What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-03-10 compared with 2020-03-16 · 330 added, 496 removed, 582 unchanged (59% of the section changed)

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GAAP" means accounting principles accepted in the United States of America.

We are a diversified holding company with principal operations conducted through eight operating platforms or reportable segments:

Construction ("DBMG"), Marine Services ("GMSL"), Energy ("ANG"), Telecommunications ("ICS"), Insurance ("CIG"), Life Sciences ("Pansend"), Broadcasting, and Other, which includes businesses that do not meet the separately reportable segment thresholds.

We continually evaluate acquisition opportunities, as well as monitor a variety of key indicators of our underlying platform companies in order to maximize stakeholder value.

These indicators include, but are not limited to, revenue, cost of revenue, operating profit, Adjusted EBITDA and free cash flow.

Furthermore, we work very closely with our subsidiary platform executive management teams on their operations and assist them in the evaluation and diligence of asset acquisitions, dispositions and any financing or operational needs at the subsidiary level.

We believe that this close relationship allows us to capture synergies within the organization across all platforms and strategically position the Company for ongoing growth and value creation.

The potential for additional acquisitions and new business opportunities, while strategic, may result in acquiring assets unrelated to our current or historical operations.

As part of any acquisition strategy, we may raise capital in the form of debt and/or equity securities (including preferred stock) or a combination thereof.

We have broad discretion and experience in identifying and selecting acquisition and business combination opportunities and the industries in which we seek such opportunities.

Many times, we face significant competition for these opportunities, including from numerous companies with a business plan similar to ours.

As such, there can be no assurance that any of the past or future discussions we have had or may have with candidates will result in a definitive agreement and, if they do, what the terms or timing of any potential agreement would be.

As part of our acquisition strategy, we may utilize a portion of our available cash to acquire interests in possible acquisition targets.

Any securities acquired are marked to market and may increase short-term earnings volatility as a result.

We believe our track record, our platform and our strategy will enable us to deliver strong financial results, while positioning our Company for long-term growth.

We believe the unique alignment of our executive compensation program, with our objective of increasing long-term stakeholder value, is paramount to executing our vision of long-term growth, while maintaining our disciplined approach.

Having designed our business structure to not only address capital allocation challenges over time, but also maintain the flexibility to capitalize on opportunities during periods of market volatility, we believe the combination thereof positions us well to continue to build long-term stakeholder value.

We are a diversified holding company with principal operations conducted through five operating platforms or reportable segments:

Infrastructure ("DBMG"), Life Sciences ("Pansend"), Spectrum, Insurance ("CIG"), and Other, which includes businesses that do not meet the separately reportable segment thresholds.

Certain previous year amounts have been reclassified to conform with current year presentations, including:

• The recasting of GMSL's, ICS's, and Beyond6's results to discontinued operations.

Further, the reclassification of prior period assets and liabilities have been classified as held for sale;

• As a result of the sale of GMSL, ICS, and Beyond6, and in accordance with Accounting Standards Codification ("ASC") 280, the Company no longer includes the results of operations and balance sheets of these entities as separate segments.

These entities and our investment in HMN have been reclassified to the Other segment.

• The recasting of Earnings Per Share ("EPS") in the prior period, as a result of the discontinued operations noted above.

This includes presenting EPS for Net (loss) income from continuing operations, Net (loss) income from discontinuing operations, and Net (loss) income.

Our Operations

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Seasonality and Cyclical Patterns

Our segments' operations can be highly cyclical and subject to seasonal patterns.

Our volume of business in our Construction and Marine Services segments may be adversely affected by declines or delays in projects, which may vary by geographic region.

Our segments' operations can be highly cyclical.

Our volume of business in our Infrastructure segment may be adversely affected by declines or delays in projects, which may vary by geographic region.

Project schedules, particularly in connection with large, complex, and longer-term projects can also create fluctuations in the services provided, which may adversely affect us in a given period.

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Accordingly, our operating results in any particular period may not be indicative of the results that can be expected for any other period.

Marine Services

Net revenue within our Marine Services segment can fluctuate depending on the season.

Revenues are relatively stable for our Marine Services maintenance business as the core driver is the annual contractual obligation.

However, this is not the case with our installation business (other than for long-term charter arrangements), in which revenues show a degree of seasonality.

Revenues in our Marine Services installation business are driven by our customers’ need for new cable installations.

Generally, weather downtime, and the additional costs related to downtime, is a significant factor in customers determining their installation schedules, and most installations are therefore scheduled for the warmer months.

As a result, installation revenues are generally lower towards the end of the fourth quarter and throughout the first quarter, as most business is concentrated in the northern hemisphere.

Other than as described above, our businesses are not materially affected by seasonality.

Recent Developments

COVID-19 Impact on our Business

On March 11, 2020, the World Health Organization declared the outbreak of the novel coronavirus ("COVID-19") pandemic resulting in action from federal, state and local governments that has significantly affected virtually all facets of the U.S.

and global economies.

federal and various state governments, have implemented enhanced screenings, quarantine requirements, and travel restrictions in connection with the COVID-19 outbreak.

The Company’s top priority is to protect its employees and their families, and those of the Company’s customers.

The Company continues to take precautionary measures as directed by health authorities and the local government, including changing operational procedures as necessary, providing additional protective gear and cleaning to protect them, which has resulted and may continue to result in disruptions to and increased costs of the Company’s operations.

We may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers, partners, vendors, and suppliers.

Work-from-home and other measures introduce additional operational risks, including cybersecurity risks, and have affected the way we conduct our operations.

There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus, and illness and workforce disruptions could lead to unavailability of key personnel and harm our ability to perform critical functions.

The extent of the impact of COVID-19 on our operational and financial performance will depend on future developments, including, but not limited to, the duration and spread of the outbreak, the outbreak of any new strains of the coronavirus, and related travel advisories and restrictions, and its impact to the U.S.

and global financial markets, all of which are highly uncertain and cannot be predicted.

Preventing the effects from and responding to this market disruption if any other public health threat, related or otherwise, may further increase costs of our business and may have a material adverse effect on our business, financial condition, and results of operations.

We continue to monitor the evolving situation and guidance from authorities, including federal, state and local public health departments, and may take additional actions based on their recommendations.

In these circumstances, there may be developments outside our control requiring us to adjust our plans.

As such, given the dynamic nature of this situation, we cannot reasonably estimate the impact of COVID-19 on our results of operations, financial condition, or cash flows in the future.

However, we do expect that it could have a material adverse impact on our future revenue growth as well as our overall profitability and may lead to revised payment terms with certain of our customers.

During the year ended December 31, 2020, the effects of COVID-19 and the related actions undertaken in the U.S.

to attempt to control its spread, specifically impacted certain of our segments as follows:

Infrastructure

DBMG is dependent on its workforce to carry out its services.

Developments resulting from governmental responses to COVID-19 such as social distancing and shelter-in-place directives have impacted, and will continue to impact, DBMG’s ability to deploy its workforce in its facilities and project sites efficiently.

The nature of DBMG’s business does not permit alternative workforce arrangements in its facilities and project sites such as remote work schemes to be implemented effectively, and as a result of potential workforce disruptions, DBMG may continue to experience delays or suspensions of projects.

DBMG has incurred significant costs related to additional procedures to maintain COVID-19 related safety measures.

During the year ended December 31, 2020, $19.4 million of COVID-19 related expenses were incurred.

DBMG may also experience disruptions in the supply chain depending on the spread of COVID-19 and related governmental orders.

These delays, suspensions, and impacts to supply chain may negatively impact DBMG’s results of operations, cash flows or financial condition.

This could cause the timing of revenue to be delayed and possibly impact earnings and backlog.

Persistent delays, suspensions or

cancellations of projects under contract may occur while governments implement policies designed to respond to the COVID-19 pandemic.

Any such continued loss or suspension of projects under contract may negatively impact the DBMG’s results of operations, cash flows or financial condition.

As a result of COVID-19, our Spectrum segment has experienced adverse effects on its advertising business because of weakness in the advertising market as advertisers seek to reduce their own costs in response to the pandemic’s impact on their businesses.

We are not able to predict when or whether advertising budgets and the advertising market generally will return or be comparable to historical levels.

In addition, COVID-19 could impact our Spectrum segment’s business, financial condition and results of operations in a number of other ways, including, but not limited to:

• negative impact on our broadcast station revenue, as many of our customers also rely on advertising revenues and might be negatively affected by COVID-19;

• slow-down of our ability to build out additional broadcast television stations, as illness, social distancing, and other pandemic-related precautions may result in equipment delivery delays and labor shortages, including the availability of tower crews, an already limited, highly-specialized work force necessary to install broadcast equipment;

• negative impact on our network distribution revenues, as consumers may seek to reduce discretionary spending by cutting back or foregoing subscriptions to cable television or other multichannel video programming distributors;

• negative impact on our financial condition or our ability to fund operations or future investment opportunities due to an increase in the cost or difficulty in obtaining debt or equity financing, or refinancing our debt in the future, or our ability to comply with our covenants;

• impairments of our programming inventory, goodwill and other indefinite-lived intangible assets, and other long-lived assets;

• increased cyber and payment fraud risk, as cybercriminals attempt to profit from the disruption, given increased online activity.

The magnitude of the impact on our Spectrum segment will depend on numerous evolving factors that we may not be able to accurately predict, including the duration and extent of the pandemic, the impact of federal, state, local and foreign governmental actions, consumer behavior in response to the pandemic and such governmental actions, and the economic and operating conditions that we may face in the aftermath of COVID-19.

Even after COVID-19 has subsided, we may experience materially adverse impacts to our business as a result of its global economic impact, including any recession that has occurred or may occur in the future.

For further discussion regarding the potential future impacts of COVID-19 and related economic conditions on the Company's liquidity and capital resources, see "Part I-Item 1A-Risk Factors."

Our Insurance segment has been impacted by the COVID-19 pandemic, including multiple reductions in target interest rates by the Board of Governors of the Federal Reserve System, and significant market volatility, driving actual and projected results of our business operations as well as our views on potential effectiveness of certain prudent and feasible tax planning strategies.

The Company’s December 31, 2020 results reflected in earnings are primarily impacted by the Insurance segment's net unrealized losses on investments of $6.5 million, included in the Net realized and unrealized gains (loss) on investments line, primarily driven by preferred stock mark to market adjustments.

The impact on other comprehensive income was $244.1 million of unrealized gain on fixed maturity securities at December 31, 2020, a significant improvement as compared to prior quarter results, which reflected $355.5 million of unrealized loss at March 31, 2020, $9.2 million of unrealized gain at June 30, 2020, and $91.2 million of unrealized gain at September 30, 2020.

The unrealized gains and losses were largely attributable to market factors caused by the COVID-19 crisis.

The unrealized gains and losses are considered temporary in nature, as we have the ability to hold these securities to maturity.

Acquisitions and Dispositions

The Company retained Jefferies & Co.

to explore strategic options for DBMG, including a potential sale.

Marine Services

On October 30, 2019, our Marine Services segment 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.

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

On January 30, 2020, the Company announced that, through its indirect subsidiary New Saxon 2019 Limited in which the Company indirectly holds an approximately 73% controlling interest, the Company has entered into a definitive agreement to sell 100% of the shares of GMSL to Trafalgar AcquisitionCo, Ltd.

On January 30, 2020, the Company announced that, through its indirect subsidiary GMH in which the Company holds an approximately 73% controlling interest, the Company entered into a definitive agreement to sell 100% of the shares of GMSL to Trafalgar AcquisitionCo, Ltd.

and an affiliate of J.F.

Lehman & Company, LLC.

The total base consideration will be $250 million, subject to customary purchase price adjustments, plus a potential earn-out of up to $12.5 million at such time, if any, as J.F.

The total base consideration was $250.0 million, subject to customary purchase price adjustments, working capital adjustments, and a potential earn-out of up to $12.5 million at such time, if any, if J.F.

Lehman & Company, LLC and its investment affiliates achieve a specified multiple of their invested capital.

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.

In connection with the closing of the transaction, purchaser will deposit (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.

Following the closing, purchaser shall pay to the Company an amount equal to $2.4 million on the earlier of December 31, 2020 and the date on which a cash collateralized bond in connection with the Company’s bonding facility is released.

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.

Following the closing, the purchaser shall pay an amount equal to $2.4 million on the earlier of December 31, 2020 and the date on which a cash collateralized bonding facility is released.

The transaction closed on February 28, 2020.

At the closing of the transaction, the purchaser directed £24.4 million of the base price to be paid to the trustee under the Global Marine Systems Pension Plan.

On March 2, 2020, HC2 provided notice (the “Asset Sale Redemption Notice”) to U.S.

Bank National Association, as trustee (the “Trustee”), of its intent to use the net cash proceeds of the Sale to redeem $76.9 million aggregate principal amount of HC2’s 11.5% Senior Secured Notes due 2021, at a redemption price equal to 104.5% of the principal amount of the Notes redeemed, plus accrued and unpaid interest since December 1, 2019 (the last regularly scheduled interest payment date) to the redemption date of April 2, 2020.

The redemption of the Notes will be made in accordance with the terms of the Indenture.

On June 14, 2019, ANG acquired ampCNG's 20 natural gas fueling stations, located primarily in the Southeastern U.S.

and Texas, for cash consideration of $41.2 million.

ANG’s network reach expanded to over 60 stations, making it one of the largest owners and operators of compressed natural gas stations in the country.

The Company is in advanced discussions for the potential divestiture of its 100%-owned indirect subsidiaries, Continental Insurance Group Ltd.

and Continental General Insurance Company.

During the year ended December 31, 2019 HC2 Broadcasting acquired a series of licenses for a total cash consideration of $20.5 million.

Life Sciences

On September 16, 2019, Pansend received a cash payment of $13.3 million, which was previously held in escrow, from the sale of its approximately 75.9% ownership in BeneVir to Janssen Biotech, Inc.

HC2 received a cash payment of $9.8 million from the release of the escrow.

Equity Transactions

Life Sciences

On July 31, 2019, MediBeacon entered into a definitive agreement with Huadong Medicine, a publicly traded company on the Shenzhen Stock Exchange, providing exclusive rights to MediBeacon’s portfolio of assets in Greater China.

Huadong Medicine will be responsible to fund the clinical trials, commercial and regulatory activities in 25 Asian countries, including Greater China (PRC Mainland China, Hong Kong, Macau, Taiwan), Thailand, Vietnam, Indonesia, Philippines and Singapore.

Under terms of the agreement, MediBeacon will receive an initial $15.0 million equity payment at a pre-money valuation of $300.0 million and will receive a second $15.0 million equity payment upon achieving US FDA approval for its TGFR Measurement System at a pre-money valuation of $400.0 million.

Huadong Medicine will fund all commercial and regulatory activities in Greater China and select Asian countries.

In addition, MediBeacon will receive royalty payments on net sales in the specified countries.

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.

HC2 received net proceeds of approximately $100.8 million.

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

During the fourth quarter of 2020, the Company recognized a gain on sale of $2.4 million c noted above.

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 valued HMN at $285.0 million, and GMH's 49% stake, through New Saxon, at approximately $140.0 million.

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.

The sale of ICS and its subsidiary, Go2 Tel, Inc., closed on October 31, 2020.

The Company recorded a $0.9 million gain on the sale.

Proceeds were used for general corporate purposes.

Sale of Beyond6

On December 31, 2020, the Company announced a plan to sell Beyond6 to an affiliate of Mercuria Investments US, Inc., pursuant to an Agreement and Plan of Merger ( the "Merger Agreement") among Beyond6, Greenfill, Inc., a Delaware Corporation ("Parent"), Greenfill Merger Inc., a newly-formed Delaware corporation and wholly-owned subsidiary of the Parent, and an affiliate of HC2 as the Stockholder Representative for the Beyond6 stockholders.

The sale closed on January 15, 2021

Debt Obligations

Marine Sciences

In June 2019, GMSL refinanced the Shawbrook loan, increasing the principal balance to £17.0 million, or approximately $21.6 million, and extending the maturity to June 2020.

In June 2019, ANG entered into a term loan with M&T bank for $28.0 million.

The loan bears variable interest annually at LIBOR plus 3.00% and matures in 2023.

The term loan was used to finance the acquisition of ampCNG stations.

Life Sciences

In June 2019, R2 converted a portion of the $1.7 million secured convertible notes into shares of R2 preferred equity.

The remaining portion of the outstanding notes were repaid.

On October 24, 2019, Broadcasting issued $78.7 million 364-day secured notes (the "2020 Notes").

The privately placed notes were comprised of a $36.2 million, 8.50%,tranche, funded by an affiliate of MSD Partners, L.P.

(the “8.50%% Note due 2020”).

The remaining $42.5 million, 10.50% tranche (the “10.50% Note due 2020”) was a modification of the existing 8.50%, 364-day Secured Note, with certain institutional investors.

The 2020 Notes have a paid-in-kind ("PIK") coupon and mature in October 2020.

The net proceeds from the financing were used to retire HC2 Broadcasting’s existing debt, as well as fund pending acquisitions, working capital and general corporate purposes.

In connection with the issuance of the 10.50% Note due 2020, Broadcasting issued warrants to the same institutional investors to purchase 50,000 shares of common stock at $176.4 per share for a total purchase price of $8.8 million, or net settled, if exercised as of the issuance date, and as may be adjusted at any future exercise of the warrant pursuant to its terms.

The warrant has a five-year term and is immediately exercisable.

As of December 31, 2018, there were $35.0 million of 8.50%, 364-day Secured Notes which were issued on August 7, 2018.

The 364-day Secured Note was used to finance certain acquisitions and for general corporate purposes.

In January 2019, the capacity of the 364-day Secured Note was increased by $15.0 million to $50.0 million and institutional investors funded $7.5 million of the 8.5% Notes bringing the total outstanding 8.5% Notes balance to $42.5 million, which were later modified by the 10.50% Note due 2020, as described above .

In April 2019, an additional $0.7 million of notes were issued at 8.50% and later repaid in full with the proceeds from the issuance of the 8.50% Note due 2020.

In May, August, and September of 2019, Broadcasting issued an additional $21.5 million of notes bearing interest of 8.50% that were repaid in full with the proceeds from the issuance of the 8.50% Note due 2020.

In February 2020, Spectrum amended its agreement governing its privately placed note funded by MSD Partners, L.P., increasing the principal balance to $39.3 million.

The proceeds were used to repay principal and interest on existing debt.

In August 2020, Spectrum modified its agreement with MSD Partners, L.P.

and Great American Life Insurance Company to extend the maturity on its privately placed notes to October 2021.

In September 2020, Spectrum amended its agreement governing its privately placed note funded by MSD Partners, L.P., increasing the principal balance by $4.0 million to $43.3 million.

The proceeds were used to repay principal and interest on existing debt and for general business purposes.

In November 2020, Spectrum paid down $2.9 million of its 8.50% Note due 2021 and $3.0 million on other various notes.

In December 2020, Spectrum paid down $21.0 million and $9.6 million of its 8.5% Note due 2021 and 10.5% Note due 2021, respectively.

Non-Operating Corporate

In April 2019, HC2 entered into a $15.0 million secured revolving credit agreement (the “Revolving Credit Agreement”) with MSD PCOF Partners IX, LLC.

The Revolving Credit Agreement matures on June 1, 2021.

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 Consolidated Statement of Operations.

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 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 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 working capital and general corporate purposes.

In March 2020, with the proceeds received from the sale of GMSL, the Company paid down its LIBOR plus 6.75% Line of Credit and issued a 30 days redemption notice for $76.9 million of its 11.50% Senior Secured Notes, due 2021.

In December 2019, the U.S.

Congress passed an alternative fuel tax credit ("AFTC") which will continue to support the use of natural gas.

The AFTC is retroactive beginning January 2018 and extends through 2020.

The legislation extends the $0.50 per gallon fuel credit/payment for the use of natural gas as a transportation fuel, and the Alternative Fuel Vehicle Refueling Property Credit, which extends the 30 percent/$30,000 investment tax credit for alternative vehicle refueling property.

Net revenue after customer rebates for such credits recognized in 2019 was $10.6 million.

Tax Sharing Agreement

Under a tax sharing agreement, the Construction segment reimburses HC2 for use of its net operating losses.

During the year ended December 31, 2019, HC2 received $14.5 million from its Construction segment under this tax sharing agreement.

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 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 Consolidated Statement 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 Consolidated Statement of Operations.

In October 2020, HC2 redeemed an additional $2.1 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 $0.1 million in extinguishment loss related to the this redemption, which is included in Loss on early extinguishment or restructuring of debt in our Consolidated Statement of Operations.

In April 2020, R2 received $10.0 million in funding from Huadong Medicine Company Limited as part of Huadong's $30 million Series B equity investment in R2.

These funds are being used to commercialize R2's CryoAesthetic technology which provides 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%.

Financial Presentation Background

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2020 2019 Increase / (Decrease)

Construction $ 713.3 $ 716.4 $ (3.1)

Marine Services 172.5 194.3 (21.8)

Energy 39.0 20.7 18.3

Telecommunications 696.1 793.6 (97.5)

Infrastructure

$ 676.6 $ 713.3 $ (36.7)

Spectrum 40.3 41.8 (1.5)

Insurance 300.2 331.6 (31.4)

Broadcasting 41.8 45.4 (3.6)

Other — 0.5 (0.5)

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Total net revenue 1,005.8 1,077.0 (71.2)

Income (loss) from operations

Construction $ 45.1 $ 41.9 $ 3.2

Marine Services (6.1) (15.4) 9.3

Energy 10.1 (0.5) 10.6

Telecommunications (1.8) 4.8 (6.6)

Insurance 37.3 1.8 35.5

(Loss) income from operations

Infrastructure

$ 20.5 $ 45.1 $ (24.6)

Life Sciences (16.9) (8.9) (8.0)

Broadcasting (11.4) (24.0) 12.6

Spectrum (2.2) (11.4) 9.2

Insurance 35.6 37.3 (1.7)

Other (2.8) (1.6) (1.2)

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(11.3) (10.2) (1.1)

Total income (loss) from operations 29.1 (55.8) 84.9

Total (loss) income from operations (4.1) 25.3 (29.4)

Interest expense (79.4) (76.1) (3.3)

Gain on sale and deconsolidation of subsidiary — 105.1 (105.1)

Income from equity investees 2.2 15.4 (13.2)

Loss on early extinguishment or restructuring of debt (9.4) — (9.4)

(Loss) income from equity investees (3.4) 1.6 (5.0)

Gain on bargain purchase — 1.1 (1.1)

Other income 68.5 6.3 62.2

(Loss) income from continuing operations (56.7) 182.3 (239.0)

Loss from continuing operations (27.8) (41.8) 14.0

Income tax benefit (expense) (10.5) 19.6 (30.1)

Net (loss) income (36.1) 179.9 (216.0)

Net loss (income) attributable to noncontrolling interest and redeemable noncontrolling interest 4.6 (17.9) 22.5

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

Loss from continuing operations (38.3) (22.2) (16.1)

Loss from discontinued operations (including loss on disposal of $44.2 million) (63.8) (13.9) (49.9)

Net loss (102.1) (36.1) (66.0)

Net loss attributable to noncontrolling interest and redeemable noncontrolling interest 10.1 4.6 5.5

Net loss attributable to HC2 Holdings, Inc.

(92.0) (31.5) (60.5)

Preferred dividends, deemed dividends, and repurchase gains 3.6 — 3.6

Net (loss) income attributable to common stock and participating preferred stockholders $ (31.5) $ 155.6 $ (187.1)

Net loss attributable to common stock and participating preferred stockholders $ (95.6) $ (31.5) $ (64.1)

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

Net revenue :

Net revenue for the year ended December 31, 2019 increased $7.4 million to $1,984.1 million from $1,976.7 million for the year ended December 31, 2018.

The increase in revenue was driven by improvements in our Insurance and Energy segments.

The increase in our Insurance segment, net of eliminations, was driven primarily by the KIC acquisition, which contributed additional net investment income and premiums, and a rotation into higher yielding investments, particularly mortgage loans and preferred stocks, and from higher average invested fixed maturity securities and mortgage loans.

The increase in our Energy segment was largely driven by the AFTC related to the 2018 and 2019 CNG sales that was recognized in the fourth quarter of 2019 and included AFTC from the acquisition of the ampCNG stations.

These increases were partially offset by a decrease in our Telecommunication segment, which can be attributed to changes in our customer mix, fluctuations in wholesale traffic volumes, and market pressures, and our Marine Services segment, driven by a decline in the volume of projects under execution across multiple reporting lines, including power cable repair in offshore renewables, telecom installation work, and a reduction in CWind Group revenue due to focusing on a mix of more profitable projects.

Income (loss) from operations :

Income (loss) from operations for the year ended December 31, 2019 increased $84.9 million to income of $29.1 million from a loss of $55.8 million for the year ended December 31, 2018.

The increase in income (loss) from operations was primarily driven by our Insurance segment, net of eliminations, due to the recent KIC acquisition, which contributed additional net investment income and premiums, net of additional policy benefits paid to policy holders, changes in reserves, and commissions.

Further improvements to our comparable income from operations was the result of lower losses at our Broadcasting segment, mainly driven by cost cutting measures that resulted in a decrease in headcount and a decrease in associated compensation and overhead expenses, our Energy segment driven by the AFTC related to the 2018 and 2019 CNG sales that was recognized in the fourth quarter of 2019, and our Marine Services segment due to improved profitability from telecom maintenance zones and project work in the offshore power and offshore renewables end markets, as well as the benefit of improved vessel utilization.

Additionally, the comparable period was impacted by higher than expected costs on a certain offshore power construction project that were not repeated in the current period.

Net revenue for the year ended December 31, 2020 decreased $71.2 million to $1,005.8 million from $1,077.0 million for the year ended December 31, 2019.

The decrease in revenue was driven by our Infrastructure segment, primarily driven by lower revenues from our structural steel fabrication and erection business, and our Insurance segment, net of eliminations, largely driven by lower net investment income and unfavorable market movements in values for common and preferred stock holdings and fixed maturity impairments.

(Loss) income from operations :

(Loss) income from operations for the year ended December 31, 2020 decreased $29.4 million to a loss of $4.1 million from income of $25.3 million for the year ended December 31, 2019.

The decrease is attributable to our Infrastructure segment due to lower revenues from our structural steel fabrication and erection business and our Life Sciences segment driven by R2, which increased spending in the current period to support commercialization efforts and further develop its product platform.

This was partially offset by a decrease in loss at our Spectrum segment related to cost reductions at Network and gains recognized on the sale of broadcast stations in the current period.

Interest expense :

Interest expense for the year ended December 31, 2020 increased $3.3 million to $79.4 million from $76.1 million for the year ended December 31, 2019.

The increase was largely attributable to the additional interest and amortization of deferred financing fees driven by an increase in the aggregate principal amount of debt at our Non-operating Corporate and Construction segments.

Gain on sale and deconsolidation of subsidiary :

Gain on sale and deconsolidation of subsidiary for the year ended December 31, 2018 was $105.1 million.

The 2018 activity was attributable to the Life Sciences segment's sale of BeneVir in which the Company recorded a gain on the sale of $102.1 million in addition to the deconsolidation of 704Games in the third quarter of 2018, which resulted in a gain of $3.0 million.

There was no comparable activity in the current year.

Income from equity investees:

Income from equity investees for the year ended December 31, 2019 decreased $13.2 million to $2.2 million from $15.4 million for the year ended December 31, 2018.

The decrease was largely due to lower equity method income recorded from our equity investment in Huawei Marine Networks ("HMN") and S.B.

Submarine Systems ("SBSS").

The increase was attributable to an increase in the aggregate principal amount of debt at our Spectrum segment.

Loss on early extinguishment or restructuring of debt :

Loss on early extinguishment or restructuring of debt for the year ended December 31, 2020 was $9.4 million.

This was driven by the write-off of deferred financing costs and original issuance discount related to the $15.0 million pay down of the 2019 Revolving Credit Agreement and the $129.5 million of redemptions of the Senior Secured Notes during 2020.

(Loss) income from equity investees:

(Loss) income from equity investees for the year ended December 31, 2020 decreased $5.0 million to a loss of $3.4 million from income of $1.6 million for the year ended December 31, 2019.

The decrease was driven by a decrease in income for the HMN investment, driven by the timing of turnkey project work and the reduction of ownership from 49% to 19% during 2020, and an increase in losses recorded from our investment in MediBeacon due to the timing of clinical trials.

Gain on bargain purchase:

Gain on bargain purchase was $1.1 million and $115.4 million for the years ended December 31, 2019 and 2018, respectively.

The gain on bargain purchase was driven by the Insurance Segment's acquisition of KIC in 2018 and subsequent purchase price allocation adjustments recorded in 2019.

The gain on bargain purchase was driven by the Tax Cuts and Jobs Act, which was not stipulated in the negotiations for the transaction and resulted in a material decline in the Value of Business Acquired balance and a corresponding deferred tax position.

More specifically, the gain on bargain purchase was largely driven by the following attributes:

(i) the Unified Loss Rules tax attribute reduction to tax value of assets and the seller tax adjustments to tax value of liabilities contribute significantly to the bargain purchase price;

(ii) the reduction in the federal income tax rate, from 35% at the time the seller contribution was established to 21% effective January 1, 2018;

and (iii) changes in fair value of acquired assets and assumed liabilities between the date the deal was signed and the closing date was driven by the time it took to obtain regulatory approvals.

Gain on bargain purchase for the year ended December 31, 2020 decreased $1.1 million to zero from $1.1 million for the year ended December 31, 2019.

The change relates to a gain recognized in 2019 due to a purchase price allocation adjustment related to the Insurance segment's acquisition of KIC in 2018.

Other income:

Other income for the year ended December 31, 2019 decreased $71.9 million to $6.0 million from $77.9 million for the year ended December 31, 2018.

During 2019, the Company recognized gains at our Life Sciences segment, driven by the MediBeacon equity transaction.

During 2018, the Company reported the following events that did not occur in 2019 (i) sale of investment in INSG for a total consideration and net gain of $34.4 million, (ii) CGI recaptured two of their reinsurance treaties, in which a gain of $47.0 million was recognized, and (iii) $5.1 million loss on the extinguishment of debt at our Non-operating corporate and Broadcasting segments.

Other income for the year ended December 31, 2020 increased $62.2 million to $68.5 million from $6.3 million for the year ended December 31, 2019.

The increase was primarily driven by the gain recognized on the partial HMN Sale, which closed during the second quarter of 2020.

Income tax benefit (expense) :

Income tax benefit (expense) was a benefit of $20.6 million and an expense of $2.4 million for the year ended December 31, 2019 and 2018, respectively.

The amount recorded primarily relates to the release of the Insurance segment’s valuation allowance previously recorded against its deferred tax assets.

The Insurance segment is profitable in 2019 and in a three-year overall cumulative income position as of December 31, 2019.

The profitability is driven by current year income associated with favorable claims and reserve development relative to expected.

Further, unrealized gains from the investment portfolio continued to grow in 2019.

The positive trend of profitability in 2018 and 2019 is expected to continue.

As a result of the three-year cumulative income position and reliance upon future projections of income, the Insurance segment has released, in full, the $37.4 million valuation allowance as part of continuing operations.

Income tax benefit (expense) was an expense of $10.5 million and a benefit of $19.6 million for the year ended December 31, 2020 and 2019, respectively.

The income tax expense recorded for the year ended December 31, 2020 primarily relates to tax expense incurred in China from the partial sale of HMN and the tax expense as calculated under ASC 740 for taxpaying entities, offset by a tax benefit from the carryback of net operating losses at the Insurance segment as a result of the enactment of the CARES Act in the first quarter of 2020.

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

tax consolidated group 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.

Income tax expense was $2.4 million for the year ended December 31, 2018.

The amount recorded primarily relates to separate state filings that do not have net operating losses available to offset income.

In 2018, the Insurance segment acquired Humana’s long-term care business, Kanawha Insurance Company.

The combined insurance entity generated a net operating loss for the year due to additional tax deductions related to increases in policy holder reserves.

In addition, the bargain purchase gain is not taxable.

This net operating loss was carried forward but had a valuation allowance.

Additionally, the income tax expense generated from the sale of BeneVir in 2018 is offset by tax attributes for which a valuation allowance had been recorded.

Therefore, there is no net income tax expense recorded in the income statement for the sale.

The income tax benefit recorded for the year ended December 31, 2019 was $19.6 million.

The benefit was primarily driven by a net valuation allowance release of $37.4 million related to the Insurance segment partially offset by an impairment of goodwill which is not deductible for tax purposes.

Preferred dividends, deemed dividends, and repurchase gains:

Preferred dividends, and deemed dividends, and repurchase gains for the year ended December 31, 2019 decreased $6.4 million to zero compared to a loss of $6.4 million for the year ended December 31, 2018.

The decrease was driven by (i) deemed dividends associated with the issuance of the 7.5% Convertible Notes during 2018, in which the Company incurred a consent fee payable to preferred stockholders of $3.8 million (ii) the Insurance segment's purchase of 10,000 shares of the Company's Series A-2 Preferred Stock at a $1.7 million discount during 2019 and (iii) a decrease in the reported preferred stock dividends due to the elimination of the dividends paid on the portion of preferred stock owned by our Insurance segment in consolidation.

Preferred dividends, and deemed dividends, and repurchase gains for the year ended December 31, 2020 was $3.6 million compared to zero for the year ended December 31, 2019.

The decrease was largely driven by the issuance of Series B Non-Voting participating Convertible Preferred Shares (the "Series B Preferred Stock") in September and November 2020, which were issued with a $2.0 million Beneficial Conversion feature.

In addition, in the prior year, the Insurance segment purchased 10,000 shares of the Company's Series A-2 Preferred Stock at a $1.7 million discount.

Segment Results of Operations

1 unchanged sentence

Each table summarizes the results of operations of our operating segments and compares the amount of the change between the periods presented (in millions).

Construction Segment

Infrastructure Segment

Years Ended December 31,

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Income from operations $ 20.5 $ 45.1 $ (24.6)

Net revenue from our Construction segment for the year ended December 31, 2019 decreased $3.1 million to $713.3 million from $716.4 million for the year ended December 31, 2018.

The decrease was primarily driven by lower revenues from our structural steel fabrication and erection business, which had increased activity in the comparable period on certain large commercial construction projects that are now at or near completion in the current period.

This was largely offset by DBMG’s acquisition of GrayWolf, which was acquired late in the fourth quarter of 2018, and from higher revenues from our construction modeling and detailing business as a result of an increase in project work.

Net revenue from our Infrastructure segment for the year ended December 31, 2020 decreased $36.7 million to $676.6 million from $713.3 million for the year ended December 31, 2019.

Cost of revenue:

Cost of revenue from our Construction segment for the year ended December 31, 2019 decreased $28.1 million to $572.3 million from $600.4 million for the year ended December 31, 2018.

The decrease was primarily driven by the timing of project activity on certain large commercial construction projects that are now at or near completion in the current period.

This was partially offset by costs associated with the construction modeling and detailing business as a result of an increase in project work and increases as a result of the acquisition of GrayWolf, which was acquired late in the fourth quarter of 2018.

Cost of revenue from our Infrastructure segment for the year ended December 31, 2020 decreased $6.1 million to $566.2 million from $572.3 million for the year ended December 31, 2019.

The decrease was primarily driven by the timing of project work under execution and change in backlog mix, including a reduction in large commercial construction projects in the current period.

The decrease was partially offset by higher costs incurred in response to the COVID-19 pandemic.

Selling, general and administrative:

Selling, general and administrative expenses from our Construction segment for the year ended December 31, 2019 increased $12.9 million to $79.8 million from $66.9 million for the year ended December 31, 2018.

The increase was primarily due to headcount-driven increases in salary and benefits and an increase in operating expenses as a result of the acquisition of GrayWolf, which was acquired late in the fourth quarter of 2018.

Selling, general and administrative expenses from our Infrastructure segment for the year ended December 31, 2020 decreased $0.7 million to $79.1 million from $79.8 million for the year ended December 31, 2019.

The decrease was primarily driven by lower travel expenses and acquisition related costs in the current period, partially offset by higher costs incurred due to an increase in salaries and wages

Depreciation and amortization :

Depreciation and amortization from our Construction segment for the year ended December 31, 2019 increased $8.1 million to $15.5 million from $7.4 million for the year ended December 31, 2018.

The increase was due to amortization of intangibles obtained through the acquisition of GrayWolf and assets placed into service in 2019.

Depreciation and amortization from our Infrastructure segment for the year ended December 31, 2020 decreased $4.8 million to $10.7 million from $15.5 million for the year ended December 31, 2019.

The decrease was primarily related to the full depreciation and amortization of assets that took place subsequent to the comparable period.

Other operating (income) expense:

Other operating (income) expense from our Construction segment for the year ended December 31, 2019 decreased by $0.8 million to a loss of $0.6 million from income of $0.2 million for the year ended December 31, 2018.

Other operating (income) expense from our Infrastructure segment for the year ended December 31, 2020 decreased by $0.5 million to a loss of $0.1 million from income of $0.6 million for the year ended December 31, 2019.

The change was primarily due to the gains and losses on the sale of land and assets in the comparable periods.

Marine Services Segment

Years Ended December 31,

2019 2018 Increase / (Decrease)

Net revenue $ 172.5 $ 194.3 $ (21.8)

Cost of revenue 127.1 163.0 (35.9)

Selling, general and administrative 25.8 20.2 5.6

Depreciation and amortization 25.7 27.2 (1.5)

Other operating income — (0.7) 0.7

Income (loss) from operations $ (6.1) $ (15.4) $ 9.3

Net revenue from our Marine Services segment for the year ended December 31, 2019 decreased $21.8 million to $172.5 million from $194.3 million for the year ended December 31, 2018.

The decrease was primarily driven by a decline in the volume of projects under execution across multiple reporting lines, including power cable repair in offshore renewables, telecom installation work, and a reduction in CWind Group revenue due to focusing on a mix of more profitable projects.

Cost of revenue:

Cost of revenue from our Marine Services segment for the year ended December 31, 2019 decreased $35.9 million to $127.1 million from $163.0 million for the year ended December 31, 2018.

The decrease was driven by the reduction in revenue, improved vessel utilization, and higher than expected costs on a certain power construction project in the comparable period that were not repeated.

Selling, general and administrative:

Selling, general and administrative expenses from our Marine Services segment for the year ended December 31, 2019 increased $5.6 million to $25.8 million from $20.2 million for the year ended December 31, 2018.

The increase was primarily due to higher disposition costs in the fourth quarter of 2019 related to the sale of the Marine Services segment.

This was partially offset by a reversal of an accrual of bad debt expense in the current period due to a favorable receivable settlement during the quarter.

Subsequent Events for the summary of the subsequent events.

Depreciation and amortization:

Depreciation and amortization from our Marine Services segment for the year ended December 31, 2019 decreased $1.5 million to $25.7 million from $27.2 million for the year ended December 31, 2018.

The decrease was largely attributable to the disposal of assets during the year.

Other operating income:

Other operating income decreased $0.7 million from $0.7 million of income for the year ended December 31, 2018, as a result of an impairment expense recorded in 2019 due to the under-utilization of assets on one of the segment's barges.

Energy Segment

Life Sciences Segment

Years Ended December 31,

2020 2019 Increase / (Decrease)

Net revenue $ 39.0 $ 20.7 $ 18.3

Cost of revenue 17.1 11.2 5.9

Selling, general and administrative $ 16.7 $ 8.6 $ 8.1

1 unchanged sentence

Other operating expense 0.1 — 0.1

Income (loss) from operations $ 10.1 $ (0.5) $ 10.6

Net revenue from our Energy segment for the year ended December 31, 2019 increased $18.3 million to $39.0 million from $20.7 million for the year ended December 31, 2018.

The increase was primarily driven by the AFTC related to the 2018 and 2019 CNG sales that was recognized in the fourth quarter of 2019, inclusive of prior period AFTC at the acquired ampCNG stations which was also recognized in 2019.

The increase was also driven by higher volume-related revenues from the recent acquisition of the ampCNG stations and growth in CNG sales volumes.

Cost of revenue:

Cost of revenue from our Energy segment for the year ended December 31, 2019 increased $5.9 million to $17.1 million from $11.2 million for the year ended December 31, 2018.

The increase was due to overall growth in volumes of gasoline gallons delivered and higher commodity and utility costs driven by the acquisition of ampCNG stations.

Loss from operations $ (16.9) $ (8.9) $ (8.0)

Selling, general and administrative :

Selling, general and administrative expenses from our Energy segment for the year ended December 31, 2019 increased $0.9 million to $4.9 million from $4.0 million for the year ended December 31, 2018.

The increase was driven by an increase in salaries and benefits largely due to the of the acquisition of ampCNG stations, which were acquired late in the second quarter of 2019, partially offset by a one-time expense in the prior year related to the abandonment of a station development project.

Depreciation and amortization:

Depreciation and amortization from our Energy segment for the year ended December 31, 2019 increased $1.4 million to $6.9 million from $5.5 million for the year ended December 31, 2018.

The increase was due to additional depreciation and amortization from the recent acquisition of ampCNG stations.

Other operating expense :

Other operating expense from our Energy segment was a loss of $0.5 million for the year ended December 31, 2018, driven by impairment of certain stations during the fourth quarter of 2018.

Telecommunications Segment

Selling, general and administrative expenses from our Life Sciences segment for the year ended December 31, 2020 increased $8.1 million to $16.7 million from $8.6 million for the year ended December 31, 2019.

The increase was driven by higher expenses at R2, which increased spending from the comparable period to ramp up operations to support commercialization efforts and further develop its product platform.

Years Ended December 31,

4 unchanged sentences

Depreciation and amortization 6.8 6.3 0.5

Other operating expense 4.5 — 4.5

Income (loss) from operations $ (1.8) $ 4.8 $ (6.6)

Net revenue :

Net revenue from our Telecommunications segment for the year ended December 31, 2019 decreased $97.5 million to $696.1 million from $793.6 million for the year ended December 31, 2018.

The decrease can be attributed to changes in our customer mix, fluctuations in wholesale voice termination volumes and market pressures, which resulted in a decline in revenue contribution.

Other operating (income) expense (6.7) (3.0) (3.7)

Loss from operations $ (2.2) $ (11.4) $ 9.2

Net revenue from our Spectrum segment for the year ended December 31, 2020 decreased $1.5 million to $40.3 million from $41.8 million for the year ended December 31, 2019.

The decrease was primarily driven by a decrease in advertising revenues at the Azteca network driven by the negative impact of the COVID-19 pandemic, partially offset by higher station revenues as our Spectrum segment grew the number of operating stations and launched new customers across its broadcast platform.

Cost of revenue:

Cost of revenue from our Telecommunications segment for the year ended December 31, 2019 decreased $94.2 million to $684.9 million from $779.1 million for the year ended December 31, 2018.

The decrease was directly correlated to the fluctuations in wholesale voice termination volumes, in addition to a slight reduction in margin mix attributed to market pressures on call termination rates.

Cost of revenue from our Spectrum segment for the year ended December 31, 2020 decreased $1.2 million to $22.3 million from $23.5 million for the year ended December 31, 2019.

The decrease was primarily driven by cost reductions at Network, partially offset by increased cost of revenues associated with the higher number of operating stations.

Selling, general and administrative:

Selling, general and administrative expenses from our Telecommunications segment for the year ended December 31, 2019 decreased $1.2 million to $8.2 million from $9.4 million for the year ended December 31, 2018.

The decrease was primarily due to a decrease in compensation expense due to headcount decreases and reductions in bad debt expense.

Other operating expense:

$4.5 million of other operating expense for the year ended December 31, 2019 was driven by impairment of goodwill as a result of declining performance at the segment.

Selling, general and administrative expenses from our Spectrum segment for the year ended December 31, 2020 decreased $6.3 million to $20.1 million from $26.4 million for the year ended December 31, 2019.

The decrease was primarily due to lower compensation, overhead, and acquisition-related expenses.

Depreciation and amortization:

Depreciation and amortization from our Spectrum segment for the year ended December 31, 2020 increased $0.5 million to $6.8 million from $6.3 million for the year ended December 31, 2019.

The increase was driven by additional amortization of fixed assets at new stations which were acquired or built subsequent to the comparable period.

Other operating (income) expense :

Other operating (income) expense from our Spectrum segment for the year ended December 31, 2020 increased $3.7 million to income of $6.7 million from income of $3.0 million for the year ended December 31, 2019.

The increase was primarily due to gains recognized on the sale of stations in the current period, partially offset by the impairment of licenses in the current period and a decrease in gains from FCC reimbursements.

Insurance Segment

14 unchanged sentences

Life, accident and health earned premiums, net:

Life, accident and health earned premiums, net from our Insurance segment for the year ended December 31, 2019 increased $22.4 million to $116.8 million from $94.4 million for the year ended December 31, 2018.

The increase was primarily due to the premiums generated from the acquisition of KIC in 2018.

Life, accident and health earned premiums, net from our Insurance segment for the year ended December 31, 2020 decreased $1.7 million to $115.1 million from $116.8 million for the year ended December 31, 2019.

The decrease was primarily related to natural run-off of the closed blocks of business.

Net investment income:

Net investment income from our Insurance segment for the year ended December 31, 2019 increased $95.8 million to $212.9 million from $117.1 million for the year ended December 31, 2018.

The increase was primarily due to the income generated from the assets acquired in the KIC acquisition, higher average invested assets as a result of the reinvestment of premiums and investment income received, and to a lesser extent, rotation into higher-yielding investments.

Net investment income from our Insurance segment for the year ended December 31, 2020 decreased $14.1 million to $198.8 million from $212.9 million for the year ended December 31, 2019.

The decrease was primarily due to decreased holdings in equity, mortgage and short-term investments to pivot investment strategy to a more conservative methodology, including decreased yield on equity method investments, partially offset by an increase in investment income from higher average invested assets as a result of the reinvestment of premiums and investment income received.

Net realized and unrealized gains on investments:

Net realized and unrealized gains on investments from our Insurance segment for the year ended December 31, 2020 decreased $15.6 million to $13.7 million from $1.9 million for the year ended December 31, 2019.

The decrease was driven by smaller realized gains on bonds and common stocks, higher impairments, and losses on fair value changes on interest only bonds in 2019.

The decrease was offset by overall improvement in fair value changes in equity securities and realized gains on mortgage loans in 2019.

The decrease was driven by unrealized losses due to unfavorable market movements in preferred investments, and realized losses on the sale of bond and equity investments.

Policy benefits, changes in reserves, and commissions :

Policy benefits, changes in reserves, and commissions from our Insurance segment for the year ended December 31, 2019 increased $37.1 million to $234.4 million from $197.3 million for the year ended December 31, 2018.

The increase was primarily driven by KIC, which generated policy benefits, changes in reserves, and commissions in the current year but was present for a shorter duration in 2018 due to the timing of the acquisition in August 2018.

This was partially offset by current period reserve releases driven by higher mortality and policy terminations, an increase in contingent non-forfeiture option activity as a result of in-force rate actions approved and implemented, and favorable developments in claim incidences and termination rates and estimates of benefits on open claims.

Selling, general and administrative :

Selling, general and administrative expenses from our Insurance segment for the year ended December 31, 2019 increased $5.3 million to $35.7 million from $30.4 million for the year ended December 31, 2018.

The increase was driven by higher headcount, accounting, and consulting fees associated with the acquisition of KIC offset by a reduction in legal fees.

Policy benefits, changes in reserves, and commissions from our Insurance segment for the year ended December 31, 2020 increased $15.6 million to $250.0 million from $234.4 million for the year ended December 31, 2019.The increase was due to unfavorable reserves development in the active life reserve for the LTC policies acquired in 2018 and expected increase in claims activity in the current period.

Depreciation and amortization :

Depreciation and amortization from our Insurance segment for the year ended December 31, 2019 increased $10.7 million to $23.1 million from $12.4 million for the year ended December 31, 2018.

The increase was driven by the increase in negative VOBA amortization largely due to the KIC acquisition.

Amortization of negative VOBA reflects an increase to net income.

Depreciation and amortization from our Insurance segment for the year ended December 31, 2020 decreased $2.2 million to $20.9 million from $23.1 million for the year ended December 31, 2019.

The decrease was driven by a reduction in negative VOBA amortization largely due to lower policy terminations for the LTC policies acquired in 2018.

Other operating expense :

$47.3 million of other operating expense for the year ended December 31, 2019 was driven by impairment of goodwill in the fourth quarter of 2019.

The Insurance segment's operating entity, CGI, had a book value at December 31, 2019 of $503.6 million, inclusive of $198.9 million of AOCI.

The increase in 2019 was largely driven by current year net income of $98.7 million, before the impact of the goodwill impairment, and an increase in AOCI of $288.0 million from December 31, 2018.

There were several factors that occurred in the fourth quarter of 2019, which impacted the fair value of the Insurance segment, primarily with respect to the future of the management fee agreement, along with our expectations of future dividends, after recent and ongoing discussions with our domestic regulator.

While these factors do not have a major impact on the operations of the business, they do impact the ability to capture the value which is effectively trapped in the Insurance company.

As a result of the factors described above, our book value at CGI exceeded fair value, and the Company recognized a goodwill impairment charge of $47.3 million at our Insurance segment.

Net income of CGI, after the impact of the goodwill impairment was $51.4 million for the year ended December 31, 2019.

At December 31, 2019, after the impact of the goodwill impairment, the book value of CGI was $456.3 million, and we would expect additional book losses to the extent CGI is sold in the future.

Life Sciences Segment

Years Ended December 31,

2019 2018 Increase / (Decrease)

Selling, general and administrative $ 8.6 $ 13.6 $ (5.0)

Depreciation and amortization 0.3 0.2 0.1

Loss from operations $ (8.9) $ (13.8) $ 4.9

Selling, general and administrative :

Selling, general and administrative expenses from our Life Sciences segment for the year ended December 31, 2019 decreased $5.0 million to $8.6 million from $13.6 million for the year ended December 31, 2018.

The decrease was driven by comparably fewer expenses at the Pansend holding company, which incurred additional compensation expense in the prior period related to the performance of the segment.

The decrease was also due to a reduction in costs associated with the sale of BeneVir in the second quarter of 2018.

Years Ended December 31,

2019 2018 Increase / (Decrease)

Net revenue $ 41.8 $ 45.4 $ (3.6)

Cost of revenue 23.5 28.5 (5.0)

Selling, general and administrative 26.4 37.3 (10.9)

Depreciation and amortization 6.3 3.3 3.0

Other operating (income) expense (3.0) 0.3 (3.3)

Loss from operations $ (11.4) $ (24.0) $ 12.6

Net revenue from our Broadcasting segment for the year ended December 31, 2019 decreased $3.6 million to $41.8 million from $45.4 million for the year ended December 31, 2018.

During the second half of 2018, the Broadcasting segment undertook targeted cost cutting measures, primarily at HC2 Network Inc.

("Network") where Broadcasting exited certain local business operations and made strategic changes to the programming mix.

The decrease in net revenue was primarily due to lower local advertising sales as a result of such restructuring.

This was partially offset by higher broadcast stations revenue associated with stations acquired during and subsequent to the comparable period.

Cost of revenue:

Cost of revenue from our Broadcasting segment for the year ended December 31, 2019 decreased $5.0 million to $23.5 million from $28.5 million for the year ended December 31, 2018.

The overall decrease was primarily driven by a reduction in audience measurement costs as a result of the exit of certain local markets which were unprofitable at Network and a decrease in programming costs due to changes in the programming mix referenced above, partially offset by higher cost of revenues associated with the growth of the Broadcast stations subsequent to the prior year.

Selling, general and administrative:

Selling, general and administrative expenses from our Broadcasting segment for the year ended December 31, 2019 decreased $10.9 million to $26.4 million from $37.3 million for the year ended December 31, 2018.

The decrease was primarily due to a reduction in compensation costs, mainly driven by the cost cutting measures discussed above and lower legal expenses related to elevated acquisition-related expenses incurred in the prior period.

Depreciation and amortization:

Depreciation and amortization from our Broadcasting segment for the year ended December 31, 2019 increased $3.0 million to $6.3 million from $3.3 million for the year ended December 31, 2018.

The increase was driven by additional amortization of fixed assets and definite lived intangible assets which were acquired as part of transactions subsequent to the comparable period.

Other operating (income) expense :

Other operating (income) expense from our Broadcasting segment for the year ended December 31, 2019 increased $3.3 million to income of $3.0 million from expense of $0.3 million for the year ended December 31, 2018.

The increase was driven by reimbursements from the Federal Communications Commission (the “FCC”), partially offset by the impairment of FCC licenses during 2019 resulting from strategic discussions to abandon certain licenses.

The FCC requires certain television stations to change channels and/or modify their transmission facilities.

Congress passed legislation which provides the FCC with a fund to reimburse all reasonable costs incurred by stations operating under full power and Class A licenses and a portion of the costs incurred by stations operating under a low power license that are reassigned to new channels.

Other operating expense from our Insurance segment for the year ended December 31, 2020 was zero compared to $47.3 million for the year ended December 31, 2019.

The decrease was due to goodwill impairment in the comparable period not recognized in the current period.

Non-operating Corporate

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Selling, general and administrative :

Selling, general and administrative expenses from our Non-operating Corporate segment for the year ended December 31, 2019 decreased $8.6 million to $24.9 million from $33.5 million for the year ended December 31, 2018.

The decrease was driven by reductions in bonus expense, consulting and professional service fees, and employee wage and benefits expenses.

The HC2 Compensation Committee establishes annual salary, cash and equity-based bonus arrangements for certain HC2 executive employees on an annual basis.

In determining the amounts payable pursuant to such cash and equity-based bonus arrangements for these employees, the Company has historically measured the growth in the Company’s NAV in accordance with a formula established by HC2’s Compensation Committee ("Compensation NAV") in 2014.

The Compensation NAV is generally determined by dividing the end of year Compensation NAV per share by the beginning year Compensation NAV per share and subtracting 1 from this amount (the "NAV Return"), and then subtracting the required threshold return rate from the NAV Return.

The hurdle rate has consistently been set at 7%, and the plan allows for the share of up to 12% of growth over and above the hurdle rate.

HC2’s accrual for cash and equity-based bonus arrangements of HC2 executive employees as of December 31, 2019 and 2018 resulted in a $4.4 million decrease in expense recognized.

These changes reflect the underlying performance in the Compensation NAV in the respective periods.

In 2019 the NAV did not meet the hurdle rate, while in 2018 it grew approximately 21%.

For 2019, Compensation NAV did not meet the hurdle rate, and declined by 26.1%, resulting primarily from external events that occurred in the fourth quarter at our Insurance segment, with respect to our views on the future of the management fee agreement, along with our expectations of future dividends, after recent and ongoing discussions with our domestic regulator.

In accordance with the terms of the plan, this decline in Compensation NAV directly reduces the deferred cash compensation awarded in 2017 and 2018.

The total reduction recognized in 2019 was $0.8 million, related to the claw back of a portion of the 2017 and 2018 awards which were unpaid as of December 31, 2019.

In addition, the plan requires that future NAV growth continues to be determined using the high water mark based on the beginning Compensation NAV established at the beginning of 2019.

Income from Equity Investees

Selling, general and administrative expenses from our Non-operating Corporate segment for the year ended December 31, 2020 increased $2.0 million to $26.9 million from $24.9 million for the year ended December 31, 2019.

The increase was driven by costs incurred associated with the proxy contest, acquisition and disposition costs, and increased legal activity.

This was partially offset by a decrease in bonus, stock compensation expense, rent expense and various consulting expenses in the current period.

(Loss) income from Equity Investees

Years Ended December 31,

2020 2019 Increase / (Decrease)

Construction $ — $ (0.2) $ 0.2

Marine Services 5.6 19.7 (14.1)

Life Sciences $ (6.0) $ (3.4) $ (2.6)

Other 2.6 5.0 (2.4)

Income from equity investees $ 2.2 $ 15.4 $ (13.2)

Marine Services:

Income from equity investees within our Marine Services segment for the year ended December 31, 2019 decreased $14.1 million to $5.6 million from $19.7 million for the year ended year ended December 31, 2018.

The decrease was driven by HMN, due to lower revenues on large turnkey projects underway than in the comparable period.

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

Further contributing to the reduction in income were losses at SBSS from a loss contingency related to ongoing legal disputes and lower vessel utilization.

(Loss) income from equity investees $ (3.4) $ 1.6 $ (5.0)

Life Sciences:

Loss from equity investees within our Life Sciences segment for the year ended December 31, 2019 decreased $0.6 million to $3.4 million from $4.0 million for the year ended December 31, 2018.

The decrease in losses were largely due to lower equity method losses recorded from our investment in MediBeacon due to the timing of clinical trials and revenue from a licensing agreement which did not occur in the comparable periods.

Loss from equity investees within our Life Sciences segment for the year ended December 31, 2020 increased $2.6 million to $6.0 million from $3.4 million for the year ended December 31, 2019.

The increase in loss was largely due to higher equity method losses recorded from our investment in MediBeacon due to the timing of clinical trials.

Income from equity investees within our Other segment for the year ended December 31, 2020 decreased $2.4 million to $2.6 million from $5.0 million for the year ended December 31, 2019.

The decrease was driven by the equity investment in HMN, as the joint venture produced lower profits than in the comparable period, which is generally attributable to timing of turnkey project work, and a reduction in ownership from 49% to 19% as a result of the partial sale of HC2's investment in the second quarter of 2020.

Non-GAAP Financial Measures and Other Information

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share-based compensation expense;

discontinued operations;

non-recurring items;

costs associated with the COVID-19 pandemic;

and acquisition and disposition costs.

(in millions) Year ended December 31, 2020

Core Operating Subsidiaries Early Stage & Other Non-operating Corporate HC2

Construction Marine Services Energy Telecom Life Sciences Broadcasting Other and Elimination

Infrastructure

Life Sciences Spectrum Other and Elimination Non-operating Corporate HC2

Net loss attributable to HC2 Holdings, Inc.

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Depreciation and amortization (included in cost of revenue) 9.1 — — — — 9.1

Amortization of equity method fair value adjustment at acquisition — (1.5) — — — — — — (1.5)

Asset impairment expense — 0.6 — 4.5 — 2.6 — — 7.7

Other operating (income) expenses 0.1 0.1 (6.7) — — (6.5)

1 unchanged sentence

Other (income) expense, net 0.5 (2.3) 5.7 (72.2) 3.0 (65.3)

Net loss (gain) on contingent consideration — — — (0.4) — — — — (0.4)

Foreign currency (gain) loss (included in cost of revenue) — 0.4 — — — — — — 0.4

Income tax (benefit) expense 10.9 (0.4) (0.8) — — (1.5) — (8.1) 0.1

Loss on early extinguishment of debt — — — — 9.4 9.4

Income tax expense 4.2 — 0.3 11.0 0.2 15.7

Noncontrolling interest 0.6 (6.2) (5.3) 0.8 — (10.1)

Discontinued operations — — — 61.7 3.9 65.6

Bonus to be settled in equity — — — — (0.5) (0.5)

Share-based payment expense — 0.2 0.3 — 2.4 2.9

Non-recurring items 2.7 — — — 5.4 8.1

COVID-19 Costs 19.4 — — — — 19.4

Acquisition and disposition costs 0.6 — 0.5 1.8 3.9 6.8

Adjusted EBITDA $ 63.2 $ (22.5) $ (1.2) $ 1.6 $ (15.6) $ 25.5

Total Core Operating Subsidiaries $ 126.8

(in millions) Year ended December 31, 2019

Core Operating Subsidiaries Early Stage & Other Non-operating Corporate HC2

Construction Marine Services Energy Telecom Life Sciences Broadcasting Other and Elimination

Net Income attributable to HC2 Holdings, Inc.

Infrastructure

Life Sciences Spectrum Other and Elimination Non-operating Corporate HC2

Net loss attributable to HC2 Holdings, Inc.

Net Income attributable to HC2 Holdings Insurance segment 59.4

4 unchanged sentences

Depreciation and amortization (included in cost of revenue) 9.1 — — — — 9.1

Amortization of equity method fair value adjustment at acquisition — (1.5) — — — — — — (1.5)

Asset impairment expense — — 0.7 — — 0.3 — — 1.0

Other operating (income) expenses 0.5 — (2.9) 0.1 — (2.3)

Interest expense 9.3 — 9.6 — 57.5 76.4

Loss on early extinguishment or restructuring of debt — — — — — 2.6 — 2.5 5.1

Net loss (gain) on contingent consideration — 0.8 — — — — — — 0.8

Other (income) expense, net (1.6) (8.6) 2.7 — 2.2 (5.3)

Gain on sale and deconsolidation of subsidiary — — — — (102.1) — (1.6) — (103.7)

Foreign currency (gain) loss (included in cost of revenue) — 0.1 — — — — — — 0.1

Income tax (benefit) expense 10.9 — (1.5) — (8.1) 1.3

Noncontrolling interest 2.0 (3.4) (3.8) 0.6 — (4.6)

Bonus to be settled in equity — — — — — — — 2.0 2.0

Share-based payment expense — 0.1 0.6 — 5.5 6.2

Non-recurring items — — — — — — — — —

Discontinued Operations — — — 3.5 11.0 14.5

Acquisition and disposition costs 5.3 — 1.2 0.1 1.5 8.1

Adjusted EBITDA $ 75.7 $ (11.8) $ (6.3) $ 3.7 $ (17.9) $ 43.4

Total Core Operating Subsidiaries 104.4

Construction:

Net income from our Construction segment for the year ended December 31, 2019 decreased $3.0 million to $24.7 million from $27.7 million for the year ended December 31, 2018.

Adjusted EBITDA from our Construction segment for the year ended December 31, 2019 increased $14.8 million to $75.7 million from $60.9 million for the year ended December 31, 2018.

The increase in Adjusted EBITDA was driven by the acquisition of GrayWolf.

Marine Services:

Net income (loss) from our Marine Services segment for the year ended December 31, 2019 decreased $2.9 million to a loss of $2.6 million from income of $0.3 million for the year ended December 31, 2018.

Adjusted EBITDA from our Marine Services segment for the year ended December 31, 2019 decreased $2.0 million to $30.7 million from $32.7 million for the year ended December 31, 2018.

The decrease in Adjusted EBITDA was driven by a decline in income from equity method investees, due to HMN driven by lower revenues on large turnkey projects underway than in the comparable period, and losses at SBSS from a loss contingency related to ongoing legal disputes and lower vessel utilization.

Largely offsetting these losses was higher gross profit as a result of improved profitability from telecom maintenance zones and project work in the offshore power and offshore renewables end markets, as well as the benefit of improved vessel utilization.

Additionally, the comparable period was impacted by higher than expected costs on a certain offshore power construction project that were not repeated in the current period.

Net income (loss) from our Energy segment for the year ended December 31, 2019 increased by $5.1 million to income of $4.2 million from a loss of $0.9 million for the year ended December 31, 2018.

Adjusted EBITDA from our Energy segment for the year ended December 31, 2019 increased $11.5 million to $17.0 million from $5.5 million for the year ended December 31, 2018.

The increase in Adjusted EBITDA was primarily driven by the AFTC recognized in the fourth quarter of 2019 attributable to 2018 and 2019 and higher volume-related revenues from the recent acquisition of the ampCNG stations and growth in CNG sales volumes.

The increase was also driven by Partially offsetting these increases were higher selling, general and administrative expenses as a result of the acquisition of the ampCNG stations.

Telecommunications:

Net income (loss) from our Telecommunications segment for the year ended December 31, 2019 decreased by $6.0 million to a loss of $1.4 million from income of $4.6 million for the year ended December 31, 2018.

Adjusted EBITDA from our Telecommunications segment for the year ended December 31, 2019 decreased $1.9 million to $3.4 million from $5.3 million for the year ended December 31, 2018.

The decrease in Adjusted EBITDA was primarily due to both a decline in revenue and the contracting of call termination margin as a result of the continued decline in the international long distance market, partially offset by a decrease in compensation expense due to headcount decreases and reductions in bad debt expense.

Infrastructure:

Net income from our Infrastructure segment for the year ended December 31, 2020 decreased $17.9 million to $6.8 million from $24.7 million for the year ended December 31, 2019.

Adjusted EBITDA from our Infrastructure segment for the year ended December 31, 2020 decreased $12.5 million to $63.2 million from $75.7 million for the year ended December 31, 2019.

The decrease in Adjusted EBITDA can be attributed to the timing of project work under execution and change in backlog mix, including a reduction in large commercial construction projects in the current period, as well as a decline in power and industrial repair and maintenance work performed.

Life Sciences:

Net income (loss) from our Life Sciences segment for the year ended December 31, 2019 decreased $65.4 million to a loss of $0.2 million from income of $65.2 million for the year ended December 31, 2018.

Adjusted EBITDA loss from our Life Sciences segment for the year ended December 31, 2019 decreased $3.1 million to $11.8 million from $14.9 million for the year ended December 31, 2018.

The decrease in Adjusted EBITDA loss was primarily driven by comparably fewer expenses at the Pansend holding company, which incurred additional compensation expense in the prior period related to the performance of the segment.

The decrease was also due to a reduction in costs associated BeneVir, which was sold in the second quarter of 2018.

Broadcasting:

Net loss from our Broadcasting segment for the year ended December 31, 2019 decreased $16.0 million to $18.5 million from $34.5 million for the year ended December 31, 2018.

Adjusted EBITDA loss from our Broadcasting segment for the year ended December 31, 2019 decreased $10.6 million to $6.3 million from $16.9 million for the year ended December 31, 2018.

The decrease in Adjusted EBITDA loss was primarily driven by the reduction in costs as the segment exited certain local markets which were unprofitable at Network, partially offset by higher overhead expenses associated with the growth of the Broadcast stations subsequent to the prior year.

Net loss from our Life Sciences segment for the year ended December 31, 2020 decreased $14.2 million to $14.4 million from $0.2 million for the year ended December 31, 2019.

Adjusted EBITDA loss from our Life Sciences segment for the year ended December 31, 2020 increased $10.7 million to $22.5 million from $11.8 million for the year ended December 31, 2019.

The increase in Adjusted EBITDA loss was primarily driven by higher expenses at R2, which increased spending from the comparable period to support commercialization efforts and further develop its product platform.

and higher equity method losses recorded from our investment in MediBeacon due to the timing of clinical trials.

Net loss from our Spectrum segment for the year ended December 31, 2020 decreased $1.0 million to $17.5 million from $18.5 million for the year ended December 31, 2019.

Adjusted EBITDA loss from our Spectrum segment for the year ended December 31, 2020 decreased $5.1 million to $1.2 million from $6.3 million for the year ended December 31, 2019.

The overall decrease in Adjusted EBITDA loss was primarily driven by a decrease in compensation and overhead, expenses, as well as higher station revenues as our Spectrum segment grew the number of operating stations and launched new customers across its broadcast platform.

This was partially offset by a decrease in advertising revenues at the Azteca network driven by the negative impact of the COVID-19 pandemic.

Other and Elimination:

Net income (loss) from our Other segment for the year ended December 31, 2020 decreased $0.9 million to income of $1.5 million from a loss of $0.6 million for the year ended December 31, 2019.

Adjusted EBITDA from our Other segment for the year ended December 31, 2020 decreased $2.1 million to $1.6 million from $3.7 million for the year ended December 31, 2019.

The decrease in Adjusted EBITDA for Other and Eliminations was driven by lower profits for the HMN investment, which is generally attributable to the timing of turnkey project work and the reduction of ownership from 49% to 19% as a result of the partial sale of HMN in the second quarter of 2020.

Non-operating Corporate:

1 unchanged sentence

Adjusted EBITDA loss from our Non-operating Corporate segment for the year ended December 31, 2020 decreased $2.3 million to $15.6 million from $17.9 million for the year ended December 31, 2019.

The decrease in Adjusted EBITDA loss was primarily attributable to reductions in bonus expense and other general and administrative expenses as previously described.

The decrease in Adjusted EBITDA loss was driven by a decrease in discretionary bonus and a general reduction in overhead expenses, including professional fees, travel and entertainment expenses, and rent expense, partially offset by an increase in recurring legal fees resulting from an increase in activity.

(in millions):

1 unchanged sentence

2020 2019 Increase / (Decrease)

Construction $ 75.7 $ 60.9 $ 14.8

Marine Services 30.7 32.7 (2.0)

Energy 17.0 5.5 11.5

Telecommunications 3.4 5.3 (1.9)

Total Core Operating Subsidiaries 126.8 104.4 22.4

Infrastructure

$ 63.2 $ 75.7 $ (12.5)

Life Sciences (22.5) (11.8) (10.7)

Broadcasting (6.3) (16.9) 10.6

Spectrum (1.2) (6.3) 5.1

Other and Eliminations 1.6 3.7 (2.1)

Total Early Stage and Other (18.1) (34.0) 15.9

Non-Operating Corporate (15.6) (17.9) 2.3

29 unchanged sentences

Gain on bargain purchase — (1.1) 1.1

Gain on reinsurance recaptures — (47.0) 47.0

Acquisition costs 0.1 2.1 (2.0)

5 unchanged sentences

Net income for the year ended December 31, 2020 decreased $19.2 million to $40.2 million from $59.4 million for the year ended December 31, 2019.

Pre-tax Insurance AOI for the year ended December 31, 2019 increased $85.1 million to $85.7 million from $0.6 million for year ended December 31, 2018.

The increase was primarily driven by the incremental net investment income and policy premiums from the KIC block acquisition and higher net investment income from the legacy CGI block driven by both the growth and mix of the investment portfolio, including premium reinvestment and rotation into higher yield assets.

In addition, there was a decrease in policy benefits, changes in reserves, and commissions related to current period reserve adjustments driven by higher mortality and policy terminations, an increase in contingent non-forfeiture option activity as a result of in-force rate actions approved and implemented, and favorable developments in claims activity.

This was partially offset by an increase in selling, general and administrative expenses, primarily attributable to headcount additions related to the KIC acquisition.

Pre-tax Insurance AOI for the year ended December 31, 2020 decreased $36.1 million to $49.6 million from $85.7 million for year ended December 31, 2019.

The decrease was primarily driven by non-recurring favorable claims activity recognized in the comparable period and additional unfavorable claims activity and reserve developments in the current year.

Additionally, the Insurance segment had a reduction in net investment income due to lower bond yields and unfavorable market movements in values for preferred stock holdings and fixed maturity impairments and unfavorable VOBA amortization largely due to lower policy terminations for the LTC policies acquired in 2018.

Projects in backlog consist of awarded contracts, letters of intent, notices to proceed, change orders, and purchase orders obtained.

2 unchanged sentences

Backlog can be significantly affected by the receipt or loss of individual contracts.

Construction Segment

Infrastructure Segment

At December 31, 2020, DBMG's backlog was $394.5 million, consisting of $334.9 million under contracts or purchase orders and $59.6 million under letters of intent or notices to proceed.

2 unchanged sentences

DBMG's backlog at December 31, 2019 was $497.7 million, consisting of $329.7 million under contracts or purchase orders and $168.0 million under letters of intent or notices to proceeds.

Marine Services Segment

At December 31, 2019, GMSL's backlog stood at $377.4 million, inclusive of $296.1 million of signed contracts and customer-approved change orders and $81.3 million of on-site repair estimates associated with its long-term maintenance contracts.

Approximately $277.7 million.

representing 73.6% of GMSL's backlog at December 31, 2019 was attributable to three multi-year telecom maintenance contracts which will naturally burn through to revenue as the contracts run off.

GMSL's reported backlog may not be converted to revenue in any particular period and actual revenue may not equal its backlog.

Therefore, GMSL's backlog may not be indicative of the level of its future revenues.

At December 31, 2018, GMSL's backlog stood at $483.4 million, inclusive of $393.0 million of signed contracts and customer-approved change orders and $90.4 million of on-site repair estimates associated with its long-term maintenance contracts.

Liquidity and Capital Resources

4 unchanged sentences

At December 31, 2020, cash and cash equivalents in our Insurance segment was $188.5 million compared to $170.5 million at December 31, 2019.

Our subsidiaries' principal liquidity requirements arise from cash used in operating activities, debt service, and capital expenditures, including purchases of steel construction equipment and subsea cable equipment, fueling stations, network equipment (such as switches, related transmission equipment and capacity), and service infrastructure, liabilities associated with insurance products, development of back-office systems, operating costs and expenses, and income taxes.

Our subsidiaries' principal liquidity requirements arise from cash used in operating activities, debt service, and capital expenditures, including purchases of steel construction equipment, OTA broadcast station equipment, liabilities associated with insurance products, development of back-office systems, operating costs and expenses, and income taxes.

As of December 31, 2020, the Company had $576.6 million of indebtedness on a consolidated basis compared to $754.1 million as of December 31, 2019.

3 unchanged sentences

HC2 is required to make dividend payments on its outstanding Preferred Stock on January 15 th , April 15 th , July 15 th , and October 15 th of each year.

HC2 received $39.8 million, $16.3 million, and $1.0 million in dividends and tax share from its Construction, Telecommunications and Life Sciences segments during the year ended December 31, 2019.

HC2 received $11.5 million in net management fees during the year ended December 31, 2019, related to fees earned in the fourth quarter of 2018 and 2019.

HC2 received $5.2 million in net management fees during the year ended December 31, 2020, related to fees earned in the fourth quarter of 2019 and the first three quarters of 2020.

HC2 received $18.0 million in dividends from its Infrastructure segment during the year ended December 31, 2020.

We have financed our growth and operations to date, and expect to finance our future growth and operations, through public offerings and private placements of debt and equity securities, credit facilities, vendor financing, capital lease financing and other financing arrangements, as well as cash generated from the operations of our subsidiaries.

In the future, we may also choose to sell assets or certain investments to generate cash.

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.

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 cash on hand, distributions from our subsidiaries, 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.

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.

Although the Company believes that it will be able to raise additional equity capital, refinance or renegotiate terms of our 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.

We have seen significant costs increases, primarily at our Infrastructure segment, driven by expenses associated with maintaining a safe work environment, and while executing on its projects.

During the year ended December 31, 2020, $19.4 million of COVID-19 costs were incurred.

Although the COVID-19 pandemic did not have a material impact on the HC2’s liquidity for the year ended December 31, 2020, management believes the continuation of the pandemic and its related effect on the U.S.

and global economies could introduce added pressure on the Company’s liquidity position and financial performance.

Our sources of liquidity are primarily from the dividends and tax sharing agreement with DBMG, cash proceeds from completed and anticipated monetization’s and other arrangements.

Additionally, in response to the COVID-19 pandemic, our corporate staff is predominantly working remotely and many of our key vendors, and consultants have similarly begun to work remotely.

As a result of such remote work arrangements, certain operational, reporting, accounting and other processes may slow, which could result in longer time to execute critical business functions.

Capital Expenditures

1 unchanged sentence

Years Ended December 31,

Construction $ 9.8 $ 14.9

Marine Services 15.6 21.7

Energy 1.1 1.5

Telecommunications — 0.1

Insurance 0.6 0.3

Infrastructure

Life Sciences 0.1 0.1

Broadcasting 14.2 1.1

Non-operating Corporate — 0.1

Spectrum 11.8 14.2

Insurance 0.2 0.6

Total $ 17.8 $ 24.7

Non-Operating Corporate

In November 2018, the Company repaid its 11.0% Notes, and issued $470.0 million aggregate principal amount of 11.5% senior secured notes due 2021 (the "Secured Notes") and $55.0 million aggregate principal amount of 7.5% convertible senior notes due 2022 (the "Convertible Notes").

In April 2019, HC2 entered into a $15.0 million secured revolving credit agreement (the “Revolving Credit Agreement”) with MSD PCOF Partners IX, LLC.

Senior Secured Notes Terms and Conditions

3 unchanged sentences

Issue Price .

The issue price of the Secured Notes is 98.75% of par.

The issue price of the Secured Notes was 98.75% of par.

The notes and the note guarantees are the Company’s and certain of its direct and indirect domestic subsidiaries’ (the "Subsidiary Guarantors") general senior secured obligations.

22 unchanged sentences

Issue Price .

The issue price of the Convertible Notes is 100% of par.

The issue price of the Convertible Notes was 100% of par.

The notes are the Company’s general unsecured and unsubordinated obligations and will rank equally in right of payment with all of the Company’s existing and future unsecured and unsubordinated indebtedness, and senior in right of payment to any of the Company’s future indebtedness that is expressly subordinated to the notes.

The notes will be effectively subordinated to all of the Company’s existing and future secured indebtedness, including the Company’s Secured Notes being offered concurrently herewith, to the extent of the value of the collateral securing that indebtedness, and structurally subordinated to all indebtedness and other liabilities of the Company’s subsidiaries, including trade credit.

The notes will be effectively subordinated to all of the Company’s existing and future secured indebtedness, including the Company’s Secured Notes, to the extent of the value of the collateral securing that indebtedness, and structurally subordinated to all indebtedness and other liabilities of the Company’s subsidiaries, including trade credit.

Optional Redemption .

12 unchanged sentences

As provided under a Collateral Trust Joinder, the lender was added as a secured party to the Collateral Trust Agreement, and accordingly the pari passu obligations and commitments under the Credit Agreement are secured equally and ratably by the collateral of the Secured Notes.

The Wells Fargo Facility and the TCW Loan associated with our Construction segment contain customary restrictive and financial covenants related to debt levels and performance.

Infrastructure

The Wells Fargo Facility and the TCW Loan associated with our Infrastructure segment contain customary restrictive and financial covenants related to debt levels and performance.

As of December 31, 2020, DBMG was in compliance with all of the financial covenants to its debt agreements.

29 unchanged sentences

These limitations are subject to a number of important exceptions and qualifications.

The Company intends to conduct its operations in a manner that will result in continued compliance with the Secured Indenture;

On February 1, 2021, HC2 closed on $330.0 million of 8.500% senior secured notes due 2026 at an issue price of 100%.

The Notes will be senior secured obligations of the Company and will be guaranteed by certain of the Company's domestic subsidiaries.

The proceeds from the issuance of the Notes were used, together with the net cash proceeds of the Company’s previously announced sale of its majority-owned subsidiary Beyond6, Inc., to redeem in full HC2’s existing 11.50% senior secured notes, repay the outstanding indebtedness under its revolving credit agreement, pay related fees and expenses, and for general corporate purposes.

The Company conducted its operations in a manner that resulted in compliance with the prior Secured Indenture;

however, compliance with certain financial covenants for future periods may depend on the Company or one or more of the Company’s subsidiaries undertaking one or more non-operational transactions, such as the management of operating cash outflows, a monetization of assets, a debt incurrence or refinancing, the raising of equity capital, or similar transactions.

4 unchanged sentences

Years Ended December 31, Increase / (Decrease)

Operating activities $ 110.5 $ 341.4 $ (230.9)

Investing activities (263.7) (224.6) (39.1)

Financing activities 62.4 115.2 (52.8)

Operating activities from Continuing Operations $ 52.4 $ 53.2 $ (0.8)

Investing activities from Continuing Operations 185.7 (209.2) 394.9

Financing activities from Continuing Operations (196.4) 33.7 (230.1)

Effect of exchange rate changes on cash and cash equivalents 0.7 0.7 —

Net decrease in cash,cash equivalents and restricted cash $ (89.8) $ 231.5 $ (321.3)

Cash flows from discontinued operations (42.3) 31.8 (74.1)

Net increase (decrease) in cash, cash equivalents and restricted cash $ 0.1 $ (89.8) $ 89.9

Net (decrease) increase in cash and cash equivalents classified within current assets held for sale (38.6) 20.9 (59.5)

Net change in cash, cash equivalents and restricted cash $ 38.7 $ (110.7) $ 149.4

Operating Activities

Cash provided by operating activities was $52.4 million for the year ended December 31, 2020 as compared to cash provided by operating activities of $53.2 million for the year ended December 31, 2019.

The $230.9 million decrease was the result of the recapture of reinsurance treaties by our Insurance segment in 2018 and was offset in part by improved performance of the Insurance segment subsequent to the KIC acquisition, significant reduction of losses at the Broadcasting segment driven by the cost cutting measures, and an increase in the working capital at our Telecommunications segments.

The $0.8 million change was the result of the working capital improvements in our Infrastructure segment offset by declines in working capital at our Life Sciences segment.

Our Infrastructure segment benefited from increased billings in excess of costs on new projects.

Our Life Sciences segment incurred additional costs as it ramped up efforts to achieve commercialization of its products.

Investing Activities

Cash used in investing activities was $263.7 million for the year ended December 31, 2019 as compared to cash used in investing activities of $224.6 million for the year ended December 31, 2018.

The $39.1 million increase in cash used was a result of (i) an increase in net cash spent at our Insurance segment driven by purchases of investments from the residual cash received from the KIC acquisition and reinsurance recaptures in 2018, (ii) a decrease in cash proceeds received at our Life Sciences segment, from the 2018 upfront payment and 2019 escrow release related to the sale of BeneVir in the prior period, and (iii) an increase in cash used at our Energy segment to acquire ampCNG stations in 2019.

These decreases were largely offset by a reduction in cash used by our Construction segment, driven by the acquisition of GrayWolf in 2018, and a reduction in cash used by our Broadcasting segment as less cash was used on its acquisitions in the current year compared to 2018.

This was largely offset by a reduction in net cash used by the Insurance segment's purchases of investments, as in the prior period the Insurance segment purchased investments from the cash received from the acquisition of KIC.

Cash provided by investing activities was $185.7 million for the year ended December 31, 2020 as compared to cash used in investing activities of $209.2 million for the year ended December 31, 2019.

The $394.9 million change was from the proceeds from sales of subsidiaries, largely GMSL and HMN during the current year, and a decline in net investment activity at our Insurance Segment.

Financing Activities

Cash provided by financing activities was $62.4 million for the year ended December 31, 2019 as compared to $115.2 million for the year ended December 31, 2018.

The $52.8 million decrease was a result of a decrease in net borrowings by the Construction and Broadcasting segments, and offset in part by the increase in net borrowings by the Energy segment and Corporate segment, and a decline in cash paid to noncontrolling interest holders driven by the proceeds from our Life Sciences segment's sale of BeneVir in 2018.

Other Invested Assets

Carrying values of other invested assets were as follows (in millions):

December 31, 2019 December 31, 2018

Alternative Equity

Method Measurement

Alternative Equity

Common stock $ — $ 2.4 $ — $ 2.1

Preferred stock — 16.1 1.6 9.6

Other — 66.5 — 59.2

Total $ — $ 85.0 $ 1.6 $ 70.9

Cash used in financing activities was $196.4 million for the year ended December 31, 2020 as compared cash provided by financing activities of $33.7 million for the year ended December 31, 2019.

The $230.1 million change was largely a result of the principal payments on debt obligations at our Corporate segment and payments to minority stockholders at our Other segment for the portion of the proceeds received from the sale of GMSL and HMN.

Further adding to the decline were payments on borrowings at our Infrastructure and Spectrum segments when compared to the prior period.

This was partially offset by proceeds received from HC2's 2020 rights offering and issuance of Series B Preferred Stock.

Discontinued Operations

Cash used in discontinued operations was $42.3 million for the year ended December 31, 2020 as compared to cash provided by discontinued operations of $31.8 million for the year ended December 31, 2019.

The $74.1 million decrease was largely due to the timing of sales of subsidiaries during the year, cash balances at the subsidiaries which was included as part of these sales, and lower working capital at ICS compared to the prior year.

Infrastructure

Cash flows from operating activities are the principal source of cash used to fund DBMG’s operating expenses, interest payments on debt, and capital expenditures.

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However, DBMG may expand its operations through future acquisitions and may require additional equity or debt financing.

Marine Services

Cash flows from operating activities are the principal source of cash used to fund GMSL’s operating expenses, interest payments on debt, and capital expenditures.

GMSL's short-term cash needs are primarily for working capital to support operations including receivables, inventories, and other costs incurred in performing its contracts.

GMSL attempts to structure the payment arrangements under its contracts to match costs incurred under the project.

To the extent it is able to bill in advance of costs incurred, GMSL generates working capital through billings in excess of costs and recognized earnings on uncompleted contracts.

GMSL believes that its existing borrowing availability together with cash from operations will be adequate to meet all funding requirements for its operating expenses, interest payments on debt and capital expenditures for the foreseeable future.

GMSL is required to make monthly and quarterly interest and principal payments depending on the structure of each individual debt agreement.

Market Environment

GMSL earns revenues in a variety of currencies including the U.S.

dollar, the Singapore dollar, the Euro, and the British pound.

The exchange rates between the U.S.

dollar, the Singapore dollar, the Euro, and the British pound have fluctuated in recent periods and may fluctuate substantially in the future.

Any material appreciation or depreciation of these currencies against each other may have a negative impact on GMSL's results of operations and financial condition.

CIG’s principal cash inflows from its operating activities relate to its premiums, annuity deposits and insurance, investment product fees and other income.

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Insurance Companies Capital Contributions

The Company has an agreement with the Texas Department of Insurance (“TDOI”) that, for two years from August 9, 2018, CIG will contribute to Continental General Insurance Company (“CGI” or the “Insurance Company”) cash or marketable securities acceptable to the TDOI to the extent required for CGI’s total adjusted capital to be not less than 450% of CGI’s authorized control level risk-based capital and for three years from August 9, 2020, CIG will contribute to CGI cash or marketable securities acceptable to the TDOI to the extent required for CGI’s total adjusted capital to be not less than 400% of CGI’s authorized control level risk-based capital (each as defined under Texas law and reported in CGI’s statutory statements filed with the TDOI).

The Company has an agreement with the TDOI that, for two years from August 9, 2018, CIG will contribute to Continental General Insurance Company (“CGI” or the “Insurance Company”) cash or marketable securities acceptable to the TDOI to the extent required for CGI’s total adjusted capital to be not less than 450% of CGI’s authorized control level risk-based capital and for three years from August 9, 2020, CIG will contribute to CGI cash or marketable securities acceptable to the TDOI to the extent required for CGI’s total adjusted capital to be not less than 400% of CGI’s authorized control level risk-based capital (each as defined under Texas law and reported in CGI’s statutory statements filed with the TDOI).

Additionally, CGI entered into a capital maintenance agreement with Great American.

Under the agreement, if the applicable acquired company’s total adjusted capital reported in its annual statutory financial statements is less than 400% of its authorized control level risk-based capital, Great American has agreed to pay cash or assets to the applicable acquired company as required to eliminate such shortfall (after giving effect to any capital contributions made by the Company or its affiliates since the date of the relevant annual statutory financial statement).

Under the agreement, if the applicable acquired company’s total adjusted capital reported in its annual statutory financial statements is less than 400% of its authorized control level risk-based capital, Great American agreed to pay cash or assets to the applicable acquired company as required to eliminate such shortfall (after giving effect to any capital contributions made by the Company or its affiliates since the date of the relevant annual statutory financial statement).

Great American’s obligation to make such payments is capped at $35.0 million under the capital maintenance agreement.

The capital maintenance agreements will remain in effect from January 1, 2016 to January 1, 2021 or until payments by Great American under the applicable agreement equal the applicable cap.

The capital maintenance agreements remained in effect from January 1, 2016 to January 1, 2021 or until payments by Great American under the applicable agreement equal the applicable cap.

Pursuant to the purchase agreement, the Company is required to indemnify Great American for the amount of any payments made by Great American under the capital maintenance agreements.

As of the date of this filing, the agreement has expired.

Asset Liability Management

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Total $ 4,497.8 100.0 % $ 4,068.7 100.0 %

Discontinued Operations

We have reclassified several entities as discontinued operations for the years ended December 31, 2020 and 2019.

Accordingly, revenue, costs, and expenses of the discontinued operations have been excluded from continuing operations.

The entities reported in discontinued operations are as follows:

• The sale of GMSL closed on February 28, 2020.

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

During the fourth quarter of 2020, the Company recognized a gain of $2.4 million as a result of bonding releases related to projects which existed prior to sale.

• The sale of ICS and its subsidiary, Go2 Tel, Inc., closed on October 31, 2020.

The Company recorded a $0.9 million gain on the sale and recognized $8.2 million of Accumulated other comprehensive loss related to the foreign currency translation of PTGi International Carrier Services Ltd., which was essentially liquidated in conjunction with the sale.

The proceeds were used for general corporate purposes.

• On December 31, 2020, the Company signed the Merger Agreement to sell Beyond6.

The sale closed on January 15, 2021.

Cash flows from discontinued operations are reported in the Statement of Cash Flows as a separate line item within the Operations, Investing and Financing activities sections for each year presented.

In the absence of cash flows from the discontinued operations, the Company does not expect there to be an impact on liquidity at the Company.

Off-Balance Sheet Arrangements

In September 2018, the Company entered into a 75-month lease for office space.

As part of the agreement, HC2 was able to pay a lower security deposit and lease payments, and received a favorable lease terms as consideration for landlord required cross default language in the event of default of the shared space leased by Harbinger Capital Partners ("HCP"), a related party, as disclosed in Note.

Related Parties.

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However, deferred tax assets could be reduced in the near term if our estimates of taxable income are significantly reduced.

We recognize deferred tax assets and liabilities for the expected future tax consequences of transactions and events.

Under this method, deferred tax assets and liabilities are determined based on the difference between the book basis and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

If necessary, deferred tax assets are reduced by a valuation allowance to an amount that is determined to be more likely than not recoverable.

We must make significant estimates and assumptions about future taxable income and future tax consequences when determining the amount of the valuation allowance.

The additional guidance provided by ASC No.

740, “Income Taxes” (“ASC 740”), clarifies the accounting for uncertainty in income taxes recognized in the financial statements.

Expected outcomes of current or anticipated tax examinations, refund claims and tax-related litigation and estimates regarding additional tax liability (including interest and penalties thereon) or refunds resulting therefrom will be recorded based on the guidance provided by ASC 740 to the extent applicable.

We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.

The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution.

These assessments of uncertain tax positions contain judgments related to the interpretation of tax regulations in the jurisdictions in which we transact business.

The judgments and estimates made at a point in time may change based on the outcome of tax audits, expiration of statutes of limitations, as well as changes to, or further interpretations of, tax laws and regulations.

Income Taxes, to the "Notes to Consolidated Financial Statements" for further information.

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Related Parties to our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

Corporate Information

HC2, a Delaware corporation, was incorporated in 1994.

The Company’s executive offices are located at 450 Park Avenue, 30th Floor, New York, NY, 10022.

The Company’s telephone number is (212) 235-2690.

Our Internet address is www.hc2.com .

We make available free of charge through our Internet website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

The information on or accessible through our website is not a part of this Annual Report on Form 10-K.

Special Note Regarding Forward-Looking Statements

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Our actual results or other outcomes may differ from those expressed or implied by forward-looking statements contained herein due to a variety of important factors, including, without limitation, the following:

• the effect of the novel coronavirus (“COVID-19”) pandemic and related governmental responses on our business, financial condition and results of operations;

• limitations on our ability to successfully identify any strategic acquisitions or business opportunities and to compete for these opportunities with others who have greater resources;

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• the impact on our business and financial condition of our substantial indebtedness and the significant additional indebtedness and other financing obligations we may incur;

• the impact of covenants in the Indenture governing HC2’s Notes, the Certificates of Designation governing HC2’s Preferred Stock and all other subsidiary debt obligations as summarized in Note 14.

• the impact of covenants in the Indenture governing HC2’s new notes, the Certificates of Designation governing HC2’s Preferred Stock and all other subsidiary debt obligations as summarized in Note 15.

Debt Obligations and future financing agreements on our ability to operate our business and finance our pursuit of acquisition opportunities;

• our dependence on certain key personnel, in particular, our Chief Executive Officer, Philip Falcone;

• our dependence on certain key personnel;

• uncertain global economic conditions in the markets in which our operating segments conduct their businesses;

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• our expectations and timing with respect to our ordinary course acquisition activity and whether such acquisitions are accretive or dilutive to stockholders;

• our expectations and timing with respect to any strategic dispositions and sales of our operating subsidiaries including GMSL, or businesses that we may make in the future and the effect of any such dispositions or sales on our results of operations;

• our expectations and timing with respect to any strategic dispositions and sales of our operating subsidiaries, or businesses that we may make in the future and the effect of any such dispositions or sales on our results of operations;

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• our possible inability to hire and retain qualified executive management, sales, technical and other personnel.

Construction / DBM Global Inc.

Infrastructure / DBM Global Inc.

Our actual results or other outcomes of DBM Global, Inc.

and its wholly-owned subsidiaries ("DBMG"), and, thus, our Construction segment, may differ from those expressed or implied by forward-looking statements contained herein due to a variety of important factors, including, without limitation, the following:

and its wholly-owned subsidiaries ("DBMG"), and, thus, our Infrastructure segment, may differ from those expressed or implied by forward-looking statements contained herein due to a variety of important factors, including, without limitation, the following:

• our ability to maintain efficient staffing and productivity as well as delays and cancellations as a result of the COVID-19 pandemic;

• its ability to realize cost savings from expected performance of contracts, whether as a result of improper estimates, performance, or otherwise;

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• lack of necessary liquidity to provide bid, performance, advance payment and retention bonds, guarantees, or letters of credit securing DBMG’s obligations under bids and contracts or to finance expenditures prior to the receipt of payment for the performance of contracts.

Marine Services / Global Marine Group

Our actual results or other outcomes of Global Marine Systems Limited which operates under the Global Marine Group brand ("GMSL"), and, thus, our Marine Services segment, may differ from those expressed or implied by forward-looking statements contained herein due to a variety of important factors, including, without limitation, the following:

• its ability to realize cost savings from expected performance of contracts, whether as a result of improper estimates, performance, or otherwise;

• the possibility of global recession or market downturn with a reduction in capital spending within the targeted market segments in which the business operates;

• project implementation issues and possible subsequent overruns;

• risks associated with operating outside of core competencies when moving into different market segments;

• possible loss or severe damage to marine assets;

• vessel equipment aging or reduced reliability;

• risks associated with two equity method investments that operate in China (i.e., Huawei Marine Systems Co.

Limited, a Hong Kong holding company with a Chinese operating subsidiary and SB Submarine Systems Co.

• risks related to noncompliance with a wide variety of anti-corruption laws;

• changes to the local laws and regulatory environment in different geographical regions;

• loss of key senior employees;

• difficulties attracting enough skilled technical personnel;

• foreign exchange rate risk;

• liquidity risk;

• potential for financial loss arising from the failure by customers to fulfill their obligations as and when these obligations come due.

Energy / ANG Holdings, Inc.

Our actual results or other outcomes of ANG, and, thus, our Energy segment, may differ from those expressed or implied by forward-looking statements contained herein due to a variety of important factors, including, without limitation, the following:

• automobile and engine manufacturers’ limited production of originally manufactured natural gas vehicles and engines for the markets in which ANG participates;

• environmental regulations and programs mandating the use of cleaner burning fuels;

• competition from oil and gas companies, retail fuel providers, industrial gas companies, natural gas utilities and other organizations;

• the infrastructure for natural gas vehicle fuels;

• the safety and environmental risks of natural gas fueling operations and vehicle conversions;

• our Energy segment’s ability to implement its business plan in a regulated environment;

• the adoption, modification or repeal in environmental, tax, government regulations, and other programs and incentives that encourage the use of clean fuel and alternative vehicles;

• demand for natural gas vehicles;

• advances in other alternative vehicle fuels or technologies, or improvements in gasoline, diesel or hybrid engines;

• increases, decreases and general volatility in oil, gasoline, diesel and natural gas prices.

Telecommunications / PTGi International Carrier Services, Inc.

Our actual results or other outcomes of PTGi International Carrier Services, Inc.

("ICS"), and, thus, our Telecommunications segment, may differ from those expressed or implied by forward-looking statements contained herein due to a variety of important factors, including, without limitation, the following:

• our expectations regarding increased competition, pricing pressures and usage patterns with respect to ICS’s product offerings;

• significant changes in ICS’s competitive environment, including as a result of industry consolidation, and the effect of competition in its markets, including pricing policies;

• its compliance with complex laws and regulations in the U.S.

and internationally;

• further changes in the telecommunications industry, including rapid technological, regulatory and pricing changes in its principal markets;

• an inability of ICS’ suppliers to obtain credit insurance on ICS in determining whether or not to extend credit.

Life Sciences / Pansend Life Sciences, LLC

Our actual results or other outcomes of Pansend Life Sciences, LLC, and, thus, our Life Sciences segment, may differ from those expressed or implied by forward-looking statements contained herein due to a variety of important factors, including, without limitation, the following:

• our Life Sciences segment’s ability to invest in development stage companies;

• our Life Sciences segment’s ability to develop products and treatments related to its portfolio companies;

• medical advances in healthcare and biotechnology;

• governmental regulation in the healthcare industry.

Spectrum / HC2 Broadcasting Holdings Inc.

Our actual results or other outcomes of HC2 Broadcasting Holdings Inc., and, thus, our Spectrum segment, may differ from those expressed or implied by forward-looking statements contained herein due to a variety of important factors, including, without limitation, the following:

• our ability to attract advertisers during the COVID-19 pandemic;

• our Spectrum segment’s ability to integrate our recent and pending broadcasting acquisitions;

• our Spectrum segment’s ability to operate in highly competitive markets and maintain market share;

• our Spectrum segment’s ability to effectively implement its business strategy or be successful in the operation of its business;

• new and growing sources of competition in the broadcasting industry;

• FCC regulation of the television broadcasting industry.

Insurance / Continental Insurance Group Ltd.

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("CIG"), the parent operating company of Continental General Insurance Company ("CGI"), which together comprise our Insurance segment, may differ from those expressed or implied by forward-looking statements contained herein due to a variety of important factors, including, without limitation, the following:

• our ability to timely collect premiums resulting from impacts of regulations responding to the COVID-19 pandemic;

• our Insurance segment’s ability to maintain statutory capital and maintain or improve their financial strength;

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• the occurrence of natural or man-made disasters or a pandemic.

Life Sciences / Pansend Life Sciences, LLC

• our Life Sciences segment’s ability to invest in development stage companies;

• our Life Sciences segment’s ability to develop products and treatments related to its portfolio companies;

• medical advances in healthcare and biotechnology;

• governmental regulation in the healthcare industry.

Broadcasting / HC2 Broadcasting Holdings Inc.

Our actual results or other outcomes of HC2 Broadcasting Holdings Inc., and, thus, our Broadcasting segment, may differ from those expressed or implied by forward-looking statements contained herein due to a variety of important factors, including, without limitation, the following:

• our Broadcasting segment’s ability to integrate our recent and pending broadcasting acquisitions;

• our Broadcasting segment’s ability to operate in highly competitive markets and maintain market share;

• our Broadcasting segment’s ability to effectively implement its business strategy or be successful in the operation of its business;

• new and growing sources of competition in the broadcasting industry;

• FCC regulation of the television broadcasting industry.

Our actual results or other outcomes of our Other segment may differ from those expressed or implied by forward-looking statements contained herein due to a variety of important factors, including, without limitation, the following:

• our Other segment’s ability to operate in highly competitive markets and maintain market share;

• our Other segment’s ability to effectively implement its business strategy or be successful in the operation of its business.

• risks associated with our equity method investment that operates in China (i.e., Huawei Marine Systems Co.

Limited, a Hong Kong holding company with a Chinese operating subsidiary)

We caution the reader that undue reliance should not be placed on any forward-looking statements, which speak only as of the date of this document.

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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-K

Item 7. Management’s Discussion and Analysis