EX-99.5 6 s001514x3_ex99-5.htm EXHIBIT 99.5

Exhibit 99.5
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements are presented to illustrate the effect of the Company’s acquisition of the Insurance Companies and the other transactions described below on its historical operating results.
The following unaudited pro forma condensed combined financial statements have been prepared to give effect to the offerings of the existing notes and the new notes and the use of proceeds therefrom, along with, in the case of the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2016, our acquisition of the Insurance Companies. The unaudited pro forma condensed combined balance sheet as of September 30, 2016 gives effect to the offering of the new notes and the use of proceeds therefrom as if they had occurred on September 30, 2016. The unaudited pro forma condensed combined balance sheet is derived from the historical financial statements of HC2 incorporated by reference into this offering memorandum.
The following unaudited pro forma condensed combined statement of operations for the year ended December 31, 2015 gives effect to the offerings of the existing notes and the new notes and the use of proceeds therefrom, along with our acquisition of the Insurance Companies, as if they had occurred on January 1, 2015. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2015 is derived from the audited historical financial statements of HC2 as of and for the year ended December 31, 2015 and the unaudited historical financial statements of the Insurance Companies as of and for the nine months ended September 30, 2015 and the stub period from October 1, 2015 to December 23, 2015. The unaudited historical financial statements of the Insurance Companies as of and for the period from October 1, 2015 to December 23, 2015 are not included or incorporated by reference into this offering memorandum. The Company completed the acquisition of the Insurance Companies on December 24, 2015, and financial information of the Insurance Companies subsequent to such acquisition date was included in the historical financial statements of the Company for the year ended December 31, 2015 and the nine months ended September 30, 2016.
The summary unaudited pro forma condensed consolidated statement of operations for the nine months ended September 30, 2016 gives effect to the offerings of the existing notes and the new notes and the use of proceeds therefrom as if they had occurred on January 1, 2015. The summary unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2016 is derived from the unaudited historical financial statements of HC2 as of and for the nine months ended September 30, 2016.
The unaudited pro forma condensed combined financial statements should be read in conjunction with the consolidated financial statements of HC2, including the notes thereto, and “Management Discussion and Analysis of Financial Condition and Results of Operations,” incorporated by reference into this offering memorandum.
The unaudited pro forma combined financial information has been prepared by HC2’s management in accordance with Article 11 of Regulation S-X for illustrative purposes only and is not necessarily indicative of the combined financial position or results of operations that would have been realized had the Transactions been completed as of the dates indicated, nor is it meant to be indicative of any anticipated combined financial position or future results of operations that HC2 will experience following completion of the Transactions. In addition, the accompanying unaudited pro forma combined statements of operations do not include any pro forma adjustments to reflect expected cost savings or restructuring actions which may be achievable or the impact of any non-recurring activity and one-time, transaction-related costs.
The historical consolidated financial statements have been adjusted to reflect factually supportable items that are directly attributable to the Transactions and, with respect to the unaudited pro forma condensed combined statements of operations, are not expected to have a continuing impact on the results of operations of the combined company.

HC2 HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of September 30, 2016

|  | HC2 |  |  | Financing Adjustments |  |  | Ref |  |  | Pro Forma Total |
Assets |  |  |  |  |  |  |  |  |  |  |  |
Investments: |  |  |  |  |  |  |  |  |  |  |  |
Fixed maturity securities, available-for-sale at fair value |  | $ | 1,331,677 |  |  | $ | — |  |  |  |  |  | $ | 1,331,677 |
Equity securities, available-for-sale at fair value |  |  | 56,506 |  |  |  | — |  |  |  |  |  |  | 56,506 |
Mortgage loans |  |  | 8,939 |  |  |  | — |  |  |  |  |  |  | 8,939 |
Policy loans |  |  | 18,228 |  |  |  | — |  |  |  |  |  |  | 18,228 |
Other invested assets |  |  | 60,870 |  |  |  | — |  |  |  |  |  |  | 60,870 |
Total investments |  |  | 1,476,220 |  |  |  | — |  |  |  |  |  |  | 1,476,220 |
Cash and cash equivalents |  |  | 121,321 |  |  |  | 40,097 |  |  | (4a) |  |  |  | 161,418 |
Restricted cash |  |  | 791 |  |  |  | — |  |  |  |  |  |  |  | 791 |
Accounts receivable, net |  |  | 272,738 |  |  |  | — |  |  |  |  |  |  |  | 272,738 |
Cost and recognized earnings in excess of billings on uncompleted contracts |  |  | 17,091 |  |  |  | — |  |  |  |  |  |  |  | 17,091 |
Inventory |  |  | 8,973 |  |  |  | — |  |  |  |  |  |  |  | 8,973 |
Recoverable from reinsurers |  |  | 525,599 |  |  |  | — |  |  |  |  |  |  |  | 525,599 |
Accrued investment income |  |  | 15,751 |  |  |  | — |  |  |  |  |  |  |  | 15,751 |
Deferred tax asset |  |  | 43,555 |  |  |  | — |  |  |  |  |  |  |  | 43,555 |
Property, plant and equipment, net |  |  | 244,176 |  |  |  | — |  |  |  |  |  |  |  | 244,176 |
Goodwill |  |  | 86,025 |  |  |  | — |  |  |  |  |  |  |  | 86,025 |
Intangibles, net |  |  | 39,144 |  |  |  | — |  |  |  |  |  |  |  | 39,144 |
Other assets |  |  | 35,520 |  |  |  | — |  |  |  |  |  |  |  | 35,520 |
Assets held for sale |  |  | 1,093 |  |  |  | — |  |  |  |  |  |  |  | 1,093 |
Total assets |  | $ | 2,887,997 |  |  | $ | 40,097 |  |  |  |  |  |  | $ | 2,928,094 |
Liabilities, temporary equity and stockholders’ equity |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Life, accident and health reserves |  |  | 1,637,501 |  |  |  | — |  |  |  |  |  |  |  | 1,637,501 |
Annuity reserves |  |  | 254,250 |  |  |  | — |  |  |  |  |  |  |  | 254,250 |
Value of business acquired |  |  | 48,512 |  |  |  | — |  |  |  |  |  |  |  | 48,512 |
Accounts payable and other current liabilities |  |  | 232,149 |  |  |  | — |  |  |  |  |  |  |  | 232,149 |
Billings in excess of costs and recognized earnings on uncompleted contracts |  |  | 51,241 |  |  |  | — |  |  |  |  |  |  |  | 51,241 |
Deferred tax liability |  |  | 12,807 |  |  |  | — |  |  |  |  |  |  |  | 12,807 |
Long-term obligations |  |  | 396,688 |  |  |  | 40,097 |  |  | (4a) |  |  |  | 436,785 |
Pension liability |  |  | 20,744 |  |  |  | — |  |  |  |  |  |  |  | 20,744 |
Other liabilities |  |  | 12,042 |  |  |  | — |  |  |  |  |  |  |  | 12,042 |
Total liabilities |  |  | 2,665,934 |  |  |  | 40,097 |  |  |  |  |  |  |  | 2,706,031 |
Commitments and contingencies |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Temporary equity: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Preferred stock |  |  | 41,659 |  |  |  | — |  |  |  |  |  |  |  | 41,659 |
Redeemable noncontrolling interest |  |  | 1,993 |  |  |  |  |  |  |  |  |  |  |  | 1,993 |
Total temporary equity |  |  | 43,652 |  |  |  | — |  |  |  |  |  |  |  | 43,652 |
Stockholders’ equity: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Common stock |  |  | 38 |  |  |  | — |  |  |  |  |  |  |  | 38 |
Additional paid-in capital |  |  | 228,842 |  |  |  | — |  |  |  |  |  |  |  | 228,842 |
Accumulated deficit |  |  | (112,814 | ) |  |  | — |  |  |  |  |  |  |  | (112,814 | )
Treasury stock, at cost |  |  | (1,262 | ) |  |  | — |  |  |  |  |  |  |  | (1,262 | )
Accumulated other comprehensive gain |  |  | 37,221 |  |  |  | — |  |  |  |  |  |  |  | 37,221 |
Total HC2 Holdings, Inc. stockholders’ equity before noncontrolling interest |  |  | 152,025 |  |  |  | — |  |  |  |  |  |  |  | 152,025 |
Noncontrolling interest |  |  | 26,386 |  |  |  | — |  |  |  |  |  |  |  | 26,386 |
Total stockholders’ equity |  |  | 178,411 |  |  |  | — |  |  |  |  |  |  |  | 178,411 |
Total liabilities and stockholders’ equity |  | $ | 2,887,997 |  |  | $ | 40,097 |  |  |  |  |  |  | $ | 2,928,094 |

(in thousands)
See accompanying notes to unaudited pro forma condensed combined financial statements.

HC2 HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the Nine Months ended September 30, 2016

|  | HC2 |  |  | Financing Adjustments |  |  | Ref |  |  | Pro Forma Total |
Services revenue |  | $ | 624,545 |  |  | $ | — |  |  |  |  |  | $ | 624,545 |
Sales revenue |  |  | 379,729 |  |  |  | — |  |  |  |  |  |  | 379,729 |
Life, accident and health earned premiums, net |  |  | 59,939 |  |  |  | — |  |  |  |  |  |  | 59,939 |
Net investment income |  |  | 42,585 |  |  |  | — |  |  |  |  |  |  | 42,585 |
Net realized losses on investments |  |  | (2,677 | ) |  |  | — |  |  |  |  |  |  | (2,677 | )
Net revenue |  |  | 1,104,121 |  |  |  | — |  |  |  |  |  |  | 1,104,121 |
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cost of revenue - services |  |  | 583,942 |  |  |  | — |  |  |  |  |  |  | 583,942 |
Cost of revenue - sales |  |  | 308,951 |  |  |  | — |  |  |  |  |  |  | 308,951 |
Policy benefits, changes in reserves, and commissions |  |  | 92,784 |  |  |  | — |  |  |  |  |  |  | 92,784 |
Selling, general and administrative |  |  | 107,493 |  |  |  | — |  |  |  |  |  |  | 107,493 |
Depreciation and amortization |  |  | 18,163 |  |  |  | — |  |  |  |  |  |  | 18,163 |
(Gain) loss on sale or disposal of assets |  |  | (973 | ) |  |  | — |  |  |  |  |  |  | (973 | )
Lease termination costs |  |  | 179 |  |  |  | — |  |  |  |  |  |  | 179 |
Total operating expenses |  |  | 1,110,539 |  |  |  | — |  |  |  |  |  |  | 1,110,539 |
Income (loss) from operations |  |  | (6,418 | ) |  |  | — |  |  |  |  |  |  | (6,418 | )
Interest expense |  |  | (31,614 | ) |  |  | (4,018 | ) |  | (5a) |  |  |  | (35,632 | )
Other income (expense), net |  |  | (4,220 | ) |  |  | — |  |  |  |  |  |  |  | (4,220 | )
Income from equity investees |  |  | 3,153 |  |  |  | — |  |  |  |  |  |  |  | 3,153 |
Loss from continuing operations before income taxes |  |  | (39,099 | ) |  |  | (4,018 | ) |  |  |  |  |  |  | (43,117 | )
Income tax benefit |  |  | 3,649 |  |  |  | 1,451 |  |  | (5b) |  |  |  | 5,100 |
Income (loss) from continuing operations |  |  | (35,450 | ) |  |  | (2,567 | ) |  |  |  |  |  |  | (38,017 | )
Less: Net income attributable to noncontrolling interest and redeemable noncontrolling interest |  |  | 2,365 |  |  |  | — |  |  |  |  |  |  |  | 2,365 |
Income (loss) from continuing operations attributable to HC2 Holdings, Inc |  |  | (33,085 | ) |  |  | (2,567 | ) |  |  |  |  |  |  | (35,652 | )
Less: Preferred stock and deemed dividends |  |  | 5,061 |  |  |  | — |  |  |  |  |  |  |  | 5,061 |
Net loss attributable to common stock and participating preferred stockholders |  | $ | (38,146 | ) |  | $ | (2,567 | ) |  |  |  |  |  | $ | (40,713 | )
Net loss attributable to common stock and participating preferred stockholders |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic loss per common share |  | $ | (1.07 | ) |  |  |  |  |  |  |  |  |  | $ | (1.14 | )
Diluted loss per common share |  | $ | (1.07 | ) |  |  |  |  |  |  |  |  |  | $ | (1.14 | )
Weighted average common shares outstanding: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 35,808 |  |  |  |  |  |  |  |  |  |  |  | 35,808 |
Diluted |  |  | 35,808 |  |  |  |  |  |  |  |  |  |  |  | 35,808 |

(in thousands, except per share data amounts)
See accompanying notes to unaudited pro forma condensed combined financial statements.

HC2 HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the year ended December 31, 2015

|  |  |  |  | UTA & CGI |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | HC2 |  |  | Nine months ended 9/30/2015 |  |  | 10/1/15 to 12/24/2015 |  |  | Pro Forma Adjustments |  |  | Ref. |  |  | Financing Adjustments |  |  | Ref. |  |  | Pro Forma Total |
Services revenue |  | $ | 595,280 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  |  |  |  | $ | — |  |  |  |  |  | $ | 595,280 |
Sales revenue |  |  | 522,661 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  |  |  |  | — |  |  |  |  |  |  | 522,661 |
Life, accident and health earned premiums, net |  |  | 1,578 |  |  |  | 62,443 |  |  |  | 20,333 |  |  |  | — |  |  |  |  |  |  | — |  |  |  |  |  |  | 84,354 |
Net investment income |  |  | 1,031 |  |  |  | 56,055 |  |  |  | 16,653 |  |  |  | (5,486 | ) |  | (5c) |  |  |  | — |  |  |  |  |  |  | 68,253 |
Net realized gains (losses) on investments |  |  | 256 |  |  |  | (5,739 | ) |  |  | (5,181 | ) |  |  | — |  |  |  |  |  |  |  | — |  |  |  |  |  |  | (10,664 | )
Net revenue |  |  | 1,120,806 |  |  |  | 112,759 |  |  |  | 31,805 |  |  |  | (5,486 | ) |  |  |  |  |  |  | — |  |  |  |  |  |  | 1,259,884 |
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cost of revenue - services |  |  | 544,655 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  |  |  |  |  | — |  |  |  |  |  |  | 544,655 |
Cost of revenue - sales |  |  | 437,968 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  |  |  |  |  | — |  |  |  |  |  |  | 437,968 |
Policy benefits, changes in reserves, and commissions |  |  | 2,245 |  |  |  | 88,096 |  |  |  | 33,333 |  |  |  | (2,869 | ) |  | (5d) |  |  |  | — |  |  |  |  |  |  | 120,805 |
Selling, general and administrative |  |  | 108,527 |  |  |  | 14,418 |  |  |  | 3,340 |  |  |  | — |  |  |  |  |  |  |  | — |  |  |  |  |  |  | 126,285 |
Depreciation and amortization |  |  | 23,280 |  |  |  | 7,243 |  |  |  | 2,617 |  |  |  | (10,286 | ) |  | (5e) |  |  |  | — |  |  |  |  |  |  | 22,854 |
Loss on sale or disposal of assets |  |  | 170 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  |  |  |  |  | — |  |  |  |  |  |  | 170 |
Lease termination costs |  |  | 1,185 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  |  |  |  |  | — |  |  |  |  |  |  | 1,185 |
Asset impairment expense |  |  | 547 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  |  |  |  |  | — |  |  |  |  |  |  | 547 |
Total operating expenses |  |  | 1,118,577 |  |  |  | 109,757 |  |  |  | 39,290 |  |  |  | (13,155 | ) |  |  |  |  |  |  | — |  |  |  |  |  |  | 1,254,469 |
Income (loss) from operations |  |  | 2,229 |  |  |  | 3,002 |  |  |  | (7,485 | ) |  |  | 7,669 |  |  |  |  |  |  |  | — |  |  |  |  |  |  | 5,415 |
Interest expense |  |  | (39,017 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  |  |  |  |  | (5,260 | ) |  | (5g) |  |  |  | (44,277 | )
Other income (expense), net |  |  | (6,820 | ) |  |  | 3,681 |  |  |  | 1,218 |  |  |  | — |  |  |  |  |  |  |  | — |  |  |  |  |  |  |  | (1,921 | )
Loss from equity investees |  |  | (3,015 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  |  |  |  |  | — |  |  |  |  |  |  |  | (3,015 | )
Gain (loss) from operations before income taxes |  |  | (46,623 | ) |  |  | 6,683 |  |  |  | (6,267 | ) |  |  | 7,669 |  |  |  |  |  |  |  | (5,260 | ) |  |  |  |  |  |  | (43,798 | )
Income tax benefit (expense) |  |  | 10,882 |  |  |  | (1,841 | ) |  |  | (873 | ) |  |  | (2,768 | ) |  | (5f) |  |  |  | 1,899 |  |  | (5h) |  |  |  | 7,299 |
Income (loss) from continuing operations |  |  | (35,741 | ) |  |  | 4,842 |  |  |  | (7,140 | ) |  |  | 4,901 |  |  |  |  |  |  |  | (3,361 | ) |  |  |  |  |  |  | (36,499 | )
Less: Net income attributable to noncontrolling interest and redeemable noncontrolling interest |  |  | 197 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  |  |  |  |  | — |  |  |  |  |  |  |  | 197 |
Net gain (loss) attributable to HC2 Holdings, Inc. |  |  | (35,544 | ) |  |  | 4,842 |  |  |  | (7,140 | ) |  |  | 4,901 |  |  |  |  |  |  |  | (3,361 | ) |  |  |  |  |  |  | (36,302 | )
Less: Preferred stock dividends and accretion |  |  | 4,285 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  |  |  |  |  | — |  |  |  |  |  |  |  | 4,285 |
Net gain (loss) attributable to common stock and participating preferred stockholders |  | $ | (39,829 | ) |  | $ | 4,842 |  |  | $ | (7,140 | ) |  | $ | 4,901 |  |  |  |  |  |  | $ | (3,361 | ) |  |  |  |  |  | $ | (40,587 | )
Net loss attributable to common stock and participating preferred stockholders |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic loss per common share |  | $ | (1.50 | ) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | (1.53 | )
Diluted loss per common share |  | $ | (1.50 | ) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | (1.53 | )
Weighted average common shares outstanding: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 26,482 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 26,482 |
Diluted |  |  | 26,482 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 26,482 |

(in thousands, except per share data amounts)
See notes to unaudited pro forma condensed combined financial statements.

1. Description of the Transaction
Offering of New Notes
We are offering $45,000,000 in aggregate principal amount of 11.000% Senior Secured Notes due 2019 (the “new notes”). The new notes are being issued as additional notes under the indenture, dated as of November 20, 2014, governing our 11.000% Senior Secured Notes due 2019 (the “existing notes,” and, together with the new notes, the “notes”), pursuant to which we previously issued $307,000,000 aggregate principal amount of the existing notes. The new notes will constitute part of a single class of securities with the existing notes for all purposes and will have the same terms as the existing notes except as otherwise provided herein.
Previous acquisitions reflected within the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2015
On December 24, 2015, the Company completed the acquisitions of 100% of the interest in each of the Insurance Companies. The aggregate consideration paid was valued at $18.7 million, consisting of $7.1 million of cash, $2.0 million in aggregate principal amount of the existing notes, 1,007,422 shares of the Company’s common stock and five year warrants to purchase 2,000,000 shares of the Company’s common stock at an exercise price of $7.08 per share (subject to customary adjustments upon stock splits or similar transactions) exercisable on or after February 3, 2016.
The Company also agreed to pay to the sellers, on an annual basis with respect to the years 2015 through 2019, the amount, if any, by which the Insurance Companies’ cash flow testing and premium deficiency reserves decrease from the amount of such reserves as of December 31, 2014. Such payments are capped at $13.0 million in the aggregate. The balance is calculated based on the fluctuation of the statutory cash flow testing and premium deficiency reserves annually following each of the Insurance Companies’ filing with its applicable insurance regulator of its annual statutory statements for each calendar year ending December 31, 2015 through and including December 31, 2019.
2. Basis of Presentation
The historical consolidated financial information of HC2 has been adjusted in the accompanying unaudited pro forma combined financial information to give effect to pro forma events that are (i) directly attributable to offerings of the existing notes and the new notes and the use of proceeds therefrom, along with our acquisition of the Insurance Companies, (ii) factually supportable, and (iii) with respect to the unaudited pro forma combined statements of operations, are expected to have a continuing impact on the results of operations.
The unaudited pro forma condensed combined financial statements are presented solely for informational purposes and are not necessarily indicative of the combined financial position or the results of operations that might have been achieved had the transaction been completed as of the dates indicated, nor are they meant to be indicative of any anticipated combined financial position or future results of operations that the combined company will experience after the transaction.
The acquisition of the Insurance Companies were accounted for as a business combination using the acquisition method of accounting under the provisions of Accounting Standards Codification (“ASC”) 805, “Business Combinations” (“ASC 805”).

3. Insurance Companies conforming adjustments
Financial information of the Insurance Companies for the nine months ended September 30, 2016 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 Insurance Companies.

|  | UTA |  |  | CGI |
|  | Historical |  |  | Adjustment |  |  | Prospective |  |  | Historical |  |  | Adjustment |  |  | Prospective |
Annuity benefits |  |  | 5,448 |  |  |  | (5,448 | ) |  |  | — |  |  |  | 1,769 |  |  |  | (1,769 | ) |  |  | — |
Life, accident and health benefits |  |  | 59,972 |  |  |  | (59,972 | ) |  |  | — |  |  |  | 13,517 |  |  |  | (13,517 | ) |  |  | — |
Insurance acquisition expenses, net |  |  | 12,322 |  |  |  | (12,322 | ) |  |  | — |  |  |  | 2,311 |  |  |  | (2,311 | ) |  |  | — |
Policy benefits, changes in reserves, and commissions |  |  | — |  |  |  | 72,044 |  |  |  | 72,044 |  |  |  | — |  |  |  | 16,052 |  |  |  | 16,052 |
Depreciation and amortization |  |  | — |  |  |  | 5,698 |  |  |  | 5,698 |  |  |  | — |  |  |  | 1,545 |  |  |  | 1,545 |

4. Unaudited Pro Forma Condensed Combined Balance Sheet Adjustments
Adjustments included in the “Financing Adjustments” column in the accompanying unaudited pro forma condensed combined balance sheet as of September 30, 2016 are as follows (dollars in thousands):

|  | Increase (decrease)
Assets | Bridge Loan |  | New Notes |  | Total Q3’16
{4a} | Adjustments to cash and cash equivalents: |  |  |  |  |  |  |  |  |  |  |
| Adjustment to reflect gross borrowings | $ | 35,000 |  |  | $ | 45,000 |  |  | $ | 80,000 |
| Adjustment to reflect accrued interest from 12/1/16 to 1/23/17 |  | — |  |  |  | 729 |  |  | $ | 729 |
| Adjustment to reflect original issue discount and deferred financing costs |  | (3,072 | ) |  |  | (1,961 | ) |  | $ | (5,033 | )
|  |  | 31,928 |  |  |  | 43,768 |  |  |  | 75,696 |
| Repayment of the Bridge Loan and accrued interest |  | — |  |  |  | (35,599 | ) |  | $ | (35,599 | )
| Total adjustments to cash and cash equivalents |  | 31,928 |  |  |  | 8,169 |  |  | $ | 40,097 |
| Total financing adjustments to assets | $ | 31,928 |  |  | $ | 8,169 |  |  | $ | 40,097 |
Liabilities |  |  |  |  |  |  |  |  |  |  |
{4a} | Adjustments to long-term obligations |  |  |  |  |  |  |  |  |  |  |
| Adjustment to reflect gross borrowings | $ | 35,000 |  |  | $ | 45,000 |  |  | $ | 80,000 |
| Adjustment to reflect accrued interest from 12/1/16 to 1/23/17 |  | — |  |  |  | 729 |  |  | $ | 729 |
| Adjustment to reflect original issue discount and deferred financing costs |  | (3,072 | ) |  |  | (1,961 | ) |  | $ | (5,033 | )
|  |  | 31,928 |  |  |  | 43,768 |  |  |  | 75,696 |
| Repayment of the Bridge Loan and accrued interest |  | — |  |  |  | (35,599 | ) |  | $ | (35,599 | )
| Total adjustments to long-term obligations |  | 31,928 |  |  |  | 8,169 |  |  | $ | 40,097 |
| Total financing adjustments to liabilities | $ | 31,928 |  |  | $ | 8,169 |  |  | $ | 40,097 |

5. Unaudited Pro Forma Condensed Combined Statements of Operations 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. These adjustments do not reflect the use of $29.3 million of net proceeds from the bridge note and cash on hand to purchase a convertible note issued by ANG, which amounts were used by ANG to acquire Questar and Constellation, in two separate transactions which closed on December 16, 2016 and December 20, 2016, respectively. 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 post-acquisition periods. 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.

Adjustments included in the “Financing Adjustments” column in the accompanying unaudited pro forma condensed combined statements of operations and unaudited pro forma condensed combinde statements of operations for the nine months ended September 30, 2016 and for the year ended December 31, 2015, respectively, are as follows (dollars in thousands):

|  | Increase (decrease)
Interest expense | Q3’16 |  | Q4’15
{5a,g} | Adjustment to reflect interest expense on the New Notes at 11.0% per annum | $ | (3,712 | ) |  | $ | (4,950 | )
| Adjustment to reflect amortization expense of deferreed financing costs |  | (306 | ) |  |  | (310 | )
|  |  | (4,018 | ) |  |  | (5,260 | )
Income tax |  |  |  |  |  |  |
{5b,h} | To reflect the income tax impact of the financing adjustments using blended federal and state tax rate of 36.1% |  | 1,451 |  |  |  | 1,899 |
| Total financing adjustments to net loss | $ | (2,567 | ) |  | $ | (3,361 | )

Adjustments included in the “Pro Forma Adjustments” column in the accompanying unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2016 and the stub period from October 1, 2015 to December 23, 2015 are as follows (dollars in thousands):

|  | Increase (decrease)
|  | Q3’16 |  | Stub Period |  | Total
Net investment income |  |  |  |  |  |  |  |  |  |  |
{5c} | Adjustment to net investment income to amortize the fair value adjustment to CGI’s investments | $ | (4,180 | ) |  | $ | (1,306 | ) |  | $ | (5,486 | )
Policy benefits, changes in reserves, and commissions |  |  |  |  |  |  |  |  |  |  |
{5d} | Adjustment to amortize the fair value adjustment to CGI’s reserves |  | (2,186 | ) |  |  | (683 | ) |  |  | (2,869 | )
Depreciation and amortization |  |  |  |  |  |  |  |  |  |  |
{5e} | Adjustment to eliminate CGI’s historical policy acquisition and VOBA amortization expense |  | (6,835 | ) |  |  | (1,101 | ) |  |  | (7,936 | )
| Adjustment to record CGI’s prospective VOBA amortization expense |  | (1,790 | ) |  |  | (560 | ) |  |  | (2,350 | )
|  |  | (8,625 | ) |  |  | (1,661 | ) |  |  | (10,286 | )
Income tax |  |  |  |  |  |  |  |  |  |  |
{5f} | To reflect the income tax impact of the pro forma adjustments using blended federal and state tax rate of 36.1% |  | (2,393 | ) |  |  | (375 | ) |  |  | (2,768 | )
| Total pro forma adjustments to net loss | $ | 4,238 |  |  | $ | 663 |  |  | $ | 4,901 |

6. Pro Forma Adjusted Operating Income - Insurance
Adjusted Operating Income (“AOI”) is a non-US GAAP financial measure frequently used throughout the insurance industry and is an economic measure used by management to evaluate the financial performance of the Insurance Companies. Management believes that insurance AOI measures provide investors with meaningful information for gaining an understanding of certain results and provides insight into an organization’s operating trends and facilitates comparisons between peer companies. However, insurance AOI has certain limitations, including that we may not calculate it the same as other companies in our industry and therefore should be read together with the Company’s results calculated in accordance with GAAP.

Using insurance AOI as a performance measure has inherent limitations as an analytical tool as compared to income (loss) from operations or other US 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, insurance AOI should not be considered in isolation and does not purport to be an alternative to net loss from our Insurance segment or other US GAAP financial measures as a measure of our operating performance.
Management defines insurance AOI as net income (loss) for the insurance segment adjusted to exclude the impact of net investment gains (losses), including other-than-temporary impairment losses recognized in operations; intercompany elimination and acquisition and non-recurring items. Management believes that insurance AOI provides a meaningful financial metric that helps investors understand certain results and profitability. While these adjustments are an integral part of the overall performance of the insurance segment, market conditions impacting these items can overshadow the underlying performance of the business. Accordingly, we believe using a measure which excludes their impact is effective in analyzing the trends of our operations.
The pro-forma table below shows Pro Forma AOI for the twelve months ended September 30, 2016 which was derived from the (i) pro forma stub period from October 1, 2015 to December 23, 2015; (ii) historical results for the three months ended December 31, 2015, which also gives effect to the acquisition of Targets; and (iii) historical results for the nine months ended September 30, 2016 (in thousands):

|  | Pro forma |  |  | Historical |  |  | Total Pro Forma |
|  | Stub period from October 1, 2015 to December 23, 2015 |  |  | Three Months ended December 31, 2015 |  |  | Nine Months ended September 30, 2016 |  |  | Twelve Months ended September 30, 2016 |
Net income (loss) - insurance segment |  | $ | (6,477 | ) |  | $ | 1,327 |  |  | $ | (11,978 | ) |  | $ | (17,128 | )
Effect of investment (gains) losses |  |  | 5,181 |  |  |  | (256 | ) |  |  | 2,677 |  |  |  | 7,602 |
Acquisition and non-recurring items |  |  | — |  |  |  | 179 |  |  |  | 269 |  |  |  | 448 |
Insurance AOI |  | $ | (1,296 | ) |  | $ | 1,250 |  |  | $ | (9,032 | ) |  | $ | (9,078 | )