation and amortization (included in cost of revenue) 1,419 - - - - - - 1,419 Amortization of equity method fair value adjustment at acquisition - (371) - - - - - (371) Asset impairment expense - - - - - - - - (Gain) loss on sale or disposal of assets 199 - 208 181 - - - 588 Lease termination costs - - - 2 - - - 2 Interest expense 357 1,029 629 4 - 1,965 11,704 15,688 Net loss (gain) on contingent consideration - - - - - - (5,410) (5,410) Other (income) expense, net 117 240 (164) 72 8 3,741 368 4,382 Foreign currency (gain) loss (included in cost of revenue) - 52 - - - - - 52 Income tax (benefit) expense 887 (36) (4,255) 7 (820) (1,129) (1,073) (6,419) Noncontrolling interest 751 (121) 1,321 - (728) 1,502 - 2,725 Bonus to be settled in equity - - - - - - 2,780 2,780 Share-base compensation expense - 394 3 - 80 213 547 1,237 Non-recurring items - - - - - - - - Acquisition costs 833 1,515 - - - 2,648 339 5,335 Adjusted EBITDA 15,112$ 15,269$ 422$ 1,605$ (5,225)$ 1,297$ (8,732)$ 19,748$ Total Core Operating Subsidiaries 32,408$ Three Months Ended December 31, 2017 Core Operating Subsidiaries Early Stage & Other Non- operating Corporate Total HC2

 
© 2 0 1 8 H C 2 H O L D I N G S , I N C . Reconciliation of U.S. GAAP Net Income (Loss) to Adjusted EBITDA Three Months Ended September 30, 2017 37 ($USD thousands) Construction Marine Energy Telecom Life Sciences Other & Elimination Net loss attributable to HC2 Holdings, Inc. (5,967)$ Less: Net Income attributable to HC2 Holdings Insurance segment 4,280 Net Income (loss) attributable to HC2 Holdings, Inc., excluding Insurance Segment 7,082$ 844$ (939)$ 1,348$ (6,760)$ (600)$ (11,222)$ (10,247)$ Adjustments to reconcile net income (loss) to Adjusted EBITDA: Depreciation and amortization 1,314 6,221 1,247 94 50 272 17 9,215 Depreciation and amortization (included in cost of revenue) 1,293 - - - - - - 1,293 Amortization of equity method fair value adjustment at acquisition - (573) - - - - - (573) Asset impairment expense - - - - - - - - (Gain) loss on sale or disposal of assets 486 - 25 - - - - 511 Lease termination costs - - - 15 - - - 15 Interest expense 238 1,021 262 14 - 1 11,686 13,222 Net loss (gain) on contingent consideration - - - - - - (6,320) (6,320) Other (income) expense, net (165) 888 277 12 (10) (118) (718) 166 Foreign currency (gain) loss (included in cost of revenue) - (238) - - - - - (238) Income tax (benefit) expense 4,481 (137) - - - - (4,746) (402) Noncontrolling interest 558 43 (763) - (1,506) (689) - (2,357) Bonus to be settled in equity - - - - - - 765 765 Share-base compensation expense - 394 179 - 71 19 718 1,381 Non-recurring items - - - - - - - - Acquisition costs 1,501 300 - - - - 1,564 3,365 Adjusted EBITDA 16,788$ 8,763$ 288$ 1,483$ (8,155)$ (1,115)$ (8,256)$ 9,796$ Total Core Operating Subsidiaries 27,322$ Three Months Ended September 30, 2017 Core Operating Subsidiaries Early Stage & Other Non- operating Corporate Total HC2

 
© 2 0 1 8 H C 2 H O L D I N G S , I N C . Reconciliation of U.S. GAAP Net Income (Loss) to Adjusted EBITDA Three Months Ended June 30, 2017 38 ($USD thousands) Construction Marine Energy Telecom Life Sciences Other & Elimination Net loss attributable to HC2 Holdings, Inc. (17,911)$ Less: Net Income attributable to HC2 Holdings Insurance segment 164 Net Income (loss) attributable to HC2 Holdings, Inc., excluding Insurance Segment 4,179$ (3,053)$ (365)$ 2,060$ (4,106)$ (3,757)$ (13,033)$ (18,075)$ Adjustments to reconcile net income (loss) to Adjusted EBITDA: Depreciation and amortization 1,240 5,255 1,381 94 41 331 16 8,358 Depreciation and amortization (included in cost of revenue) 1,302 - - - - - - 1,302 Amortization of equity method fair value adjustment at acquisition - (325) - - - - - (325) Asset impairment expense - - - - - 1,810 - 1,810 (Gain) loss on sale or disposal of assets (145) - 18 - - - - (127) Lease termination costs - 55 - - - - - 55 Interest expense 174 1,040 154 14 - 16 10,675 12,073 Net loss (gain) on contingent consideration - - - - - - 88 88 Other (income) expense, net 28 490 255 (9) (11) 803 214 1,770 Foreign currency (gain) loss (included in cost of revenue) - 83 - - - - - 83 Income tax (benefit) expense 3,232 (134) (1) - - - (6,543) (3,446) Noncontrolling interest 369 (156) (492) - (911) (1,372) - (2,562) Bonus to be settled in equity - - - - - - 585 585 Share-base compensation expense - 394 91 - 76 18 527 1,106 Non-recurring items - - - - - - - - Acquisition costs 701 - - - - - 1,168 1,869 Adjusted EBITDA 11,080$ 3,649$ 1,041$ 2,159$ (4,911)$ (2,151)$ (6,303)$ 4,564$ Total Core Operating Subsidiaries 17,929$ Three Months Ended June 30, 2017 Core Operating Subsidiaries Early Stage & Other Non- operating Corporate Total HC2

 
© 2 0 1 8 H C 2 H O L D I N G S , I N C . Reconciliation of U.S. GAAP Net Income (Loss) to Adjusted EBITDA Three Months Ended March 31, 2017 39 ($USD thousands) Construction Marine Energy Telecom Life Sciences Other & Elimination Net loss attributable to HC2 Holdings, Inc. (14,496)$ Less: Net loss attributable to HC2 Holdings Insurance segment (761) Net Income (loss) attributable to HC2 Holdings, Inc., excluding Insurance Segment 3,203$ 11,152$ (697)$ 1,502$ (3,410)$ (5,430)$ (20,055)$ (13,735)$ Adjustments to reconcile net income (loss) to Adjusted EBITDA: Depreciation and amortization 1,640 5,085 1,248 97 38 330 16 8,454 Depreciation and amortization (included in cost of revenue) 1,240 - - - - - - 1,240 Amortization of equity method fair value adjustment at acquisition - (325) - - - - - (325) Asset impairment expense - - - - - - - - (Gain) loss on sale or disposal of assets (248) (3,500) (4) - - - - (3,752) Lease termination costs - 194 - - - - - 194 Interest expense 207 1,302 136 9 - 2,391 10,070 14,115 Net loss (gain) on contingent consideration - - - - - - 231 231 Other (income) expense, net (21) 1,065 1,120 74 (4) 2,115 44 4,393 Foreign currency (gain) loss (included in cost of revenue) - 24 - - - - - 24 Income tax (benefit) expense 2,079 510 13 - - - 2,177 4,779 Noncontrolling interest 263 494 (747) - (791) (605) - (1,386) Bonus to be settled in equity - - - - - - - - Share-base compensation expense - 345 91 - 92 29 962 1,519 Non-recurring items - - - - - - - - Acquisition costs 245 - - - - - 693 938 Adjusted EBITDA 8,608$ 16,346$ 1,160$ 1,682$ (4,075)$ (1,170)$ (5,862)$ 16,689$ Total Core Operating Subsidiaries 27,796$ Three Months Ended March 31, 2017 Core Operating Subsidiaries Early Stage & Other Non- operating Corporate Total HC2

 
© 2 0 1 8 H C 2 H O L D I N G S , I N C . Reconciliation of U.S. GAAP Net Income (Loss) to Adjusted EBITDA Three Months Ended December 31, 2016 40 ($USD thousands) Construction Marine Energy Telecom Life Sciences Other & Elimination Net loss attributable to HC2 Holdings, Inc. (61,464)$ Less: Net loss attributable to HC2 Holdings Insurance segment (2,050) Net Income (loss) attributable to HC2 Holdings, Inc., excluding Insurance Segment 7,292$ 8,667$ (61)$ (2,572)$ (4,655)$ (3,536)$ (64,549)$ (59,414)$ Adjustments to reconcile net income (loss) to Adjusted EBITDA: Depreciation and amortization 629 5,214 769 115 37 430 5 7,199 Depreciation and amortization (included in cost of revenue) 1,322 - - - - - - 1,322 Amortization of equity method fair value adjustment at acquisition - (325) - - - - - (325) (Gain) loss on sale or disposal of assets 2,626 1 - 708 - - - 3,335 Lease termination costs - - - - - - - - Interest expense 322 1,091 69 - - 1,163 9,116 11,761 Net loss (gain) on contingent consideration - (2,482) - - - - 11,411 8,929 Other (income) expense, net (75) (1,234) 391 487 10 99 (966) (1,288) Foreign currency (gain) loss (included in cost of revenue) - 864 - - - - - 864 Income tax (benefit) expense 6,086 2,150 (535) 2,803 1,558 3,250 32,726 48,038 Noncontrolling interest 594 464 (253) - (809) (513) - (517) Bonus to be settled in equity - - - - - - 2,503 2,503 Share-base compensation expense - 375 490 - 67 35 712 1,679 Non-recurring items - - - - - - - - Acquisition Costs 1,868 24 - - - - 490 2,382 Adjusted EBITDA 20,664$ 14,809$ 870$ 1,541$ (3,792)$ 928$ (8,552)$ 26,468$ Total Core Operating Subsidiaries 37,884$ Three Months Ended December 31, 2016 Core Operating Subsidiaries Early Stage & Other Non- operating Corporate Total HC2

 
© 2 0 1 8 H C 2 H O L D I N G S , I N C . Reconciliation of U.S. GAAP Net Income (Loss) to Adjusted EBITDA Three Months Ended September 30, 2016 41 ($USD thousands) Construction Marine Energy Telecom Life Sciences Other & Elimination Net Income (loss) attributable to HC2 Holdings, Inc. $ (4,558) Less: Net loss attributable to HC2 Holdings Insurance segment (2,189) Net Income (loss) attributable to HC2 Holdings, Inc., excluding Insurance Segment 6,962$ 8,696$ 27$ 1,796$ (2,285)$ (8,160)$ (9,404)$ (2,368)$ Adjustments to reconcile net income (loss) to Adjusted EBITDA: Depreciation and amortization 431 5,554 582 144 32 380 4 7,127 Depreciation and amortization (included in cost of revenue) 1,321 - - - - - - 1,321 Amortization of equity method fair value adjustment at acquisition - (329) - - - - - (329) Asset impairment expense - - - - - - - - (Gain) loss on sale or disposal of assets (23) - - - - - - (23) Lease termination costs - - - (159) - - - (159) Interest expense 304 1,328 119 - - - 8,969 10,720 Net gain on contingent consideration - (1,381) - - - - - (1,381) Other (income) expense, net (12) (632) (24) 422 (2) 3,892 835 4,479 Foreign currency (gain) loss (included in cost of revenue) - (283) - - - - - (283) Income tax (benefit) expense 4,672 96 - - - - (7,851) (3,083) Noncontrolling interest 411 465 27 - (770) (974) - (841) Share-base payment expense - 546 3 - 128 37 1,088 1,802 Non-recurring items - - - - - - - - Acquisition costs 429 - - - - - 821 1,250 Adjusted EBITDA 14,495$ 14,060$ 734$ 2,203$ (2,897)$ (4,825)$ (5,538)$ 18,232$ Total Core Operating Subsidiaries 31,492$ Core Operating Subsidiaries Early Stage & Other Non- operating Corporate Total HC2 Three Months Ended September 30, 2016

 
© 2 0 1 8 H C 2 H O L D I N G S , I N C . Reconciliation of U.S. GAAP Net Income (Loss) to Adjusted EBITDA Three Months Ended June 30, 2016 42 ($USD thousands) Construction Marine Energy Telecom Life Sciences Other & Elimination Net Income (loss) attributable to HC2 Holdings, Inc. $ 1,935 Less: Net loss attributable to HC2 Holdings Insurance segment (2,293) Net Income (loss) attributable to HC2 Holdings, Inc., excluding Insurance Segment 9,364$ 6,002$ 68$ 1,009$ (2,004)$ (2,608)$ (7,603)$ 4,228$ Adjustments to reconcile net income (loss) to Adjusted EBITDA: Depreciation and amortization 303 6,084 468 140 36 336 - 7,367 Depreciation and amortization (included in cost of revenue) (206) - - - - - - (206) Amortization of equity method fair value adjustment at acquisition - (359) - - - - - (359) Asset impairment expense - - - - - - - - (Gain) loss on sale or disposal of assets (1,845) 7 - - - 1 - (1,837) Lease termination costs - - - 338 - - - 338 Interest expense 303 1,285 14 - - 1 8,966 10,569 Gain on Contingent Consideration - (192) - - - - - (192) Other (income) expense, net (32) 403 (344) 29 - (10) 465 511 Foreign currency (gain) loss (included in cost of revenue) - (1,540) - - - - - (1,540) Income tax (benefit) expense 4,524 (212) - - - 1 (9,404) (5,091) Noncontrolling interest 768 200 244 - (812) (1,044) - (644) Share-base payment expense - 152 90 - 34 40 1,359 1,675 Non-recurring items - - - - - - - - Acquisition costs - - - 18 - - 313 331 Adjusted EBITDA 13,179$ 11,830$ 540$ 1,534$ (2,746)$ (3,283)$ (5,904)$ 15,150$ Total Core Operating Subsidiaries 27,083$ Core Operating Subsidiaries Early Stage & Other Non- operating Corporate Total HC2 Three Months Ended June 30, 2016

 
© 2 0 1 8 H C 2 H O L D I N G S , I N C . Reconciliation of U.S. GAAP Net Income (Loss) to Adjusted EBITDA Three Months Ended March 31, 2016 43 ($USD thousands) Construction Marine Energy Telecom Life Sciences Other & Elimination Net Income (loss) attributable to HC2 Holdings, Inc. $ (30,462) Less: Net loss attributable to HC2 Holdings Insurance segment (7,496) Net Income (loss) attributable to HC2 Holdings, Inc., excluding Insurance Segment 4,384$ (5,918)$ (27)$ 1,202$ 1,298$ (10,494)$ (13,409)$ (22,966)$ Adjustments to reconcile net income (loss) to Adjusted EBITDA: Depreciation and amortization 529 5,155 429 106 19 336 - 6,574 Depreciation and amortization (included in cost of revenue) 1,933 - - - - - - 1,933 Amortization of equity method fair value adjustment at acquisition - (358) - - - - - (358) Asset impairment expense - - - - - - - - (Gain) loss on sale or disposal of assets 904 (17) - - - - - 887 Lease termination costs - - - - - - - - Interest expense 310 1,070 9 - - - 8,937 10,326 Other (income) expense, net (44) 612 (31) (1,025) (3,221) 6,005 (1,611) 686 Foreign currency (gain) loss (included in cost of revenue) - (147) - - - - - (147) Income tax (benefit) expense 3,445 (640) - - - (1) (4,226) (1,422) Noncontrolling interest 61 (155) (22) - (720) (44) - (880) Share-base payment expense - 609 14 - 22 160 2,386 3,191 Non-recurring items - - - - - - - - Acquisition costs - 266 27 - - 1 2,201 2,495 Adjusted EBITDA 11,522$ 477$ 399$ 283$ (2,602)$ (4,038)$ (5,722)$ 319$ Total Core Operating Subsidiaries 12,681$ Three Months Ended March 31, 2016 Core Operating Subsidiaries Early Stage & Other Non- operating Corporate Total HC2

 
© 2 0 1 8 H C 2 H O L D I N G S , I N C . Reconciliation of U.S. GAAP Net Income (Loss) to Insurance Adjusted Operating Income 44 ($USD thousands) Adjusted Op rating Income - Insurance ("Insurance AOI") FY 2017 Q4 2017 Q3 2017 Q2 2017 Q1 2017 FY 2016 Q4 2016 Net Income (loss) - Insurance segment 7,066$ 3,381$ 4,282$ 164$ (761)$ (14,028)$ (2,050)$ Net realized and unrealized gains on investments (4,983) (2,129) (978) (1,095) (781) (5,019) (7,696) Asset impairment 3,364 - - 2,842 522 2,400 2,400 Acquisition costs 2,535 1,377 422 736 - 714 445 Insurance AOI 7,982$ 2,629$ 3,726$ 2,647$ (1,020)$ (15,933)$ (6,901)$

 
HC2 HOLDINGS, INC. © HC2 Holdings, Inc. 2018 A n d r e w G . B a c k m a n • i r @ h c 2 . c om • 2 1 2 . 2 3 5 . 2 6 9 1 • 4 5 0 P a r k A v e n u e , 3 0 t h F l o o r , N e w Y o r k , N Y 1 0 0 2 2 May 3, 2018