5. BUSINESS COMBINATIONS

The Company’s acquisitions were accounted for using the acquisition method of accounting which requires, among other things, that assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date. Estimates of fair value included in the condensed consolidated financial statements, in conformity with ASC No. 820, “Fair Value Measurements and Disclosures” (“ASC 820”), represent the Company’s best estimates and valuations developed with the assistance of independent appraisers and, where such valuations have not yet been completed or are not available, industry data and trends and by reference to relevant market rates and transactions. The following estimates and assumptions are inherently subject to significant uncertainties and contingencies beyond the control of the Company. Accordingly, the Company cannot provide assurance that the estimates, assumptions, and values reflected in the valuations will be realized, and actual results could vary materially.

Any changes to the initial estimates of the fair value of the assets and liabilities will be recorded as adjustments to those assets and liabilities and residual amounts will be allocated to goodwill. In accordance with ASC 805, if additional information is obtained about these assets and liabilities within the measurement period (not to exceed one year from the date of acquisition), including finalization of asset appraisals, the Company will refine its estimates of fair value to allocate the purchase price more accurately.

Schuff

On May 29, 2014, the Company completed the acquisition of 2.5 million shares of common stock of Schuff, a steel fabrication and erection company and negotiated an agreement to purchase an additional 198,411 shares, representing an approximately 65% interest in Schuff. Schuff repurchased a portion of its outstanding common stock in June 2014, which had the effect of increasing the Company’s ownership interest to 70%. During the fourth quarter, the final results of a tender offer for all outstanding shares of Schuff were announced and various open-market purchases were made, which resulted in the acquisition of 809,043 shares and an increase in our ownership interest to 91%. We intend to execute a short-form merger, which will increase our ownership of Schuff shares to 100%. Schuff and its wholly-owned subsidiaries primarily operate as integrated fabricators and erectors of structural steel and heavy steel plates with headquarters in Phoenix, Arizona and operations in Arizona, Georgia, Texas, Kansas and California. Schuff’s construction projects are primarily in the aforementioned states. In addition, Schuff has construction projects in select international markets, primarily Panama. The Company acquired Schuff to diversify its portfolio of holdings and saw Schuff as an opportunity to enter the steel fabrication and erection market.

The table below summarizes the preliminary estimates of fair value of the Schuff assets acquired and liabilities assumed as of the acquisition date. The Company purchased 2.5 million shares of common stock of Schuff for $78.75 million. The purchase price of Schuff was valued at $31.50 per share which represented both the cash paid by the Company for its 60% interest, and the fair value of the noncontrolling interest of 40%.

The preliminary purchase price allocation is as follows (in thousands):


Cash and cash equivalents	$	(627	)
Investments		1,714
Accounts receivable		130,622
Costs and recognized earnings in excess of billings on uncompleted contracts		27,126
Prepaid expenses and other current assets		3,079
Inventories		14,487
Assets held for sale		—
Property and equipment, net		85,662
Goodwill		24,612
Trade names		4,478
Other assets		2,947
Total assets acquired		294,100
Accounts payable		37,621
Accrued payroll and employee benefits		11,668
Accrued expenses and other current liabilities		12,532
Billings in excess of costs and recognized earnings on uncompleted contracts		65,985
Accrued income taxes		1,202
Accrued interest		76
Current portion of long-term debt		15,460
Liabilities held for sale		—
Long-term debt		4,375
Deferred tax liability		7,815
Other liabilities		604
Noncontrolling interest		4,365
Total liabilities assumed		161,703
Enterprise value		132,397
Less fair value of noncontrolling interest		53,647
Purchase price attributable to controlling interest	$	78,750

The acquisition of Schuff resulted in goodwill of approximately $24.6 million. Goodwill was the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Goodwill was recognized as a new stand-alone reporting unit. Goodwill is not amortized and is not deductible for tax purposes.

The acquired amortizable intangible assets and the related estimated useful lives consist of the following (in thousands):


	Preliminary Estimated Useful Lives	Preliminary Estimated Value May 29, 2014
Trade names	15 years	$	4,478
Total intangible assets		$	4,478

ASC 810 requires that transactions that result in an increase in ownership of a subsidiary be accounted for as equity transactions. The carrying amount of the noncontrolling interest is adjusted to reflect the controlling interest’s decreased ownership interest in the subsidiary’s net assets and any difference between the consideration paid by the parent to a noncontrolling interest holder (or contributed by the parent to the net assets of the subsidiary) and the adjustment to the carrying amount of the noncontrolling interest in the subsidiary is recognized directly in equity attributable to the controlling interest. Due to the increase of the Company’s ownership to 91% from the acquisition date through December 31, 2014, the Company recorded an adjustment of Schuff’s noncontrolling interest by $3.4 million and recorded as excess book value over fair value of purchased noncontrolling interest in the Company’s condensed consolidated statement of stockholders’ equity. In the three months ended March 31, 2015, the Company acquired an additional 6,800 shares of Schuff that resulted in less than $0.1 million of excess book value over fair value of purchased noncontrolling interest in the Company’s condensed consolidated statement of stockholders’ equity. The ownership interest of 91% did not change.

ANG

On August 1, 2014, the Company paid $15.5 million to acquire 15,500 shares of Series A Convertible Preferred Stock of ANG (the “ANG Preferred Stock”), representing an approximately 51% interest in ANG. The ANG Preferred Stock is convertible into 1,033,333 shares of common stock and also has voting rights. The noncontrolling interest represents 1,000,000 shares of common stock; thereby giving the Company a controlling interest. ANG is a premier distributor of natural gas motor fuel headquartered in the Northeast that designs, builds, owns, operates and maintains compressed natural gas fueling stations for transportation. The Company acquired ANG for its strong growth potential which is in line with the Company’s strategy to find investments that can generate high returns and significant cash flow.

The table below summarizes the preliminary estimate of fair value of the ANG assets acquired and liabilities assumed as of the acquisition date. The purchase price of ANG was valued at $17.7 million which represented both the cash paid by the Company for its 51% interest ($15.5 million), and the fair value of the noncontrolling interest of 49%, which was determined by an outside appraisal to be $2.2 million.

The preliminary purchase price allocation is as follows (in thousands):


Cash and cash equivalents	$	15,704
Accounts receivable		306
Prepaid expenses and other current assets		31
Inventories		27
Property and equipment, net		1,921
Customer contracts		2,700
Trade names		6,300
Other assets		2
Total assets acquired		26,991
Accounts payable		49
Accrued payroll and employee benefits		5
Accrued expenses and other current liabilities		26
Billings in excess of costs and recognized earnings on uncompleted contracts		114
Current portion of long-term debt		34
Long-term debt		870
Deferred tax liability		3,530
Total liabilities assumed		4,628
Fair value of net assets acquired		22,363
Purchase price		17,689
Excess of fair value of net assets over purchase price	$	4,674

The acquisition of ANG resulted in an excess of the fair value of the net assets acquired over the purchase price of $4.7 million. The Company does not believe that the circumstances surrounding the transaction give rise to a bargain purchase. The existing shareholders of ANG continue to manage the day-to-day operations and own the noncontrolling interest. Accordingly, due to the related party nature of the transaction, management has recorded the excess of the fair value of the assets acquired over the purchase price in additional paid-in capital.

The acquired amortizable intangible assets and the related estimated useful lives consist of the following (in thousands):


	Preliminary Estimated Useful Lives		Preliminary Estimated Value August 1, 2014
Customer contracts	10 years	$	2,700
Trade names	10 years		6,300
Total intangible assets		$	9,000

GMSL

On September 22, 2014, the Company completed the acquisition of Bridgehouse and its subsidiary, GMSL. The purchase price reflects an enterprise value of approximately $260 million, including assumed indebtedness of approximately $130 million leaving a net enterprise value of approximately $130 million. GMSL is a leading provider of engineering and underwater services on submarine cables. The Company acquired GMSL for its attractive valuation and strong cash position.

The table below summarizes the preliminary estimates of fair value of the GMSL assets acquired and liabilities assumed as of the acquisition date. The net enterprise value of GMSL was valued at $130.4 million which represented both the cash paid by the Company for its 97% interest, and the fair value of the noncontrolling interest of 3%.

The preliminary purchase price allocation is as follows (in thousands):


Cash and cash equivalents	$	62,555
Accounts receivable		26,183
Prepaid expenses and other current assets		9,886
Inventories		7,395
Restricted cash		4,682
Property and equipment, net		156,976
Customer contracts		7,796
Trade name		1,137
Developed technology		1,624
Investments		24,266
Other assets		7,482
Total assets acquired		309,982
Accounts payable		8,965
Accrued expenses and other current liabilities		34,767
Accrued income taxes		1,251
Current portion of long-term debt		8,140
Long-term debt		78,356
Pension liability		45,923
Deferred tax liability		1,013
Other liabilities		1,179
Total liabilities assumed		179,594
Enterprise value		130,388
Less fair value of noncontrolling interest		3,803
Purchase price attributable to controlling interest	$	126,585

The values for customer contracts, trade name, developed technology and investments are estimates and may change.

The acquired amortizable intangible assets and the related estimated useful lives consist of the following (in thousands):


	Preliminary Estimated Useful Lives		Preliminary Estimated Value September 22, 2014
Customer contracts	15 years	$	7,796
Trade name	3 years		1,137
Developed technology	4 years		1,624
Total intangible assets		$	10,557

Pro Forma Adjusted Summary

The results of operations for Schuff, ANG, and GMSL have been included in the consolidated financial statements subsequent to their acquisition dates.

The following schedule presents unaudited consolidated pro forma results of operations data as if the acquisitions had occurred on January 1, 2014. This information does not purport to be indicative of the actual results that would have occurred if the acquisitions had actually been completed on the date indicated, nor is it necessarily indicative of the future operating results or the financial position of the combined company (in thousands):

	Three Months Ended
	March 31, 2014
Net revenue	$	193,632
Net income (loss) from continuing operations		7,725
Net income (loss) from discontinued operations		5
Gain (loss) from sale of discontinued operations		(784	)
Net income (loss) attributable to HC2 Holdings, Inc.	$	6,946

All expenditures incurred in connection with the acquisitions were expensed and are included in selling, general and administrative expenses. The Company recorded revenue of $126.9 million and net income of $3.2 million from Schuff for the three months ended March 31, 2015. The Company recorded revenue of $1.2 million and net loss of $0.1 million from ANG for the three months ended March 31, 2015. The Company recorded revenue of $27.0 million and net income of $1.6 million from GMSL for the three months ended March 31, 2015.