What changed in this filing

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Item 1. Financial Statements

2020-08-10 compared with 2020-05-11 · 427 added, 253 removed, 1122 unchanged (38% of the section changed)

Financial Statements

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Revenue $ 299.4 $ 400.5 $ 682.8 $ 763.0

13 unchanged sentences

Loss on early extinguishment or restructuring of debt ( 3.4 ) — ( 9.2 ) —

Loss from equity investees ( 2.5 ) ( 5.9 )

Other income, net 2.8 3.4

(Loss) income from continuing operations before income taxes ( 53.6 ) 4.3

Income tax benefit (expense) 12.6 ( 4.0 )

(Loss) income from continuing operations ( 41.0 ) 0.3

(Loss) income from equity investees ( 0.2 ) 7.2 ( 2.7 ) 1.3

Gain on bargain purchase — 1.1 — 1.1

Other income (loss) 64.0 ( 4.8 ) 66.8 ( 1.4 )

Income (loss) from continuing operations before income taxes 43.9 18.0 ( 9.7 ) 22.3

Income tax expense ( 15.4 ) ( 1.1 ) ( 2.8 ) ( 5.1 )

Income (loss) from continuing operations 28.5 16.9 ( 12.5 ) 17.2

Loss from discontinued operations (including loss on disposal of $ 39.3 million)

— ( 7.7 ) ( 60.0 ) ( 14.3 )

Net loss ( 101.0 ) ( 6.3 )

Net loss attributable to noncontrolling interest and redeemable noncontrolling interest 17.9 3.5

Net loss attributable to HC2 Holdings, Inc.

Net income (loss) 28.5 9.2 ( 72.5 ) 2.9

Net (income) loss attributable to noncontrolling interest and redeemable noncontrolling interest ( 15.4 ) 0.2 2.5 3.7

Net income (loss) attributable to HC2 Holdings, Inc.

13.1 9.4 ( 70.0 ) 6.6

Preferred dividends, deemed dividends and repurchase gains 0.4 0.4 0.8 ( 0.8 )

Net loss attributable to common stock and participating preferred stockholders $ ( 83.5 ) $ ( 1.6 )

(Loss) income per share - continuing operations

Net income (loss) attributable to common stock and participating preferred stockholders $ 12.7 $ 9.0 $ ( 70.8 ) $ 7.4

Income (loss) per share - continuing operations

$ 0.26 $ 0.34 $ ( 0.56 ) $ 0.42

3 unchanged sentences

$ — $ ( 0.12 ) $ ( 0.97 ) $ ( 0.20 )

Loss per share - Net loss attributable to common stock and participating preferred stockholders

Income (loss) per share - Net income (loss) attributable to participating securities

$ 0.26 $ 0.19 $ ( 1.53 ) $ 0.15

1 unchanged sentence

Weighted average common shares outstanding:

46.8 45.6 46.3 45.2

46.9 58.1 46.3 59.9

See notes to Condensed Consolidated Financial Statements

HC2 HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited, in millions)

Three Months Ended March 31,

Net loss $ ( 101.0 ) $ ( 6.3 )

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Net income (loss) $ 28.5 $ 9.2 $ ( 72.5 ) $ 2.9

Other comprehensive income (loss)

1 unchanged sentence

Unrealized gains (losses) on available-for-sale securities 283.8 81.4 7.8 229.6

Disposition of subsidiary 22.8 —

Dispositions ( 0.7 ) — 22.1 —

Other comprehensive income (loss) 286.9 80.7 33.9 229.8

Comprehensive income (loss) 315.4 89.9 ( 38.6 ) 232.7

Comprehensive loss (income) attributable to noncontrolling interests and redeemable noncontrolling interests ( 8.9 ) 3.2

Comprehensive income (loss) attributable to noncontrolling interests and redeemable noncontrolling interests 16.2 0.4 7.3 3.6

Comprehensive income (loss) attributable to HC2 Holdings, Inc.

4 unchanged sentences

(Unaudited, in millions, except share amounts)

March 31, December 31,

June 30, December 31,

Fixed maturity securities, available-for-sale at fair value $ 4,116.3 $ 4,028.9

32 unchanged sentences

Shares authorized:

80,000,000 at March 31, 2020 and December 31, 2019;

80,000,000 at June 30, 2020 and December 31, 2019;

Shares issued:

47,571,416 and 46,810,676 at March 31, 2020 and December 31, 2019;

47,660,135 and 46,810,676 at June 30, 2020 and December 31, 2019;

Shares outstanding:

46,461,665 and 46,067,852 at March 31, 2020 and December 31, 2019, respectively

46,550,384 and 46,067,852 at June 30, 2020 and December 31, 2019, respectively

Additional paid-in capital 288.5 281.1

Treasury stock, at cost:

1,109,751 and 742,824 shares at March 31, 2020 and December 31, 2019, respectively ( 4.2 ) ( 3.3 )

1,109,751 and 742,824 shares at June 30, 2020 and December 31, 2019, respectively

( 4.2 ) ( 3.3 )

Accumulated deficit ( 166.7 ) ( 96.7 )

9 unchanged sentences

(Unaudited, in millions)

Three Months Ended June 30, 2020

Common Stock Additional

3 unchanged sentences

Shares Amount

Balance as of March 31, 2020 46.5 $ — $ 282.7 $ ( 4.2 ) $ ( 179.8 ) $ ( 84.6 ) $ 14.1 $ 46.4 $ 60.5 $ 18.6

Share-based compensation — — 0.3 — — — 0.3 — 0.3 —

Fair value adjustment of redeemable noncontrolling interest — — 2.9 — — — 2.9 — 2.9 ( 2.9 )

Preferred stock dividend — — ( 0.2 ) — — — ( 0.2 ) — ( 0.2 ) —

Issuance of common stock 0.1 — — — — — — — — —

Transactions with noncontrolling interests — — 2.8 — — — 2.8 ( 15.2 ) ( 12.4 ) 1.5

Net income — — — — 13.1 — 13.1 14.0 27.1 1.4

Other comprehensive income — — — — — 286.3 286.3 0.7 287.0 0.1

Balance as of June 30, 2020

46.6 $ — $ 288.5 $ ( 4.2 ) $ ( 166.7 ) $ 201.7 $ 319.3 $ 45.9 $ 365.2 $ 18.7

Six Months Ended June 30, 2020

Common Stock Additional Paid-In Capital Treasury Stock Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total HC2 Stockholders' Equity Non- controlling Interest Total Stockholders’ Equity Temporary Equity

Shares Amount

Balance as of December 31, 2019 46.1 $ — $ 281.1 $ ( 3.3 ) $ ( 96.7 ) $ 168.7 $ 349.8 $ 93.8 $ 443.6 $ 21.6

6 unchanged sentences

Net loss — — — — ( 70.0 ) — ( 70.0 ) ( 1.0 ) ( 71.0 ) ( 1.5 )

Other comprehensive income (loss) — — — — — ( 253.3 ) ( 253.3 ) 7.7 ( 245.6 ) 1.3

Other comprehensive income — — — — — 33.0 33.0 8.4 41.4 1.4

Balance as of June 30, 2020

46.6 $ — $ 288.5 $ ( 4.2 ) $ ( 166.7 ) $ 201.7 $ 319.3 $ 45.9 $ 365.2 $ 18.7

See notes to Condensed Consolidated Financial Statements

HC2 HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited, in millions)

Three Months Ended June 30, 2019

Common Stock Additional

Capital Treasury

Stock Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total HC2 Stockholders' Equity Non-

Interest Total Stockholders’ Equity Temporary Equity

Shares Amount

Balance as of March 31, 2019 45.6 $ — $ 264.4 $ ( 3.2 ) $ ( 64.3 ) $ 36.2 $ 233.1 $ 99.1 $ 332.2 $ 17.6

Share-based compensation — — 2.2 — — — 2.2 — 2.2 —

Preferred stock dividend — — ( 0.2 ) — — — ( 0.2 ) — ( 0.2 ) —

Issuance of common stock 0.2 — — — — — — — — —

Transactions with noncontrolling interests — — 5.2 — — — 5.2 2.1 7.3 3.1

Other — — ( 0.7 ) — — — ( 0.7 ) — ( 0.7 ) —

Net income (loss) — — — — 9.4 — 9.4 ( 0.1 ) 9.3 ( 0.1 )

Other comprehensive income (loss) — — — — — 80.9 80.9 ( 0.2 ) 80.7 —

Balance as of June 30, 2019

45.8 $ — $ 270.9 $ ( 3.2 ) $ ( 54.9 ) $ 117.1 $ 329.9 $ 100.9 $ 430.8 $ 20.6

Six Months Ended June 30, 2019

2 unchanged sentences

Cumulative effect of accounting for leases — — — — ( 4.3 ) — ( 4.3 ) ( 0.7 ) ( 5.0 ) ( 0.1 )

— — — — ( 4.3 ) — ( 4.3 ) ( 0.7 ) ( 5.0 ) ( 0.1 )

Share-based compensation — — 4.7 — — — 4.7 — 4.7 —

6 unchanged sentences

Other — — ( 0.4 ) — — — ( 0.4 ) — ( 0.4 ) —

Net loss — — — — ( 2.8 ) — ( 2.8 ) ( 3.1 ) ( 5.9 ) ( 0.4 )

Net income (loss) — — — — 6.6 — 6.6 ( 3.2 ) 3.4 ( 0.5 )

Other comprehensive income — — — — — 229.7 229.7 0.1 229.8 —

Balance as of March 31, 2019 45.6 $ — $ 264.4 $ ( 3.2 ) $ ( 64.3 ) $ 36.2 $ 233.1 $ 99.1 $ 332.2 $ 17.6

(1) See Note 2.

Summary of Significant Accounting Policies for further information about adjustments resulting from the Company’s adoption of new accounting standards in 2019.

Balance as of June 30, 2019

45.8 $ — $ 270.9 $ ( 3.2 ) $ ( 54.9 ) $ 117.1 $ 329.9 $ 100.9 $ 430.8 $ 20.6

See notes to Condensed Consolidated Financial Statements

2 unchanged sentences

(Unaudited, in millions)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities

Net loss $ ( 101.0 ) $ ( 6.3 )

Net income (loss) $ ( 72.5 ) $ 2.9

Loss from discontinued operations, net of tax ( 60.0 ) ( 14.3 )

Loss (income) income from continuing operations ( 41.0 ) 0.3

Adjustments to reconcile (loss) income to cash provided by continuing operating activities

Income (loss) from continuing operations ( 12.5 ) 17.2

Adjustments to reconcile net income (loss) to cash provided by continuing operating activities

Depreciation and amortization 6.3 6.0

2 unchanged sentences

Loss on early extinguishment or restructuring of debt 9.2 —

Loss from equity investees 2.5 5.9

Loss (income) from equity investees 2.7 ( 1.3 )

Deferred income taxes 18.4 ( 1.7 )

17 unchanged sentences

Maturities and redemptions of investments 52.1 37.2

Sale of equity method investments 85.5 —

Cash received from dispositions, net 144.0 —

7 unchanged sentences

Principal payments on debt obligations ( 157.4 ) ( 5.1 )

Cash received by subsidiary to issue preferred stock — 8.9

Cash paid by subsidiary to purchase HC2 preferred stock — ( 8.3 )

3 unchanged sentences

Other financing activities ( 4.2 ) ( 3.3 )

Cash used in continuing financing activities ( 145.8 ) ( 3.8 )

Cash used in discontinued financing activities ( 2.4 ) ( 2.6 )

Cash used in financing activities ( 148.2 ) ( 6.4 )

Cash (used in) provided by continuing financing activities ( 220.2 ) 66.5

Cash (used in) provided by discontinued financing activities ( 2.4 ) 2.5

Cash (used in) provided by financing activities ( 222.6 ) 69.0

Effects of exchange rate changes on cash, cash equivalents and restricted cash 0.6 0.3

2 unchanged sentences

Cash, cash equivalents and restricted cash, end of period $ 205.3 $ 272.7

Supplemental cash flow information:

Cash paid for interest $ 6.1 $ 3.3

Cash paid for taxes, net of (refunds) $ ( 0.1 ) $ 0.2

See notes to Condensed Consolidated Financial Statements

39 unchanged sentences

The Company maintains an approximately 98 % controlling interest in HC2 Broadcasting and an approximately 50 % controlling interest in DTV America Corporation ("DTV") as well as approximately 10 % proxy and voting rights from minority holders.

Our Other segment represents all other businesses or investments we believe have significant growth potential or that do not meet the definition of a segment individually or in the aggregate.

Our Other segment represents all other businesses or investments that do not meet the definition of a segment individually or in the aggregate.

Included in the Other segment is the former Marine Services segment, which includes its holding company, Global Marine Holdings, LLC ("GMH"), in which the Company maintains approximately 73 % controlling interest.

6 unchanged sentences

All intercompany profits, transactions and balances have been eliminated in consolidation.

As of March 31, 2020, the results of DBMG, GMH, ANG, ICS, CIG, Genovel, R2, and HC2 Broadcasting have been consolidated into the Company’s results based on guidance from the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC" 810, Consolidation) .

As of June 30, 2020, the results of DBMG, GMH, ANG, ICS, CIG, Genovel, R2, and HC2 Broadcasting have been consolidated into the Company’s results based on guidance from the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC" 810, Consolidation) .

The remaining interests not owned by the Company are presented as a noncontrolling interest component of total equity.

7 unchanged sentences

These interim financial statements should be read in conjunction with the Company’s annual Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on March 16, 2020.

The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results for any subsequent periods or the entire fiscal year ending December 31, 2020.

The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results for any subsequent periods or the entire fiscal year ending December 31, 2020.

Use of Estimates and Assumptions

2 unchanged sentences

Actual results could differ from those estimates and assumptions used.

There are many uncertainties regarding the current coronavirus ("COVID-19") pandemic, and the Company is closely monitoring the impact of the COVID-19 pandemic on all aspects of its business, including how it will impact its customers, employees, suppliers, vendors, business partners and distribution channels.

We are unable to predict the impact that COVID-19 will have on its financial position and operating results due to numerous uncertainties.

At this time, we believe that we will be able to continue to meet our liquidity requirements and fund our fixed obligations (such as debt service and operating leases) and other cash needs for our operations for at least the next twelve months through a combination of distributions from our subsidiaries and from raising of additional debt or equity, refinancing of certain of our indebtedness or preferred stock, other financing arrangements and/or the sale of assets and certain investments.

Historically, we have chosen to reinvest cash and receivables into the growth of our various businesses, and therefore have not kept a large amount of cash on hand at the holding company level, a practice which we expect to continue in the future.

The ability of HC2’s subsidiaries to make distributions to HC2 is subject to numerous factors, including restrictions contained in each subsidiary’s financing agreements, regulatory requirements, availability of sufficient funds at each subsidiary and the approval of such payment by each subsidiary’s board of directors, which must consider various factors, including general economic and business conditions, tax considerations, strategic plans, financial results and condition, expansion plans, any contractual, legal or regulatory restrictions on the payment of dividends, and such other factors each subsidiary’s board of directors considers relevant.

Our ability to sell assets and certain of our investments to meet our existing financing needs may also be limited by our existing financing instruments.

Although the Company believes that it will be able to raise additional equity capital, refinance indebtedness or preferred stock, enter into other financing arrangements or engage in asset sales and sales of certain investments sufficient to fund any cash needs that we are not able to satisfy with the funds expected to be provided by our subsidiaries, there can be no assurance that it will be able to do so on terms satisfactory to the Company if at all.

Such financing options, if pursued, may also ultimately have the effect of negatively impacting our liquidity profile and prospects over the long-term.

In addition, the sale of assets or the Company’s investments may also make the Company less attractive to potential investors or future financing partners.

There are many uncertainties regarding the current coronavirus ("COVID-19") pandemic, and the Company is closely monitoring the continued impact of the COVID-19 pandemic on all aspects of its business, including how it will impact its customers, employees, suppliers, vendors, business partners and distribution channels.

We are unable to predict the impact that COVID-19 will have on its financial position and operating results due to numerous uncertainties, however if the pandemic continues it may have an adverse effect on the Company’s results of operations, financial condition, or liquidity for fiscal year 2020.

The Company expects to continue to assess the evolving impact of the COVID-19 pandemic.

Other Income (Loss)

The following table provides information related to Other income (loss) (in millions):

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Gain (loss) on embedded derivatives $ ( 8.1 ) $ 3.2 $ ( 5.7 ) $ 5.6

Gain on sale of equity method investments 71.1 — 71.1 —

Other income (expense), net 1.0 ( 8.0 ) 1.4 ( 7.0 )

Total $ 64.0 $ ( 4.8 ) $ 66.8 $ ( 1.4 )

Statement of Cash Flows

The following table provides a reconciliation of cash and cash equivalents and restricted cash to amounts reported within the Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Cash Flows (in millions):

The following table provides supplemental cash flow information and a reconciliation of cash and cash equivalents and restricted cash to amounts reported within the Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Cash Flows (in millions):

Cash and cash equivalents, beginning of period $ 228.8 $ 315.9

4 unchanged sentences

Total cash and cash equivalents and restricted cash $ 205.3 $ 272.7

Supplemental cash flow information:

Cash paid for interest $ 34.1 $ 32.7

Cash paid for taxes, net of (refunds) $ 7.8 $ 3.6

Non-cash investing and financing activities:

Property, plant and equipment included in accounts payable $ 5.2 $ 6.0

Investments included in accounts receivable $ 20.0 $ 9.7

Investments included in accounts payable $ 8.6 $ 31.6

Reclassification

3 unchanged sentences

Discontinued Operations for further information;

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

• As a result of the sale of GMSL, and in accordance with ASC 280, the Company no longer considers the results of operations and Balance Sheets of GMH and its subsidiaries as a separate segment.

13 unchanged sentences

Currently, the Company continues to focus on developing models and procedures, with testing and refinement of models occurring in 2020 and 2021 with parallel testing to be performed in 2022.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Available for sale fixed maturity securities are not in scope of the new credit loss model, but will undergo targeted improvements to the current reporting model including the establishment of a valuation allowance for credit losses versus the current direct write down approach.

11 unchanged sentences

• Disclosures will be required to include information around how the credit loss allowance was developed, further details on information currently disclosed about credit quality of financing receivables and net investments in leases, and a rollforward of the allowance for credit losses for available for sale fixed maturity securities as well as an aging analysis for securities that are past due.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

The Company anticipates a significant impact on the systems, processes and controls.

8 unchanged sentences

Targeted Improvements to the Accounting for Long-Duration Contracts , was issued by the FASB in August 2018 and is expected to have a significant impact on the Company’s Condensed Consolidated Financial Statements and Notes to the Condensed Consolidated Financial Statements.

The standard is effective January 1, 2021 (with early adoption permitted), and will impact, at least to some extent, Company's accounting and disclosure requirements for it's long-duration insurance contracts.

The standard is effective January 1, 2021 (with early adoption permitted), and will impact, at least to some extent, the Company's accounting and disclosure requirements for it's long-duration insurance contracts.

The Company does not currently expect to early adopt this standard and is currently evaluating the impact of this new accounting guidance on its Condensed Consolidated Financial Statements.

6 unchanged sentences

Current accounting policy allows the use of an expected investment yield (which is not required to be observable in the market) to discount the liability projections.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

• Deferred acquisition costs for long-duration contracts are to be amortized in proportion to premiums, gross profits, or gross margins and those balances must be amortized on a constant-level basis over the expected life of the contract.

20 unchanged sentences

and (vii) developing, testing, and implementing controls for newly developed procedures, as well as for additional annual reporting requirements.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

In December 2019, the FASB issued ASU 2019-12, Income Taxe s (Topic 740).

The new guidance removes the following exceptions from ASC 740, Income Taxes:

(i) exception to the incremental approach for intraperiod tax allocation;

(ii) exception for the recognition of a deferred tax liability when an equity method investment becomes a foreign subsidiary or a foreign subsidiary becomes an equity method investment, and (iii) exception to the general methodology for calculating income taxes in an interim period when year-to-date losses exceed expected losses for the year.

ASU 2019-12 also provides guidance to increase simplicity of Topic 740.

This standard is effective January 1, 2021 for public business entities.

Certain amendments should be applied retrospectively with cumulative-effect adjustments made to retained earnings, while other amendments should be applied prospectively.

The Company is currently evaluating the implementation date and the impact of this amendment on its financial statements.

Subsequent Events

5 unchanged sentences

Summarized operating results of the discontinued operations are as follows (in millions):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Net revenue $ — $ 39.4 $ 17.3 $ 81.8

6 unchanged sentences

Loss on sale of subsidiary — — ( 39.3 ) —

Income from equity investees 0.5 1.0

Other income (loss) 0.9 ( 0.1 )

(Loss) income from equity investees — ( 1.1 ) 0.5 ( 0.1 )

Other income — 0.1 0.9 —

Pre-tax loss from discontinued operations — ( 7.6 ) ( 59.9 ) ( 14.2 )

2 unchanged sentences

The Company recorded a $ 39.3 million loss on the sale, inclusive of recognizing a $ 31.3 million loss from the realization of AOCI.

The Company expects to record and overall gain from the disposition of the Marine Segment upon the sale of 30 % of its interests in HMN, anticipated to close during the second quarter of 2020.

The net proceeds from the sale of GMSL were used to permanently repay HC2’s $ 15.0 million 2019 Revolving Credit Agreement and redeem $ 76.9 million aggregate principal amount of HC2’s Senior Secured Notes, plus accrued and unpaid interest since December 1, 2019 (the last regularly scheduled interest payment date).

As a result of the mandatory redemption of $ 15.0 million on the secured revolving line of credit as a result of the sale of GMSL, the Company allocated interest of $ 0.2 million, and the amortization of deferred financing costs of $ 0.1 million for the three months ended March 31, 2020, associated with the principal prepayment from continuing operations to discontinued operations on the Company’s Condensed Consolidated statement of operations.

As a result of the mandatory redemption of $ 76.9 million on the Senior Secured Notes as a result of the sale of GMSL, the Company allocated the pro-rata interest of $ 2.2 million, and the pro-rata amortization of deferred financing costs and original issuance discount of $ 0.2 million and $ 0.1 million, respectively, for each of the three months ended March 31, 2020 and 2019, related to the Senior Secured Notes from continuing operations to discontinued operations on the Company’s Condensed Consolidated statement of operations.

The net proceeds from the sale of GMSL were used to repay HC2’s $ 15.0 million under the 2019 Revolving Credit Agreement (as defined below) and redeem $ 76.9 million aggregate principal amount of Senior Secured Notes, plus accrued and unpaid interest since December 1, 2019 (the last regularly scheduled interest payment date).

As a result of the repayment of $ 15.0 million 2019 Revolving Credit Agreement, the Company allocated the following interest and the amortization of deferred financing costs for the three and six months ended June 30, 2020 and 2019 associated with the principal prepayment from continuing operations to discontinued operations on the Company’s Condensed Consolidated Statement of Operations:

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Interest expense $ — $ 0.2 $ 0.2 $ 0.2

Amortization of deferred financing costs and original issuance discount $ — $ 0.1 $ 0.1 $ 0.1

As a result of the mandatory redemption of $ 76.9 million on the Senior Secured Notes, the Company allocated the following pro-rata interest and amortization of deferred financing costs and original issuance discount for the three and six months ended June 30, 2020 and 2019, from continuing operations to discontinued operations on the Company’s Condensed Consolidated Statements of Operations:

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Interest expense $ — $ 2.2 $ 2.2 $ 4.4

Amortization of deferred financing costs and original issuance discount $ — $ 0.3 $ 0.2 $ 0.5

Summarized assets and liabilities of the discontinued operations are as follows (in millions):

2 unchanged sentences

Accounts receivable, net 26.0

Deferred tax asset —

Property, plant and equipment, net 182.1

11 unchanged sentences

Revenue from contracts with customers consist of the following (in millions):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Construction $ 172.3 $ 195.7 $ 348.8 $ 387.8

5 unchanged sentences

Accounts receivables, net from contracts with customers consist of the following (in millions):

March 31, December 31,

June 30, December 31,

Accounts receivables with customers

8 unchanged sentences

The following table disaggregates DBMG's revenue by market (in millions):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Commercial $ 54.0 $ 52.9 $ 116.8 $ 112.3

9 unchanged sentences

Contract assets and contract liabilities consisted of the following (in millions):

March 31, December 31,

June 30, December 31,

Contract assets $ 57.7 $ 50.6

14 unchanged sentences

This backlog represents commitments under master service agreements that are estimated amounts of work to be performed based on customer communications, historic experience and knowledge of our customers' intentions.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Energy Segment

The following table disaggregates ANG's revenue by type (in millions):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Volume-related $ 8.3 $ 5.3 $ 17.0 $ 10.1

Maintenance services — — — —

Total revenue from contracts with customers 8.3 5.3 17.0 10.1

3 unchanged sentences

Total Energy segment revenue $ 10.3 $ 5.5 $ 20.7 $ 10.6

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Telecommunications Segment

ICS's revenues are predominantly derived from wholesale of international long distance minutes (in millions):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Termination of long distance minutes $ 107.3 $ 189.3 $ 293.7 $ 344.8

4 unchanged sentences

The following table disaggregates the Broadcasting segment's revenue by type (in millions):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Network advertising $ 4.0 $ 5.4 $ 9.0 $ 10.8

5 unchanged sentences

Total Broadcasting segment revenue $ 9.5 $ 10.0 $ 19.6 $ 19.8

The transaction price allocated to remaining unsatisfied performance obligations consisted of $ 4.3 million, $ 6.5 million, and $ 0.4 million of network advertising, broadcasting station revenues, and other revenues, respectively, of which $ 4.7 million is expected to be recognized within one year and $ 6.5 million is expected to be recognized within five years.

The transaction price allocated to remaining unsatisfied performance obligations consisted of $ 3.8 million, $ 7.6 million, and $ 0.2 million of network advertising, broadcasting station revenues, and other revenues, respectively, of which $ 5.2 million is expected to be recognized within one year and an additional $ 6.4 million is expected to be recognized within five years.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Acquisitions, Dispositions, and Deconsolidations

6 unchanged sentences

The purchase price is subject to customary potential downward or upward post-closing adjustments based on net working capital, cash, unpaid transaction expenses, indebtedness and certain of the Company’s pre-closing paid capital expenditures.

The SPA contains customary representations, warranties and covenants for a transaction of this nature.

The Share Purchase Agreement contains customary representations, warranties and covenants for a transaction of this nature.

In connection with the closing of the transaction, the purchaser deposited (i) $ 1.25 million of the base price into an escrow fund for the purpose of securing certain indemnification obligations for losses payable in the first twelve months after closing and (ii) $ 1.91 million of the base price into an escrow fund for the purpose of securing a purchase price adjustment, if any, in favor of purchaser.

1 unchanged sentence

The transaction closed on February 28, 2020.

GMH received approximately $ 144.0 million of net proceeds from the sale, of which $ 36.8 million and $ 5.5 million were paid to non-controlling interest holders and redeemable non-controlling interest holders, respectively.

GMH received approximately $ 144.0 million of net proceeds from the sale, of which $ 36.8 million and $ 5.5 million were paid to noncontrolling interest holders and redeemable noncontrolling interest holders, respectively.

In addition, GMH held $ 3.1 million as reserves for transaction related costs and HC2 received net proceeds of approximately $ 98.6 million.

The Company recorded a $ 39.3 million loss on the sale, inclusive of recognizing a $ 31.3 million loss from the realization of AOCI.

The Company expects to record an overall gain from the disposition of the Marine Segment upon the sale of the portion of New Saxon’s interest in HMN that represents 30 % of HMN, anticipated to close during the second quarter of 2020.

The Company recorded an overall gain of $ 31.8 million from the disposition of the Marine Segment upon the sale of the portion of New Saxon’s interest in HMN that represents 30 % of HMN, which closed in May 2020.

Discontinued Operations for further details.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

On October 30, 2019, the Company announced the sale of its stake in Huawei Marine Networks Co., Limited (“HMN”), its 49 % joint venture with Huawei Technologies Co., Ltd., to Hengtong Optic-Electric Co Ltd.

The equity investment in HMN has contributed $ 5.0 million and $ 12.7 million in equity method income for the years ended December 31, 2019 and 2018, respectively.

HMN contributed $ 1.5 million and $ 4.8 million in equity method losses for the three months ended March 31, 2020 and 2019, respectively.

On October 30, 2019, the Company announced the sale of its stake in HMN, its 49 % joint venture with Huawei Technologies Co., Ltd., to Hengtong Optic-Electric Co Ltd.

The sale of GMSL's interest values HMN at $ 285 million, and GMH's 49 % stake at approximately $ 140 million.

Under the terms of the SPA, the sale of New Saxon’s 49 % interest in HMN will be affected in two tranches, with the sale of the portion of New Saxon’s interest in HMN that represents 30 % of HMN, anticipated to close during the second quarter of 2020 (the "First HMN Close").

The remaining 19 % interest of HMN is retained by New Saxon and subject to a put option agreement by New Saxon, exercisable starting on the second year anniversary of the closing date of the the First HMN Close at a price equal to the greater of the share price paid for the 30 % interest or fair market value as of the two year anniversary date.

Under the terms of the Sale and Purchase Agreement, the sale of New Saxon’s 49 % interest in HMN will be affected in two tranches.

The sale of the portion of New Saxon’s 30 % interest of HMN, closed on May 12, 2020 (the "First HMN Close").

The remaining 19 % interest of HMN is retained by New Saxon and subject to a put option agreement by New Saxon, exercisable starting on the second year anniversary of the closing date of the First HMN Close at a price equal to the greater of the share price paid for the 30 % interest or fair market value as of the exercisable date.

In conjunction with the first tranche of the sale, the Company received $ 85.5 million in cash, of which $ 17.5 million and $ 2.1 million were paid to noncontrolling interest holders and redeemable noncontrolling interest holders, respectively.

New Saxon recorded a $ 71.1 million gain, included in Other income (loss) in the Condensed Consolidated Statements of Operations.

The gain recognized includes $ 11.3 million related to the fair value of the put option.

In addition, the Company recorded a $ 7.2 million tax expense related to a foreign tax payment when the first tranche closed.

Energy Segment

12 unchanged sentences

All transactions were accounted for as asset acquisitions.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Fixed Maturity Securities

The following tables provide information relating to investments in fixed maturity securities (in millions):

March 31, 2020 Amortized

June 30, 2020 Amortized

Gains Unrealized

16 unchanged sentences

Total fixed maturity securities $ 3,745.3 $ 317.0 $ ( 33.4 ) $ 4,028.9

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

The amortized cost and fair value of fixed maturity securities available-for-sale as of March 31, 2020 are shown by contractual maturity in the table below (in millions).

The amortized cost and fair value of fixed maturity securities available-for-sale as of June 30, 2020 are shown by contractual maturity in the table below (in millions).

Actual maturities can differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

11 unchanged sentences

The tables below show the major industry types of the Company’s corporate and other fixed maturity securities (in millions):

March 31, 2020 December 31, 2019

June 30, 2020 December 31, 2019

Total Amortized

8 unchanged sentences

The Company recognized the following (in millions):

Three Months Ended March 31,

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Net realized and unrealized gains on investments $ 0.1 $ — $ 0.9 $ —

1 unchanged sentence

Total other-than-temporary impairments $ 0.1 $ — $ 1.0 $ —

The following table presents the total unrealized losses for the 360 and 139 fixed maturity securities held by the Company as of March 31, 2020 and December 31, 2019, respectively, where the estimated fair value had declined and remained below amortized cost by the indicated amount (in millions):

March 31, 2020 December 31, 2019

The following table presents the total unrealized losses for the 201 and 139 fixed maturity securities held by the Company as of June 30, 2020 and December 31, 2019, respectively, where the estimated fair value had declined and remained below amortized cost by the indicated amount (in millions):

June 30, 2020 December 31, 2019

Fixed maturity securities Unrealized Losses % of

6 unchanged sentences

Factors considered and resources used by management include (i) whether the unrealized loss is credit-driven or a result of changes in market interest rates, (ii) the extent to which fair value is less than cost basis, (iii) cash flow projections received from independent sources, (iv) historical operating, balance sheet and cash flow data contained in issuer SEC filings and news releases, (v) near-term prospects for improvement in the issuer and/or its industry, (vi) third party research and communications with industry specialists, (vii) financial models and forecasts, (viii) the continuity of dividend payments, maintenance of investment grade ratings and hybrid nature of certain investments, (ix) discussions with issuer management, and (x) ability and intent to hold the investment for a period of time sufficient to allow for anticipated recovery in fair value.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

The Company analyzes its MBS for OTTI each quarter based upon expected future cash flows.

1 unchanged sentence

The Company believes it will recover its cost basis in the non-impaired securities with unrealized losses and that the Company has the ability to hold the securities until they recover in value.

The Company neither intends to sell nor does it expect to be required to sell the securities with unrealized losses as of March 31, 2020.

The Company neither intends to sell nor does it expect to be required to sell the securities with unrealized losses as of June 30, 2020.

However, unforeseen facts and circumstances may cause the Company to sell fixed maturity and equity securities in the ordinary course of managing its portfolio to meet certain diversification, credit quality and liquidity guidelines.

The following tables present the estimated fair values and gross unrealized losses for the 360 and 139 fixed maturity securities held by the Company that have estimated fair values below amortized cost as of each of March 31, 2020 and December 31, 2019, respectively.

The following tables present the estimated fair values and gross unrealized losses for the 201 and 139 fixed maturity securities held by the Company that have estimated fair values below amortized cost as of each of June 30, 2020 and December 31, 2019, respectively.

The Company does not have any OTTI losses reported in AOCI.

These investments are presented by investment category and the length of time the related fair value has remained below amortized cost (in millions):

March 31, 2020 Less than 12 months 12 months or greater Total

June 30, 2020 Less than 12 months 12 months or greater Total

Value Unrealized

Government and government agencies $ 0.2 $ — $ — $ — $ 0.2 $ —

States, municipalities and political subdivisions $ 5.7 $ — $ — $ — $ 5.7 $ —

4 unchanged sentences

Total fixed maturity securities $ 695.4 $ ( 85.5 ) $ 216.3 $ ( 55.2 ) $ 911.7 $ ( 140.7 )

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

December 31, 2019 Less than 12 months 12 months of greater Total

9 unchanged sentences

Total fixed maturity securities $ 358.8 $ ( 5.8 ) $ 441.6 $ ( 27.6 ) $ 800.4 $ ( 33.4 )

As of March 31, 2020, investment grade fixed maturity securities (as determined by nationally recognized rating agencies) represented approximately 77.5 % of the gross unrealized loss and 88.0 % of the fair value.

As of June 30, 2020, investment grade fixed maturity securities (as determined by nationally recognized rating agencies) represented approximately 68.4 % of the gross unrealized loss and 84.8 % of the fair value.

As of December 31, 2019, investment grade fixed maturity securities represented approximately 68.3 % of the gross unrealized loss and 81.8 % of the fair value.

2 unchanged sentences

The following tables provide information relating to investments in equity securities measured at fair value (in millions):

March 31, December 31,

June 30, December 31,

Equity securities 2020 2019

2 unchanged sentences

Total equity securities $ 73.8 $ 92.5

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Net investment income

The major sources of net investment income were as follows (in millions):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Fixed maturity securities, available-for-sale at fair value $ 45.0 $ 43.7 $ 90.6 $ 87.3

8 unchanged sentences

The major sources of net realized and unrealized gains and losses on investments were as follows (in millions):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Realized gains on fixed maturity securities $ 8.4 $ 4.2 $ 12.0 $ 5.1

7 unchanged sentences

Net realized and unrealized gains (losses) $ ( 0.5 ) $ ( 1.5 ) $ ( 19.6 ) $ 4.0

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Fair Value of Financial Instruments

1 unchanged sentence

Assets and liabilities measured at fair value on a recurring basis are summarized below (in millions):

March 31, 2020 Fair Value Measurement Using:

June 30, 2020 Fair Value Measurement Using:

Total Level 1 Level 2 Level 3

15 unchanged sentences

Total liabilities accounted for at fair value $ 12.6 $ — $ — $ 12.6

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

December 31, 2019 Fair Value Measurement Using:

20 unchanged sentences

Availability of secondary market activity and consistency of pricing from third-party sources impacts the Company's ability to classify securities as Level 2 or Level 3.

The Company’s assessment resulted in a net transfer out of Level 3 of $ 119.5 million primarily related to corporate securities during the three months ended March 31, 2020.

The Company’s assessment resulted in a net transfer out of Level 3 of $ 104.9 million primarily related to corporate securities during the three months ended March 31, 2019.

The Company’s assessment resulted in a net transfer into Level 3 of $ 54.1 million during the six months ended June 30, 2020.

The Company’s assessment resulted in a net transfer into Level 3 of $ 73.7 million during the six months ended June 30, 2019.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

The methods and assumptions the Company uses to estimate the fair value of assets and liabilities measured at fair value on a recurring basis are summarized below:

12 unchanged sentences

collateral type, payment terms of the underlying assets, payment priority within the tranche, structure of the security, deal performance and vintage of loans.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

When observable inputs are not available, the market standard valuation techniques for determining the estimated fair value of certain types of securities that trade infrequently, and therefore have little or no price transparency, rely on inputs that are significant to the estimated fair value but that are not observable in the market or cannot be derived principally from or corroborated by observable market data.

15 unchanged sentences

Various time deposits carried as cash equivalents are not measured at estimated fair value and, therefore, are excluded from the tables presented.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Level 3 Measurements and Transfers

The following tables summarize changes to the Company’s financial instruments carried at fair value and classified within Level 3 of the fair value hierarchy for the three months ended March 31, 2020 and 2019 (in millions):

The following tables summarize changes to the Company’s financial instruments carried at fair value and classified within Level 3 of the fair value hierarchy for the three and six months ended June 30, 2020 and 2019 (in millions):

Total realized/unrealized gains (losses) included in

March 31, 2020 Net earnings (loss) Other comp.

income (loss) Purchases and issuances Sales and

settlements Transfer to Level 3 Transfer out of Level 3 Balance at June 30, 2020

Fixed maturity securities

States, municipalities and political subdivisions $ 9.0 $ 0.1 $ 1.9 $ — $ — $ 3.0 $ ( 11.0 ) $ 3.0

Residential mortgage-backed securities 13.0 — 0.3 — ( 0.8 ) — ( 2.9 ) 9.6

Commercial mortgage-backed securities 34.2 0.1 ( 8.1 ) — — 24.9 — 51.1

Asset-backed securities 285.5 ( 5.9 ) 65.6 — ( 34.2 ) 191.8 — 502.8

Corporate and other 168.7 ( 0.1 ) 7.5 3.2 ( 2.8 ) 4.8 ( 38.7 ) 142.6

Total fixed maturity securities 510.4 ( 5.8 ) 67.2 3.2 ( 37.8 ) 224.5 ( 52.6 ) 709.1

Equity securities

Common stocks 3.4 ( 1.9 ) — — — — — 1.5

Perpetual preferred stocks 38.2 2.3 1.7 — — 1.7 — 43.9

Total equity securities 41.6 0.4 1.7 — — 1.7 — 45.4

Total financial assets $ 552.0 $ ( 5.4 ) $ 68.9 $ 3.2 $ ( 37.8 ) $ 226.2 $ ( 52.6 ) $ 754.5

Total realized/unrealized (gains) losses included in

Balance at March 31, 2020 Net earnings (loss) Other comp.

income (loss) Purchases and issuances Sales and settlements Transfer to Level 3 Transfer out of Level 3 Balance at June 30, 2020

Embedded derivative $ 0.7 $ 8.0 $ — $ — $ — $ — $ — $ 8.7

Other 3.7 0.2 — — — — — 3.9

Total financial liabilities $ 4.4 $ 8.2 $ — $ — $ — $ — $ — $ 12.6

Total realized/unrealized gains (losses) included in

December 31, 2019 Net earnings

5 unchanged sentences

Level 3 Balance at

March 31, 2020

June 30, 2020

Fixed maturity securities

20 unchanged sentences

Level 3 Balance at

March 31, 2020

June 30, 2020

Embedded derivative $ 3.0 $ 5.7 $ — $ — $ — $ — $ — $ 8.7

2 unchanged sentences

Total realized/unrealized gains (losses) included in

Balance at March 31, 2019 Net earnings (loss) Other comp.

income (loss) Purchases and issuances Sales and settlements Transfer to Level 3 Transfer out of Level 3 Balance at June 30, 2019

Fixed maturity securities

States, municipalities and political subdivisions $ — $ — $ — $ — $ ( 0.5 ) $ 4.2 $ — $ 3.7

Residential mortgage-backed securities 13.1 — 0.2 — ( 0.5 ) — ( 0.3 ) 12.5

Commercial mortgage-backed securities 61.8 — 0.6 5.1 ( 0.1 ) — ( 1.0 ) 66.4

Asset-backed securities 472.1 ( 1.6 ) 4.7 39.9 ( 102.5 ) — — 412.6

Corporate and other 198.5 ( 0.1 ) ( 6.0 ) 15.8 ( 12.9 ) — ( 37.2 ) 158.1

Total fixed maturity securities 745.5 ( 1.7 ) ( 0.5 ) 60.8 ( 116.5 ) 4.2 ( 38.5 ) 653.3

Equity securities

Common stocks 6.1 — — — ( 1.0 ) — ( 0.2 ) 4.9

Perpetual preferred stocks 55.1 ( 3.4 ) — 2.5 — 3.0 ( 0.1 ) 57.1

Total equity securities 61.2 ( 3.4 ) — 2.5 ( 1.0 ) 3.0 ( 0.3 ) 62.0

Total financial assets $ 806.7 $ ( 5.1 ) $ ( 0.5 ) $ 63.3 $ ( 117.5 ) $ 7.2 $ ( 38.8 ) $ 715.3

Total realized/unrealized (gains) losses included in

Balance at March 31, 2019 Net earnings (loss) Other comp.

income (loss) Purchases and issuances Sales and settlements Transfer to Level 3 Transfer out of Level 3 Balance at June 30, 2019

Embedded derivatives $ 6.1 $ ( 3.2 ) $ — $ — $ — $ — $ — $ 2.9

Other 2.7 ( 0.3 ) — 3.0 — — — 5.4

Total financial liabilities $ 8.8 $ ( 3.5 ) $ — $ 3.0 $ — $ — $ — $ 8.3

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Total realized/unrealized gains (losses) included in

December 31, 2018 Net earnings

5 unchanged sentences

Level 3 Balance at

March 31, 2019

June 30, 2019

Fixed maturity securities

States, municipalities and political subdivisions $ — $ — $ — $ — $ ( 0.5 ) $ 4.2 $ — $ 3.7

Residential mortgage-backed securities 19.0 — 0.3 — ( 0.8 ) — ( 6.0 ) 12.5

16 unchanged sentences

Level 3 Balance at

March 31, 2019

June 30, 2020

Embedded derivatives $ 8.4 $ ( 5.5 ) $ — $ — $ — $ — $ — $ 2.9

3 unchanged sentences

Any justifiable changes in unobservable inputs used to determine internally developed fair values would not have a material impact on the Company’s financial position.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Fair Value of Financial Instruments Not Measured at Fair Value

1 unchanged sentence

The table excludes carrying amounts for cash and cash equivalents, accounts receivable, accounts payable and other current liabilities, and other assets and liabilities approximate fair value due to relatively short periods to maturity (in millions):

March 31, 2020 Fair Value Measurement Using:

June 30, 2020 Fair Value Measurement Using:

Carrying Value Estimated Fair Value Level 1 Level 2 Level 3

1 unchanged sentence

Policy loans 18.5 18.5 — 18.5 —

Other invested assets 11.3 11.3 — — 11.3

Total assets not accounted for at fair value $ 158.6 $ 158.6 $ — $ 18.5 $ 140.1

4 unchanged sentences

Total liabilities not accounted for at fair value $ 862.7 $ 866.5 $ — $ 639.0 $ 227.5

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

December 31, 2019 Fair Value Measurement Using:

21 unchanged sentences

Accounts receivable, net consist of the following (in millions):

March 31, December 31,

June 30, December 31,

Contracts in progress $ 125.3 $ 177.8

4 unchanged sentences

Total accounts receivable, net $ 261.2 $ 311.8

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Recoverable from Reinsurers

Recoverable from reinsurers consists of the following (in millions):

March 31, 2020 December 31, 2019

June 30, 2020 December 31, 2019

Reinsurer A.M.

7 unchanged sentences

Total $ 958.4 100.0 % $ 953.7 100.0 %

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Property, Plant and Equipment, net

Property, plant and equipment consists of the following (in millions):

March 31, December 31,

June 30, December 31,

Equipment, furniture and fixtures, and software $ 221.6 $ 212.8

5 unchanged sentences

Total $ 220.2 $ 223.7

Depreciation expense was $ 6.8 million and $ 5.9 million for the three months ended March 31, 2020 and 2019, respectively.

These amounts included $ 2.3 million and $ 2.2 million of depreciation expense recognized within cost of revenue for the three months ended March 31, 2020 and 2019, respectively.

Depreciation expense was $ 7.0 million and $ 6.6 million for the three months ended June 30, 2020 and 2019, respectively.

These amounts included $ 2.3 million and $ 2.3 million of depreciation expense recognized within cost of revenue for the three months ended June 30, 2020 and 2019, respectively.

Depreciation expense was $ 13.8 million and $ 12.6 million for the six months ended June 30, 2020 and 2019, respectively.

These amounts included $ 4.6 million and $ 4.5 million of depreciation expense recognized within cost of revenue for the six months ended June 30, 2020 and 2019, respectively.

Goodwill and Intangibles, net

2 unchanged sentences

Further, the Company assessed the current market capitalization, forecasts and the amount of headroom in the 2019 impairment test.

As a result of this assessment, the Company determined that a “triggering event” had occurred relative to its Broadcasting segment and, as required, performed a quantitative analysis, with the assistance of a third-party valuation firm, of the value of the Broadcasting reporting unit and its indefinite-lived intangible assets.

As a result of this assessment, the Company determined that a “triggering event” had occurred relative to its Broadcasting segment in the first quarter of 2020 and, as required, performed a quantitative analysis, with the assistance of a third-party valuation firm, of the value of the Broadcasting reporting unit and its indefinite-lived intangible assets.

Based on the analysis, the Company determined that the fair value of the Broadcasting reporting unit and the related indefinite-lived intangible assets continue to exceed their carrying values and were not impaired as of March 31, 2020.

3 unchanged sentences

As of March 31, 2020, while the fair value of the Broadcasting reporting unit declined, the fair value of the Broadcasting reporting unit continued to exceed its carrying value.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

The COVID-19 pandemic could cause a further and sustained decline in the value of our reporting units or other triggering event that could cause the Company to perform a goodwill impairment test and result in an impairment charge being recorded in a future period.

The Company reviewed qualitative factors of potential impairment for Goodwill and Intangible assets in the second quarter of 2020, and noted there were no triggering events which would indicate impairment may have occurred.

The COVID-19 pandemic or other events could cause a further and sustained decline in the value of our reporting units or other triggering event that could cause the Company to perform a goodwill impairment test and result in an impairment charge being recorded in a future period.

The carrying amount of goodwill by segment was as follows (in millions):

2 unchanged sentences

Translation 0.1 — — 0.1

Balance at March 31, 2020 $ 88.5 $ 2.1 $ 21.4 $ 112.0

Balance at June 30, 2020 $ 89.1 $ 2.1 $ 21.4 $ 112.6

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Indefinite-lived Intangible Assets

The carrying amount of indefinite-lived intangible assets were as follows (in millions):

March 31, December 31,

June 30, December 31,

FCC licenses $ 136.5 $ 136.2

3 unchanged sentences

The gross carrying amount and accumulated amortization of amortizable intangible assets by major intangible asset class were as follows (in millions):

Weighted-Average Original Useful Life March 31, 2020 December 31, 2019

Weighted-Average Original Useful Life June 30, 2020 December 31, 2019

Gross Carrying Amount Accumulated Amortization Net Gross Carrying Amount Accumulated Amortization Net

4 unchanged sentences

Total $ 105.6 $ ( 26.4 ) $ 79.2 $ 105.5 $ ( 22.5 ) $ 83.0

Amortization expense for definite lived intangible assets was $ 2.0 million and $ 3.1 million for the three months ended March 31, 2020 and 2019, respectively, and was included in Depreciation and amortization in our Condensed Consolidated Statements of Operations.

Amortization expense for definite lived intangible assets was $ 2.0 million and $ 2.9 million for the three months ended June 30, 2020 and 2019, respectively, and $ 4.0 million and $ 6.0 million for the six months ended June 30, 2020 and 2019, respectively.

Amortization expense was included in Depreciation and amortization in our Condensed Consolidated Statements of Operations.

Excluding the impact of any future acquisitions, dispositions or change in foreign currency, the Company estimates the annual amortization expense of amortizable intangible assets for the next five fiscal years will be as follows (in millions):

4 unchanged sentences

Life, accident and health reserves consist of the following (in millions):

March 31, December 31,

June 30, December 31,

Long-term care insurance reserves $ 4,250.6 $ 4,201.6

3 unchanged sentences

The following table sets forth changes in the liability for claims for the portion of our long-term care insurance reserves (in millions):

Three Months Ended March 31,

Six Months Ended June 30,

Beginning balance $ 761.3 $ 738.7

14 unchanged sentences

Ending balance $ 795.8 $ 741.0

The Insurance segment experienced a favorable claims reserve development of $ 13.3 million and $ 36.0 million for the three months ended March 31, 2020 and 2019, respectively.

There was favorable development with claim terminations and care transitions for claims incurred prior to 2020 that created the sufficiency within the three months ended March 31, 2020.

Due to favorable development in the estimates for benefits remaining during the three months ended March 31, 2019, experience in the first quarter of 2020 has been less favorable than in 2019, it is too early to determine if this trend will be persistent or is the result of normal volatility in claims activity from period to period.

The Insurance segment experienced a favorable claims reserve development of $ 11.3 million and $ 41.2 million for the six months ended June 30, 2020 and 2019, respectively.

There was favorable development with claim terminations and care transitions for claims incurred prior to 2020 that created the sufficiency within the six months ended June 30, 2020.

Due to favorable development in the estimates for benefits remaining during the six months ended June 30, 2019, experience in the first half of 2020 has been less favorable than in 2019, but it is too early to determine if this trend will be persistent or is the result of normal volatility in claims activity from period to period.

Accounts Payable and Other Current Liabilities

Accounts payable and other current liabilities consist of the following (in millions):

March 31, December 31,

June 30, December 31,

Accounts payable $ 114.9 $ 134.6

9 unchanged sentences

Debt obligations consist of the following (in millions):

March 31, December 31,

June 30, December 31,

LIBOR plus 5.85 % Note, due 2023

17 unchanged sentences

Total debt obligations $ 633.8 $ 773.6

(1) On April 16, 2020, HC2 drew $ 10.0 million on its 2020 Revolving Credit Agreement.

HC2 intends to use the proceeds for general corporate purposes.

(1) On August 6, 2020 the Energy segment entered into a new credit facility M&T bank.

Proceeds from the loan and cash on hand were used to pay down the existing credit facilities with M&T and Pioneer as well as redeem its outstanding $ 14.0 million preferred stock, which carried a 14 % interest rate.

The new credit facility is comprised of a $ 57.0 millionterm loan facility, a $ 2.5 million revolving line of credit and an $ 8.0 million delayed draw term loan ear-marked for new station build, as well as a $ 10.0 million accordion feature.

Aggregate finance lease and debt payments, including interest, are as follows (in millions):

14 unchanged sentences

In March 2020, with the cash proceeds from the sale of GMSL, HC2 fully repaid its $ 15.0 million secured revolving line of credit with MSD PCOF Partners IX, LLC (the "2019 Revolving Credit Agreement").

HC2 recognized $ 0.4 million in extinguishment loss related to the repayment of the 2019 Revolving Credit Agreement, which is included in Loss on early extinguishment or restructuring of debt in our Condensed Consolidated Statements of Operations.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

In March 2020, HC2 entered into a new $ 15.0 million secured revolving credit agreement (the “2020 Revolving Credit Agreement”).

The 2020 Revolving Credit Agreement matures in June 2021.

The 2020 Revolving Credit Agreement matures in September 2021.

Loans under the 2020 Revolving Credit Agreement bear interest at a per annum rate equal to, at HC2's option, one, two or three month LIBOR plus a margin of 6.75 %.

In April 2020 and May 2020, HC2 drew $ 10.0 million and $ 5.0 million of the 2020 Revolving Credit Agreement, respectively.

The Company used the proceeds for general corporate purposes.

In March 2020, with the cash proceeds from the sale of GMSL, HC2 redeemed $ 76.9 million of its 11.50 % senior secured notes due 2021 (the "Senior Secured Notes") at a price equal to 104.5 % of the principal amount plus accrued interest through the redemption date.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

For the three months ended March 31, 2020, HC2 recognized $ 0.4 million and $ 5.4 million in extinguishment loss related to the repayments of 2019 Revolving Credit Agreement and the redemption of the Senior Secured Notes, respectively, which were included in Loss on early extinguishment or restructuring of debt in our Condensed Consolidated Statements of Operations.

HC2 recognized $ 5.4 million in extinguishment loss related to the redemption of its Senior Secured Notes, which is included in Loss on early extinguishment or restructuring of debt in our Condensed Consolidated Statements of Operations.

In June 2020, with the cash proceeds from the partial sale of New Saxon's interest in HMN, HC2 redeemed $ 50.6 million of its Senior Secured Notes at a price equal to 104.5 % of the principal amount plus accrued interest through the redemption date.

HC2 recognized $ 3.4 million in extinguishment loss related to the this redemption, which is included in Loss on early extinguishment or restructuring of debt in our Condensed Consolidated Statements of Operations.

HC2 is in compliance with our debt covenants as of June 30, 2020.

Income Tax Expense

The Company used the Annual Effective Tax Rate ("ETR") approach of ASC 740-270, Interim Reporting, to calculate its 2020 interim tax provision.

Income tax was a benefit of $ 12.6 million and an expense of $ 4.0 million for the three months ended March 31, 2020 and 2019, respectively.

The income tax benefit recorded for the three months ended March 31, 2020 primarily relates to a one-time, discrete tax benefit from the carryback of net operating losses at the Insurance segment as a result of the enactment of the CARES Act on March 27, 2020.

The CARES Act was enacted during the first quarter of 2020 and includes several provisions which were applicable to the Company, including the ability to carryback Federal net operating losses generated in tax years beginning in 2018-2020, the removal of the 80% taxable income limitation for net operating loss deductions for tax years beginning before January 1, 2021, and a temporary increase in the interest limitation from 30% to 50% for tax years beginning in 2019 and 2020.

We have included the impact of these provisions in our overall tax benefit for the three months ended March 31, 2020.

Income tax expense was $ 15.4 million and $ 1.1 million for the three months ended June 30, 2020 and 2019, respectively.

The income tax expense recorded for the three months ended June 30, 2020 primarily relates to tax expense incurred in China from the partial sale of HMN and projected expense as calculated under ASC 740 for tax paying entities, primarily the Insurance segment, which is no longer in a valuation allowance.

Additionally, the tax benefits associated with losses generated by the HC2 Holdings, Inc.

consolidated income tax return and certain other businesses have been reduced by a full valuation allowance as we do not believe it is more-likely-than-not that the losses will be utilized prior to expiration.

The income tax expense recorded for March 31, 2019 relates to the projected expense as calculated under ASC 740 for taxpaying entities and because no benefit is recognized on the losses of the HC2 U.S.

tax consolidated group and the losses of their subsidiaries as valuation allowances are recorded on the deferred tax assets of these companies.

The income tax expense recorded for the three months ended June 30, 2019 relates to the projected expense as calculated under ASC 740 for taxpaying entities offset by a benefit from the release of the valuation allowance of the Insurance segment due to an increase in current year income.

Income tax expense was $ 2.8 million and $ 5.1 million for the six months ended June 30, 2020 and 2019, respectively.

The income tax expense recorded for the six months ended June 30, 2020 primarily relates to tax expense incurred in China from the partial sale of HMN and projected expense as calculated under ASC 740 for tax paying entities, primarily the Insurance segment, which is no longer in a valuation allowance, which was mostly offset by a tax benefit from the carryback of net operating losses at the Insurance segment as a result of the enactment of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

Additionally, the tax benefits associated with losses generated by the HC2 Holdings, Inc.

The income tax expense recorded for the six months ended June 30, 2019 relates to the projected expense as calculated under ASC 740 for taxpaying entities offset by a benefit from the release of the valuation allowance of the Insurance segment due to an increase in current year income.

Unrecognized Tax Benefits

6 unchanged sentences

Tax years 2002 - 2019 remain open for examination.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Commitments and Contingencies

1 unchanged sentence

Total obligations $ 90.2

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

As of December 31, 2019, undiscounted cash flows for finance and operating leases are as follows (in millions):

14 unchanged sentences

If the loss is not probable or cannot be reasonably estimated, a liability is not recorded in its Condensed Consolidated Financial Statements.

Based on a review of the current facts and circumstances with counsel in each of the matters disclosed, management has provided for what is

believed to be a reasonable estimate of loss exposure.

Based on a review of the current facts and circumstances with counsel in each of the matters disclosed, management has provided for what is believed to be a reasonable estimate of loss exposure.

While acknowledging the uncertainties of litigation, management believes that the ultimate outcome of litigation will not have a material effect on its financial position and will defend itself vigorously.

4 unchanged sentences

We do not believe the assessment to be probable and expect to prevail based on the facts and merits of our existing VAT position.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

DBMG Class Action

On November 6, 2014, a putative stockholder class action complaint challenging the tender offer by which HC2 acquired approximately 721,000 of the issued and outstanding common shares of DBMG was filed in the Court of Chancery of the State of Delaware, captioned Mark Jacobs v.

Falcone, Keith M.

4 unchanged sentences

10323 (the "Complaint").

On November 17, 2014, a second lawsuit was filed in the Court of Chancery of the State of Delaware, captioned Arlen Diercks v.

On November 17, 2014, a second lawsuit was filed in the Court, captioned Arlen Diercks v.

Schuff International, Inc.

12 unchanged sentences

On November 15, 2019, the parties filed definitive documentation in support of a proposed settlement of the action.

On January 14, 2020, plaintiff filed an amended complaint restating and elaborating on the claims raised in the Complaint.

On January 14, 2020, plaintiff filed an amended complaint restating and elaborating on the claims raised in the Complaint (the "Amended Complaint").

The Amended Complaint seeks compensatory and rescissory damages, as well as attorney’s fees and other relief.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

On February 13, 2020, the Court held a settlement hearing to consider the proposed settlement and certain objections filed by two current DBMG stockholders.

2 unchanged sentences

The Revised Settlement Framework provides for a settlement payment of $ 35.95 per share to a fund for the benefit of the former DBMG stockholders who tendered their shares in the 2014 tender offer other than stockholders who were defendants in the action or their immediate family members, officers of DBMG, or directors or officers of HC2 (the “Tendered Stockholders”).

The proposed settlement payment to the Tendered Stockholders applies to approximately 568,550 shares and totals approximately $ 20.4 million.

After the filing of the revised settlement papers on May 8, 2020, HC2 determined that the Tendered Stockholders subclass includes approximately 300 more shares than previously reported due to additional detail HC2 received regarding the number of shares excluded from the subclass.

This adjustment increases the settlement payment to the Tendered Stockholders by approximately eleven thousand dollars.

In total, the proposed settlement payment to the Tendered Stockholders applies to approximately 568,850 shares and totals approximately $ 20.4 million.

The Revised Settlement Framework provides that the amount received by the Tendered Stockholders will be reduced by the per share amount of any fee award to lead plaintiff’s counsel.

1 unchanged sentence

The Revised Settlement Framework also provides that HC2 will fund two types of payments to the current owners of the 289,902 shares of DBMG common stock not owned by HC2 or its affiliates (the “public DBMG stockholders”).

The first payment of $ 2.51 per share, or $ 0.7 million total, is intended to offset the indirect burden that the public DBMG stockholders arguably bear (by virtue of their approximately 7.52 % ownership of DBMG) from DBMG’s funding of the approximately $ 8.1 million portion of the settlement payment to the Tendered Stockholders.

The second payment of $ 1.00 per share, or $ 289,902 total, represents consideration for a full release of claims from the public DBMG stockholders related to the action and the implementation of the Revised Settlement Framework.

In sum, the Revised Settlement Framework provides that HC2 would fund payments of $ 3.51 per share, or $ 1.0 million total, to the public DBMG stockholders.

The first payment of $ 2.51 per share, or approximately $ 0.7 million total, is intended to offset the indirect burden that the public DBMG stockholders arguably bear (by virtue of their approximately 7.52 % ownership of DBMG) from DBMG’s funding of the approximately $ 8.1 million portion of the settlement payment to the Tendered Stockholders.

The second payment of $ 1.00 per share, or approximately $ 0.3 million total, represents consideration for a full release of claims from the public DBMG stockholders related to the action and the implementation of the Revised Settlement Framework.

In sum, the Revised Settlement Framework provides that HC2 would fund payments of $ 3.51 per share, or approximately $ 1.0 million total, to the public DBMG stockholders.

The two DBMG stockholders that objected to the settlement presented at the February 13, 2020 settlement hearing have informed the Court that they are not objecting to the Revised Settlement Framework.

To date, no DBMG stockholders have filed objections to the Revised Settlement Framework, and the deadline for such objections has passed.

If approved, the Revised Settlement Framework would result in a global settlement of the action and the certification of a non-opt-out plaintiff class consisting of any and all record and beneficial owners of outstanding shares of DBMG common stock who held such stock at any time during May 12, 2014 through and including the close of business on May 8, 2020, and including, among others, their successors.

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If a settlement cannot be reached, the Company believes it has meritorious defenses and intends to vigorously defend this matter.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Non-Operating Corporate

3 unchanged sentences

2020-0275-JRS (the “Stockholder Litigation”).

The complaint alleges that the Company’s consent revocation materials (i) contain misleading disclosures relating to the Certificates of Designation, (ii) fail to disclose that a majority of the Board may approve the nominees set forth by Percy Rockdale LLC and certain of its affiliates (collectively, “Percy Rockdale”), for purposes of the Certificates of Designation such that the Percy Rockdale nominees would be considered “Continuing Directors” (as defined in the Certificates of Designation) and (iii) inaccurately state that electing the Percy Rockdale nominees will cause a Change of Control (as defined in the Certificates of Designation) under the Certificates of Designation because it will lead to a person or group obtaining the power to elect a majority of the members of the Board.

The complaint seeks (i) a declaration requiring the Board to approve the Percy Rockdale nominees for purposes of the Certificates of Designation, (ii) a declaration that the Board breached its fiduciary duties by issuing misleading disclosures and (iii) an injunction requiring the Board to issue additional disclosures relating to the Change of Control provisions in the Certificates of Designation.

The complaint alleged that the Company’s consent revocation materials (i) contain misleading disclosures relating to the Certificates of Designation, (ii) fail to disclose that a majority of the Board may approve the nominees set forth by Percy Rockdale LLC and certain of its affiliates (collectively, “Percy Rockdale”), for purposes of the Certificates of Designation such that the Percy Rockdale nominees would be considered “Continuing Directors” (as defined in the Certificates of Designation) and (iii) inaccurately state that electing the Percy Rockdale nominees will cause a Change of Control (as defined in the Certificates of Designation) under the Certificates of Designation because it will lead to a person or group obtaining the power to elect a majority of the members of the Board.

The complaint sought (i) a declaration requiring the Board to approve the Percy Rockdale nominees for purposes of the Certificates of Designation, (ii) a declaration that the Board breached its fiduciary duties by issuing misleading disclosures and (iii) an injunction requiring the Board to issue additional disclosures relating to the Change of Control provisions in the Certificates of Designation.

On April 19, 2020, the plaintiff amended his complaint to allege that the Supplement to the Consent Revocation Statement, filed with the SEC on April 17, 2020, contained misleading disclosures relating to the Certificates of Designation.

The amended complaint seeks, among other remedies, (i) a declaration that the Board breached its fiduciary duties by issuing misleading disclosures;

The amended complaint sought, among other remedies, (i) a declaration that the Board breached its fiduciary duties by issuing misleading disclosures;

(ii) a declaration that, if a Change of Control could be deemed to occur under the Certificates of Designation, that such Change of Control provisions are invalid and unenforceable under Delaware law;

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On April 15, 2020, the Board (with Mr.

Falcone recusing himself because he is not an Independent Director) determined to approve the Percy Rockdale nominees, solely and specifically for the purposes of deeming them Continuing Directors pursuant to the Certificates of Designation, to avoid triggering, and to render inapplicable, such prong of the Change of Control definition.

Falcone recusing himself as a non-Independent Director) determined to approve the Percy Rockdale nominees, solely and specifically for the purposes of deeming them Continuing Directors pursuant to the Certificates of Designation, to avoid triggering, and to render inapplicable, such prong of the Change of Control definition.

On April 17, 2020 and April 21, 2020, each of the holder of the Series A Preferred Stock and the holder of the Series A-2 Preferred Stock, respectively, and, in each case, entitled to give a waiver, agreed that such holder will not seek to exercise its right to require the Company to redeem the shares of such Series A Preferred Stock or Series A-2 Preferred Stock, as applicable, if such redemption right were to arise as a result of the outcome of the Consent Solicitation based on one of the Change of Control prongs of the Certificate of Designation (which prong may require the Company to make an offer to redeem the Preferred Stock if any person or “group” (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act) obtains the power to elect a majority of the members of the Board).

Therefore, in light of the foregoing, if the Percy Rockdale nominees become a majority of the Board pursuant to Percy Rockdale’s consent solicitation, the Company will not be required to offer to redeem the shares of the Series A Preferred Stock and the Series A-2 Preferred Stock.

On April 23, 2020, the parties agreed that the waiver and

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

additional disclosures, combined with the prior disclosures and approval of Percy Rockdale’s nominees as Continuing Directors, mooted the need for expedition and a preliminary injunction hearing, and the parties informed the court that the plaintiff was withdrawing its request for expedition and a preliminary injunction.

In exchange for the plaintiff agreeing to withdraw its request for preliminary injunction, the parties agreed to allow plaintiff to reserve the right to challenge the validity of the consent revocations received prior to the mooting actions in the event that Percy Rockdale loses the consent solicitation and the number of revocations received prior to the mooting actions were determinative of the outcome of the consent solicitation.

Therefore, in light of the foregoing, if the Percy Rockdale nominees became a majority of the Board pursuant to Percy Rockdale’s consent solicitation, the Company would not be required to offer to redeem the shares of the Series A Preferred Stock and the Series A-2 Preferred Stock.

On April 23, 2020, the parties agreed that the waiver and additional disclosures, combined with the prior disclosures and approval of Percy Rockdale’s nominees as Continuing Directors, mooted the need for expedition and a preliminary injunction hearing, and the parties informed the court that the plaintiff was withdrawing its request for expedition and a preliminary injunction.

On May 14, 2020, the Company announced that it had reached a resolution of Percy Rockdale's consent solicitation.

On May 6, 2020, the plaintiff filed a motion for an order awarding attorneys’ fees and expenses, requesting a $ 2.5 million fee.

The plaintiff alleges that the redemption provisions in the Certificates of Designations constitute so-called proxy puts and that defendants used the proxy puts to undermine stockholders’ franchise rights.

Briefing on the plaintiff’s motion is complete, and the Delaware Court of Chancery has scheduled oral argument for August 11, 2020.

However, the parties may be able to resolve the fee application via a negotiated resolution.

Currently, the Canada Revenue Agency ("CRA") is auditing a subsidiary previously held by the Company.

2 unchanged sentences

Share-based Compensation

The Company granted zero options during the three months ended March 31, 2020 and 2019, respectively.

Total share-based compensation expense recognized by HC2 and its subsidiaries under all equity compensation arrangements was $ 1.5 million and $ 1.3 million for the three months ended March 31, 2020 and 2019, respectively.

The Company granted zero options during the three and six ended June 30, 2020 and 2019, respectively.

Total share-based compensation expense recognized by HC2 and its subsidiaries under all equity compensation arrangements was $ 0.3 million and $ 1.7 million for the three months ended June 30, 2020 and 2019, respectively.

Total share-based compensation expense recognized by HC2 and its subsidiaries under all equity compensation arrangements was $ 1.8 million and $ 3.0 million for the six months ended June 30, 2020 and 2019, respectively.

All grants are time based and vest either immediately or over a period established at grant.

The Company recognizes compensation expense for equity awards, reduced by actual forfeitures, using the straight-line basis.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Restricted Stock

5 unchanged sentences

Forfeited ( 450,967 ) $ 6.07

Unvested - March 31, 2020 1,081,712 $ 4.98

At March 31, 2020, the total unrecognized stock-based compensation expense related to unvested restricted stock was $ 3.7 million.

The unrecognized compensation cost is expected to be recognized over the remaining weighted average period of 1.1 years.

Unvested - June 30, 2020 588,638 $ 4.55

At June 30, 2020, the total unrecognized stock-based compensation expense related to unvested restricted stock was $ 1.1 million.

The unrecognized compensation cost is expected to be recognized over the remaining weighted average period of 1.0 year.

Stock Options

6 unchanged sentences

Expired ( 51,745 ) $ 5.48

Outstanding - March 31, 2020 7,067,592 $ 6.52

Outstanding - June 30, 2020 6,873,344 $ 6.55

Eligible for exercise 6,833,839 $ 6.56

At March 31, 2020, the intrinsic value and average remaining life of the Company's outstanding options were zero and approximately 5.01 years, and intrinsic value and average remaining life of the Company's exercisable options were zero and approximately 4.9 years.

At March 31, 2020, total unrecognized stock-based compensation expense related to unvested stock options was $ 0.5 million.

At June 30, 2020, the intrinsic value and average remaining life of the Company's outstanding options were zero and approximately 2.75 years, and intrinsic value and average remaining life of the Company's exercisable options were zero and approximately 2.8 years.

At June 30, 2020, total unrecognized stock-based compensation expense related to unvested stock options was $ 0.1 million.

The unrecognized compensation cost is expected to be recognized over the remaining weighted average period of 0.71 years.

There are 39,505 unvested stock options expected to vest, with a weighted average remaining life of 4.04 years, a weighted average exercise price of $ 5.45 , and an intrinsic value of zero .

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Series A Preferred Stock and Series A-2 Preferred Stock

The Company’s preferred shares authorized, issued and outstanding consisted of the following:

March 31, December 31,

June 30, December 31,

Preferred shares authorized, $ 0.001 par value

6 unchanged sentences

The shares were purchased at a discount of $ 1.7 million, which was recorded within the Preferred dividends, deemed dividends, and repurchase gains line item of the Condensed Consolidated Statements of Operations as a deemed dividend.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Luxor and Corrib Conversions

4 unchanged sentences

• The Company agreed that it will issue to Corrib and Luxor, on each quarterly anniversary commencing May 29, 2017 (or, if later, the date on which the corresponding dividend payment is made to the holders of the outstanding Preferred Stock), through and until the Maturity Date (as defined in the respective Series A and Series A-1 Certificate of Designation), in a transaction exempt from the registration requirements of the Securities Act the number of shares of common stock equal to (a) 1.875 % the Accrued Value (as defined in the respective Series A and Series A-1 Certificate of Designation) of Corrib’s or Luxor’s Preferred Stock as of the Closing Date (as defined in applicable Voluntary Conversion Agreements) divided by (b) the Thirty Day VWAP (as defined in the respective Series A and Series A-1 Certificate of Designation) for the period ending two business days prior to the applicable Dividend Payment Date (as defined in the respective Series A and Series A-1 Certificate of Designation).

For the three months ended March 31, 2020, 77,794 and 8,752 shares of the Company's common stock have been issued to Luxor and Corrib, respectively, in conjunction with the Conversion agreement.

For the six months ended June 30, 2020, 159,400 and 17,933 shares of the Company's common stock have been issued to Luxor and Corrib, respectively, in conjunction with the Conversion agreement.

The fair value of the Additional Share Consideration was valued by the Company at $ 0.4 million on the date of issuance and was recorded within Preferred stock and deemed dividends from conversion line item of the Condensed Consolidated Statements of Operations as a deemed dividend.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Preferred Share Dividends

During the three months ended March 31, 2020 and 2019, HC2's Board of Directors declared cash dividends with respect to HC2’s issued and outstanding Preferred Stock, excluding Preferred Stock owned by CGI which is eliminated in consolidation, as presented in the following table (in millions):

Declaration Date March 31, 2020

Holders of Record Date March 31, 2020

Payment Date April 15, 2020

During the six months ended June 30, 2020 and 2019, HC2's Board of Directors declared cash dividends with respect to HC2’s issued and outstanding Preferred Stock, excluding Preferred Stock owned by CGI which is eliminated in consolidation, as presented in the following table (in millions):

Declaration Date March 31, 2020 June 30, 2020

Holders of Record Date March 31, 2020 June 30, 2020

Payment Date April 15, 2020 July 15, 2020

Total Dividend $ 0.2 $ 0.2

Declaration Date March 31, 2019

Holders of Record Date March 31, 2019

Payment Date April 15, 2019

Declaration Date March 31, 2019 June 30, 2019

Holders of Record Date March 31, 2019 June 30, 2019

Payment Date April 15, 2019 July 15, 2019

Total Dividend $ 0.2 $ 0.2

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Related Parties

In January 2015, the Company entered into a services agreement (the "Services Agreement") with Harbinger Capital Partners ("HCP"), a related party of the Company, with respect to the provision of services that may include providing office space and operational support and each party making available their respective employees to provide services as reasonably requested by the other party, subject to any limitations contained in applicable employment agreements and the terms of the Services Agreement.

The Company recognized expenses of $ 0.7 million and $ 1.0 million and income of zero and $ 0.1 million for the three months ended March 31, 2020 and 2019, respectively.

Three Months Ended March 31,

The Company recognized expenses of $ 0.8 million and $ 0.9 million, and income of $ 0.1 million and zero for the three months ended June 30, 2020 and 2019, respectively.

The Company recognized expenses of $ 1.5 million and $ 1.9 million and income of $ 0.1 million and $ 0.1 million for the six months ended June 30, 2020 and 2019, respectively.

Three Months Ended June 30,

Corporate Other (1)

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Net related party activity $ 0.4 $ 0.3 $ 0.7 $ 0.5 $ 0.4 $ 0.9

Six Months Ended June 30,

Corporate Other (1)

Total Corporate Other (1)

Allocated to HC2 by HCP

Office space $ 1.0 $ 0.5 $ 1.5 $ 1.2 $ 0.6 $ 1.8

Administrative salaries and benefits — — — 0.1 — 0.1

Other shared overhead — — — — — —

Total Expenses 1.0 0.5 1.5 1.3 0.6 1.9

Charged back to HCP by HC2

Administrative salaries and benefits — — — — — —

Other shared overhead 0.1 — 0.1 0.1 — 0.1

Total Income 0.1 — 0.1 0.1 — 0.1

Net related party activity $ 0.9 $ 0.5 $ 1.4 $ 1.2 $ 0.6 $ 1.8

(1) Other in the above table represent certain entities within our Broadcasting, Life Sciences and Insurance segments.

With the announcement of the departure of Phillip Falcone, the former CEO and Chairman of the Company, on June 11, 2020, HCP will no longer be considered a related party.

On August 2, 2020, the Company issued a notice of termination, effectively ending the Services Agreement with HCP, a former related party.

HC2 HOLDINGS, INC.

4 unchanged sentences

Discontinued Operations for further information:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Net revenue $ — $ 1.0 $ 0.7 $ 3.0

1 unchanged sentence

Interest expense $ — $ 0.3 $ 0.1 $ 0.5

March 31, December 31,

June 30, December 31,

Accounts receivable $ — $ 1.2

5 unchanged sentences

("Triple Ring").

Various subsidiaries of HC2 utilize the services of Triple Ring, incurring $ 0.7 million and zero in services for the three months ended March 31, 2020 and 2019, respectively.

Various subsidiaries of HC2 utilize the services of Triple Ring, incurring $ 0.3 million and $ 0.7 million in services for the three months ended June 30, 2020 and 2019, and $ 1.0 million and $ 0.8 million in services for the six months ended June 30, 2020 and 2019.

Operating Segment and Related Information

4 unchanged sentences

Formerly the Marine Services segment, these entities and the investment in HMN have been reclassified to the Other segment.

In addition, as GMSL is a discontinued operation as of March 31, 2020, all operating results of GMSL have been reclassified to Discontinued operations.

In addition, as GMSL is a discontinued operation as of June 30, 2020, all operating results of GMSL have been reclassified to Discontinued operations.

This has been reflected in the tables below for both the current and historical periods presented.

The Company's revenue concentrations of 10% and greater are as follows:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

Segment 2020 2019 2020 2019

Customer A Telecommunications * 11.2 % * 11.4 %

Customer B Telecommunications * 10.0 % * *

* Less than 10% revenue concentration

Summary information with respect to the Company’s operating segments is as follows (in millions):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Construction $ 172.3 $ 195.7 $ 348.8 $ 387.8

6 unchanged sentences

Total net revenue $ 377.0 $ 479.2 $ 821.8 $ 928.2

(*) The Insurance segment revenues are inclusive of realized and unrealized gains and net investment income for the three months ended March 31, 2020 and 2019 which are related to entities under common control which are eliminated or are reclassified in consolidation.

(*) The Insurance segment revenues are inclusive of realized and unrealized gains and net investment income for the three and six months ended June 30, 2020 and 2019, inclusive of transactions between entities under common control, which are eliminated or are reclassified in consolidation.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Income (loss) from operations

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Total income (loss) from operations $ 4.9 $ 33.6 $ ( 21.9 ) $ 59.2

(*) The Insurance segment revenues are inclusive of realized and unrealized gains and net investment income for the three months ended March 31, 2020 and 2019 which are related to transactions between entities under common control which are eliminated or are reclassified in consolidation.

A reconciliation of the Company's consolidated segment operating income to consolidated earnings before income taxes is as follows (in millions):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Income (loss) from operations $ 4.9 $ 33.6 $ ( 21.9 ) $ 59.2

1 unchanged sentence

Loss on early extinguishment or restructuring of debt ( 3.4 ) — ( 9.2 ) —

Loss from equity investees ( 2.5 ) ( 5.9 )

Other income, net 2.8 3.4

(Loss) income from continuing operations ( 53.6 ) 4.3

Income tax benefit (expense) 12.6 ( 4.0 )

(Loss) income from continuing operations ( 41.0 ) 0.3

(Loss) income from equity investees ( 0.2 ) 7.2 ( 2.7 ) 1.3

Gain on bargain purchase — 1.1 — 1.1

Other income (loss) 64.0 ( 4.8 ) 66.8 ( 1.4 )

Income (loss) from continuing operations 43.9 18.0 ( 9.7 ) 22.3

Income tax expense ( 15.4 ) ( 1.1 ) ( 2.8 ) ( 5.1 )

Income (loss) from continuing operations 28.5 16.9 ( 12.5 ) 17.2

Loss from discontinued operations (including loss on disposal of $39.3 million) — ( 7.7 ) ( 60.0 ) ( 14.3 )

Net loss ( 101.0 ) ( 6.3 )

Net loss attributable to noncontrolling interest and redeemable noncontrolling interest 17.9 3.5

Net loss attributable to HC2 Holdings, Inc.

Net income (loss) 28.5 9.2 ( 72.5 ) 2.9

Net (income) loss attributable to noncontrolling interest and redeemable noncontrolling interest ( 15.4 ) 0.2 2.5 3.7

Net income (loss) attributable to HC2 Holdings, Inc.

13.1 9.4 ( 70.0 ) 6.6

Preferred dividends, deemed dividends and repurchase gains 0.4 0.4 0.8 ( 0.8 )

Net loss attributable to common stock and participating preferred stockholders $ ( 83.5 ) $ ( 1.6 )

Three Months Ended March 31,

Net income (loss) attributable to common stock and participating preferred stockholders $ 12.7 $ 9.0 $ ( 70.8 ) $ 7.4

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Depreciation and Amortization

4 unchanged sentences

( 5.5 ) ( 6.0 ) ( 11.4 ) ( 12.5 )

Life Sciences 0.1 0.1 0.1 0.1

Broadcasting 1.7 1.5 3.4 2.9

1 unchanged sentence

(*) Balance includes amortization of negative VOBA, which increases net income.

Three Months Ended March 31,

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Capital Expenditures (*)

2 unchanged sentences

Insurance — — 0.1 0.2

Life Sciences 0.1 — 0.1 —

Broadcasting 3.7 4.7 6.4 5.1

Other 0.1 — 0.1 —

Total $ 5.6 $ 7.7 $ 11.7 $ 11.0

(*) The above capital expenditures exclude assets acquired under terms of capital lease and vendor financing obligations.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

March 31, December 31,

June 30, December 31,

Construction $ 0.9 $ 0.9

4 unchanged sentences

Total $ 4,398.2 $ 4,392.1

March 31, December 31,

June 30, December 31,

Construction $ 523.0 $ 530.4

13 unchanged sentences

The dilutive effect of options and their equivalents (including non-vested stock issued under stock-based compensation plans), is computed using the "treasury" method as this measurement was determined to be more dilutive between the two available methods in each period.

The Company had zero dilutive common share equivalents during the three months ended March 31, 2020 due to the results being a loss from continuing operations and discontinued operations, net of tax.

The following potential weighted common shares were excluded from diluted EPS for the three months ended June 30, 2020 due to the antidilutive impact to diluted EPS:

2,168,454 for outstanding warrants to purchase the Company's stock, 2,094,585 for convertible preferred stock, and 12,557,078 for convertible debt.

The Company had zero dilutive common share equivalents during the six months ended June 30, 2020 due to the results being a loss from continuing operations and discontinued operations, net of tax.

The following potential weighted common shares were excluded from diluted EPS for the three months ended June 30, 2019 due to the antidilutive impact to diluted EPS:

2,168,454 for outstanding warrants to purchase the Company's stock, 2,088,567 for convertible preferred stock, and 582,422 of unvested restricted stock.

The following potential weighted common shares were excluded from diluted EPS for the six months ended June 30, 2019 due to the antidilutive impact to diluted EPS:

2,168,454 for outstanding warrants to purchase the Company's stock, and 486,627 of unvested restricted stock.

The following table presents a reconciliation of net income (loss) used in basic and diluted EPS calculations (in millions, except per share amounts):

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Three Months Ended March 31,

Amounts attributable to HC2 common and participating preferred stockholders

Loss from continuing operations $ ( 41.0 ) $ 0.3

Net loss attributable to noncontrolling interest and redeemable noncontrolling interest 2.6 2.4

Loss (income) from continuing operations attributable to the Company ( 38.4 ) 2.7

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Income (loss) from continuing operations $ 28.5 $ 16.9 $ ( 12.5 ) $ 17.2

Income (loss) attributable to noncontrolling interest and redeemable noncontrolling interest ( 15.4 ) ( 0.2 ) ( 12.8 ) 2.2

Income (loss) from continuing operations attributable to the Company 13.1 16.7 ( 25.3 ) 19.4

Preferred dividends, deemed dividends and repurchase gains 0.4 0.4 0.8 ( 0.8 )

(Loss) income from continuing operations attributable to HC2 common stockholders ( 38.8 ) 3.9

Income (loss) from continuing operations attributable to HC2 common stockholders 12.7 16.3 ( 26.1 ) 20.2

Loss from discontinued operations (including loss on disposal of $ 39.3 million)

— ( 7.7 ) ( 60.0 ) ( 14.3 )

Net loss attributable to noncontrolling interest and redeemable noncontrolling interest 15.3 1.1

Net income attributable to noncontrolling interest and redeemable noncontrolling interest — 0.4 15.3 1.5

Loss from discontinued operations, net of tax and noncontrolling interest — ( 7.3 ) ( 44.7 ) ( 12.8 )

Net loss attributable to common stock and participating preferred stockholders $ ( 83.5 ) $ ( 1.6 )

Net income (loss) attributable to common stock and participating preferred stockholders $ 12.7 $ 9.0 $ ( 70.8 ) $ 7.4

Earnings allocable to common shares:

4 unchanged sentences

Total 49.2 48.3 48.8 47.9

Percentage of (loss) income allocated to:

Percentage of income (loss) allocated to:

Common stock 95.1 % 94.5 % 100.0 % 94.4 %

2 unchanged sentences

Numerator for earnings per share, basic:

Net (loss) income from continuing operations attributable to common stock, basic $ ( 38.8 ) $ 3.7

Net income (loss) from continuing operations attributable to common stock, basic $ 12.1 $ 15.4 $ ( 26.1 ) $ 19.1

Net loss from discontinued operations attributable to common stock, basic and diluted $ — $ ( 6.9 ) $ ( 44.7 ) $ ( 12.1 )

Net loss attributable to common stock and participating preferred stockholders, basic and diluted $ ( 83.5 ) $ ( 1.5 )

Net income (loss) attributable to common stock and participating preferred stockholders, basic and diluted $ 12.1 $ 8.5 $ ( 70.8 ) $ 7.0

Earnings allocable to common shares, diluted:

1 unchanged sentence

Effect of assumed shares under treasury stock method for stock options and restricted shares and if-converted method for convertible instruments $ — $ ( 1.4 ) $ — $ ( 2.4 )

Net (loss) income from continuing operations attributable to common stock, diluted $ ( 38.8 ) $ 2.1

Net (loss) income from discontinued operations attributable to common stock, diluted $ ( 44.7 ) $ ( 5.2 )

Net loss attributable to common stock and participating preferred stockholders, diluted $ ( 83.5 ) $ ( 3.1 )

Net income (loss) from continuing operations attributable to common stock, diluted $ 12.1 $ 14.0 $ ( 26.1 ) $ 16.7

Net loss from discontinued operations attributable to common stock, diluted $ — $ ( 6.9 ) $ ( 44.7 ) $ ( 12.1 )

Net income (loss) attributable to common stock and participating preferred stockholders, diluted $ 12.1 $ 7.1 $ ( 70.8 ) $ 4.6

Denominator for basic and dilutive earnings per share:

2 unchanged sentences

Weighted average common shares outstanding - diluted 46.9 58.1 46.3 59.9

(Loss) income per share - continuing operations

Income (loss) per share - continuing operations

$ 0.26 $ 0.34 $ ( 0.56 ) $ 0.42

3 unchanged sentences

$ — $ ( 0.12 ) $ ( 0.97 ) $ ( 0.20 )

Loss per share - Net loss attributable to common stock and participating preferred stockholders

Income (loss) per share - Net income (loss) attributable to participating security holders

$ 0.26 $ 0.19 $ ( 1.53 ) $ 0.15

3 unchanged sentences

Subsequent Events

On May 4, 2020, HC2 announced that its Construction segment will pay a cash dividend of $ 15.0 million, or $ 3.89 per share.

As the largest stockholder of DBM Global Inc., HC2 expects to receive approximately $ 13.9 million of the total dividend payout.

Life Sciences

On April 16, 2020, R2 received $ 10.0 million in funding from Huadong Medicine Company Limited as part of Huadong's $ 30.0 million Series B equity investment in R2.

These funds will be used to commercialize R2's revolutionary CryoAesthetic technology which promises physicians a new way to lighten, brighten and rejuvenate skin.

This investment represents the second tranche of Huadong's investment at an approximate post-money valuation of $ 90.0 million and reduces Pansend's ownership by 7.8 % to 56.1 %.

On April 16, 2020, HC2 drew $ 10.0 million on its 2020 Revolving Credit Agreement.

HC2 intends to use the proceeds for general corporate purposes.

On August 2, 2020, the Company issued a notice of termination, effectively ending the Services Agreement with HCP, a former related party.

On August 6, 2020 the Construction segment paid a cash dividend of $ 5.0 million, or $ 1.30 per share.

HC2 received approximately $ 4.5 million of the total dividend payout.

On August 6, 2020 the Energy segment entered into a new credit facility M&T bank.

The new credit facility is comprised of a $ 57.0 million term loan facility, a $ 2.5 million revolving line of credit and an $ 8.0 million delayed draw term loan ear-marked for new station build, as well as a $ 10.0 million accordion feature.

On August 10, 2020 the Company and MSD PCOF Partners IX, LLC agreed to extend maturity of the 2020 Revolving Credit Agreement to September 1, 2021.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements