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Item 9A. Controls and Procedures

2021-03-10 compared with 2020-03-16 · 771 added, 1077 removed, 1760 unchanged (51% of the section changed)

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DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information regarding this item will be set forth in our 2020 Proxy Statement, including under the captions entitled "Information Regarding Directors", "Analysis of Our Directors in Light of Our Business", "Certain Legal Proceedings Affecting Mr.

Falcone", "Code of Conduct", "Section 16(a) Beneficial Ownership Reporting Compliance", "Board Committees" and "Executive Officers", and is incorporated herein by reference.

Information regarding this item will be set forth in our 2021 Proxy Statement and is incorporated herein by reference.

Code of Conduct

We have adopted a Code of Conduct applicable to all directors, officers and employees, including the CEO, senior financial officers and other persons performing similar functions.

We have adopted a Code of Conduct applicable to all directors, officers and employees, including the Chief Executive Officer, senior financial officers and other persons performing similar functions.

The Code of Conduct is a statement of business practices and principles of behavior that support our commitment to conducting business in accordance with the highest standards of business conduct and ethics.

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EXECUTIVE COMPENSATION

The information regarding this item will be set forth under the captions entitled "Compensation Discussion and Analysis," "Compensation Committee Report," "Compensation Committee Interlocks and Insider Participation," "Compensation Tables," and "Employment Arrangements and Potential Payments upon Termination or Change of Control" in our 2020 Proxy Statement and is incorporated herein by reference.

The information regarding this item will be set forth in our 2021 Proxy Statement and is incorporated herein by reference.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information regarding this item will be set forth under the captions entitled "Security Ownership of Certain Beneficial Owners and Management" and "Equity Compensation Plan Information" in our 2020 Proxy Statement and is incorporated herein by reference.

Information regarding this item will be set forth in our 2021 Proxy Statement and is incorporated herein by reference.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information regarding this item will be set forth under the captions entitled "Board of Directors" and "Transactions with Related Persons" in our 2020 Proxy Statement and is incorporated herein by reference.

Information regarding this item will be set forth in our 2021 Proxy Statement and is incorporated herein by reference.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information regarding principal accountant fees and services will be set forth under the caption entitled "Independent Registered Public Accounting Firm Fees" in our 2020 Proxy Statement and is incorporated herein by reference.

Information regarding principal accountant fees and services will be set forth in our 2021 Proxy Statement and is incorporated herein by reference.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

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The financial statements as set forth under Item 8 of this Annual Report on Form 10-K are incorporated herein.

2) Financial Statement Schedules

Schedule I - Summary of Investments - Other than Investments in Related Parties

Schedule II - Condensed Financial Information of the Registrant

Schedule III - Supplementary Insurance Information

Schedule IV - Reinsurance

Schedule V - Valuation and Qualifying Accounts

All other schedules have been omitted since they are either not applicable or the information is contained within the accompanying consolidated financial statements.

(b) Exhibit Index

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and Global Marine Holdings, Limited (solely for purposes of Section 2.04(a), Section 6.01, Section 6.02, Section 6.03, Section 6.07 and Article X) (incorporated by reference to Exhibit 2.1 to HC2's Current Report on Form 8-K, filed on January 30, 2020) (File No.

2.8 Agreement and Plan of Merger, dated as of December 30, 2020, by and among Beyond6, Inc., Greenfill Inc., Greenfill Merger, Inc., and HC2 Holdings, Inc., solely in its capacity as the Stockholders’ Representative (incorporated by reference to Exhibit 2.1 on HC2's Current Report on Form 8-K, filed December 31, 2020) .

3.1 Second Amended and Restated Certificate of Incorporation of HC2 (incorporated by reference to Exhibit 3.1 to HC2’s Form 8-A, filed on June 20, 2011) (File No.

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(incorporated by reference to Exhibit 3.1 to HC2’s Current Report on Form 8-K, filed on April 11, 2014) (File No.

Number Description

3.4 Certificate of Amendment to Second Amended and Restated Certificate of Incorporation of HC2 (incorporated by reference to Exhibit 3.1 to HC2’s Current Report on Form 8-K, filed on June 18, 2014) (File No.

3.5 Fourth Amended and Restated By-Laws of HC2 (incorporated by reference to Exhibit 3.1 to HC2's Current Report on Form 8-K, filed on February 25, 2019) (File No.

3.6 Certificate of Amendment No.

2 to Second Amended and Restated Certificate of Incorporation of HC2 Holdings, Inc.

(incorporated by reference to Exhibit 3.1 on HC2's Current Report on Form 10-K, filed on November 23, 2020 (File No.

Number Description

4.1 Certificate of Amendment to the Certificate of Designation of Series A Convertible Participating Preferred Stock of HC2 (incorporated by reference to Exhibit 4.2 to HC2’s Current Report on Form 8-K, filed on January 9, 2015) (File No.

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("HC2 Network") (collectively the "Subsidiary Borrowers"), HC2 Broadcasting Intermediate Holdings Inc.

("HC2 Intermediate") (the "Intermediate Parent"), HC2 Broadcasting Holdings (the "Parent Borrower" and, together with the Intermediate Parent and the Subsidiary Borrowers, the "Borrowers"), and MSD PCOF Partners XVIII, LLC ("MSD") (filed herewith) .

4.13 Amended and Restated Secured Note dated October 24, 2019, by and among HC2 Station, HC2 LPTV, HC2 Broadcasting, Amended and Restated Secured Note dated October 24, 2019, by and among HC2 Station, HC2 LPTV, HC2 Broadcasting, HC2 Network (collectively, the "Subsidiary Borrowers"), HC2 Intermediate (the "Intermediate Parent), HC2 Broadcasting Holdings (the "Parent Borrower" and, together with the Intermediate Parent and the Subsidiary Borrowers, the "Borrowers", Great American Life Insurance Company ("GALIC") and Great American Insurance Company ("GAIC").

(collectively, the "Subsidiary Borrowers"), HC2 Intermediate (the "Intermediate Parent), HC2 Broadcasting Holdings (the "Parent Borrower" and, together with the Intermediate Parent and the Subsidiary Borrowers, the "Borrowers", Great American Life Insurance Company ("GALIC") and Great American Insurance Company ("GAIC") (filed herewith).

4.14 Description of the Registrant's Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 (filed herewith).

10.1^ Employment Agreement, dated May 21, 2014, by and between HC2 and Philip Falcone (incorporated by reference to Exhibit 10.2 on HC2’s Quarterly Report on Form 10-Q, filed on August 11, 2014) (File No.

4.14 Description of the Registrant's Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 (incorporated by reference to Exhibit 4.1 4 to HC2's Annual Report on Form 10-K, filed on March 16, 2020) (File No.

4.15 First Omnibus Amendment to Secured Notes and Intercreditor Agreement by and among HC2 Station Group, Inc., HC2 LPTV Holdings, Inc., HC2 Broadcasting, Inc., HC2 Network Inc., HC2 Broadcasting Intermediate Holdings Inc., HC2 Broadcasting Holdings Inc., and MSD PCOF Partners , XVIII, LLC, Great American Life Insurance Company and Great American Insurance Company.

(incorporated by reference to Exhibit 4.1 to HC2’s Quarterly Report on Form 10-Q, filed on May 11, 2020) (File No.

4.16 First Supplemental Indenture dated August 19, 2020, between HC2 Holdings, Inc.

("HC2") and U.S.

Bank National Association (incorporated by reference to Exhibit 4.1 of HC2's Quarterly Report on Form 10-Q, filed on November 9, 2020) (File No.

Number Description

4.17 Form of Certificate of Designations of Series B Non-Voting Participating Convertible Preferred Stock of HC2 (included in Exhibit 10.1) (incorporated by reference to Exhibit 4.1 on HC2's Current Report on Form 8-K, filed on September 9, 2020 (File No.

4.18 Form of Subscription Rights Certificate (incorporated by reference to Exhibit 4.1 on HC2's Current Report on Form 8-K, filed on Octo ber 7, 2020) (File No.

10.1 Securities Purchase Agreement, dated as of May 29, 2014, by and among HC2 and affiliates of Hudson Bay Capital Management LP, Benefit Street Partners L.L.C.

and DG Capital Management, LLC (the "Purchasers") (incorporated by reference to Exhibit 10.1 to HC2’s Current Report on Form 8-K, filed on June 4, 2014) (File No.

Number Description

10.2^ HC2 2014 Omnibus Equity Award Plan (incorporated by reference to Exhibit A to HC2’s Definitive Proxy Statement, filed on April 30, 2014) (File No.

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10.13^ Employment Agreement, dated May 20, 2015, by and between HC2 and Michael Sena (incorporated by reference to Exhibit 10.2 on HC2’s Quarterly Report on Form 10-Q, filed on August 10, 2015) (File No.

10.15^ Non-Qualified Stock Option Award Agreement dated April 18, 2016, by and between HC2 and Philip A.

Falcone (incorporated by reference to Exhibit 10.1 on HC2’s Quarterly Report on Form 10-Q, filed on May 9, 2016) (File No.

10.14 Voluntary Conversion Agreement, dated August 2, 2016, by and among HC2 and Luxor Capital Group, LP, as investment manager of the exchanging entities, holders of the Company’s Series A-1 Convertible Participating Preferred Stock, par value $0.01 per share (incorporated by reference to Exhibit 10.2 on HC2’s Quarterly Report on Form 10-Q, filed on August 9, 2016) (File No.

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10.18^ Revised Form of Indemnification Agreement of HC2 (incorporated by reference to Exhibit 10.1 on HC2’s Quarterly Report on Form 10-Q, filed on November 9, 2016) (File No.

Number Description

10.19 Registration Rights Agreement, dated as of August 2, 2016, by and between Luxor Capital Group, LP and HC2 (incorporated by reference to Exhibit 10.2 on HC2’s Quarterly Report on Form 10-Q, filed on August 9, 2016) (File No.

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and HC2 (incorporated by reference to Exhibit 10.3 on HC2’s Quarterly Report on Form 10-Q, filed on August 9, 2016) (File No.

Number Description

10.21 Voluntary Conversion Agreement dated as of May 2, 2017, by and among DG Value Partners, LP, DG Value Partners II Master Fund, LP and HC2 Holdings, Inc.

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10.35 Ninth Amended and Restated Agreement Re:

Secured Notes dated October 24, 2019, among HC2 Station, HC2 LPTV, HC2 Network, HC2 Broadcasting, GALIC, GAIC and MSD (filed herewith) .

Secured Notes dated October 24, 2019, among HC2 Station, HC2 LPTV, HC2 Network, HC2 Broadcasting, GALIC, GAIC and MSD (incorporated by reference to Exhibit 10.38 to HC2's Annual Report on Form 10-K, filed on March 16, 2020) (File No.

10.36 First Amendment to Financing Agreement dated November 13, 2019, by and among DBM Global, Inc.

and TCW Asset Management Compan y (filed herewith) .

and TCW Asset Management Company (incorporated by reference to Exhibit 10.39 to HC2's Annual Report on Form 10-K, filed on March 16, 2020) (File No.

Number Description

10.37 Second Amendment to Intercreditor Agreement dated as of April 9, 2020, by and among Wells Fargo Bank, National Association and TCW Asset Management Company LLC ( incorporated by reference to Exhibit 10.1 to HC2's Quarterly Report on Form 10-Q, filed on August 10, 2020) (File No.

001-35210 ) .

10.38 Second Amendment to Financing Agreement dated as of April 9, 2020 by and among DBM Global Inc.

("DBM"), as borrower, certain direct and indirect subsidiaries of DBM as borrowers or guarantors, the lenders from time to time party hereto, and TCW Asset Management Company, LLC, as administrative agent for the lenders and collateral agent to the secured parties ( incorporated by reference to Exhibit 10.2 to HC2's Quarterly Report on Form 10-Q , filed August 10, 2020) (File No.

10.39 Second Amendment to Fourth Amended and Restated Credit and Security Agreement dated as of April 9, 2020, by and among DBM and certain of its subsidiaries, and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 10.3 to HC2's Quarterly Report on Form 10-Q, filed August 10, 2020) (File No.

10.40^ Employment Agreement dated effective as of August 7, 2020, by and between HC2 Holdings, Inc.

and Wayne Barr, Jr.(incorporated by reference to Exhibit 10.4 to HC2's Quarterly Report on Form 10-Q, filed August 10, 2020) (File No.

10.41 Cooperation Agreement, dated as of May 13, 2020, by and among HC2 Holdings, Inc., MG Capital Management Ltd., Percy Rockdale LLC and Rio Royal LLC (incorporated by reference to Exhibit 10.1 on HC2’s Current Report on Form 8-K, filed on May 14, 2020) (File No.

10.42 Agreement, dated as of May 13, 2020, by and among HC2 Holdings, Inc.

and Lancer Capital LLC (incorporated by reference to Exhibit 10.2 on HC2’s Current Report on Form 8-K, filed on May 14, 2020) (File No.

10.43 Agreement, dated as of May 13, 2020, by and among HC2 Holdings, Inc.

and JDS1, LLC and CCUR Holdings, Inc.

(incorporated by reference to Exhibit 10.3 on HC2’s Current Report on Form 8-K, filed on May 14, 2020) (File No.

10.44 Letter Agreement, dated as of July 5, 2020, by and among HC2 Holdings, Inc., MG Capital Management Ltd., Percy Rockdale LLC and Rio Royal LLC (incorporated by reference to Exhibit 10.1 on HC2’s Current Report on Form 8-K, filed on July 6, 2020) (File No.

10.45 Letter Agreement, dated as of July 5, 2020, by and between HC2 Holdings, Inc.

and Lancer Capital LLC (incorporated by reference to Exhibit 10.2 on HC2’s Current Report on Form 8-K, filed on July 6, 2020) (File No.

10.46 Letter Agreement, dated as of July 5, 2020, by and among HC2 Holdings, Inc., JDS1, LLC and CCUR Holdings, Inc.

(incorporated by reference to Exhibit 10.3 on HC2’s Current Report on Form 8-K, filed on July 6, 2020) (File No.

10.47 Investment Agreement, dated as of September 9, 2020, by and between HC2 Holdings, Inc.

and Lancer Capital, LLC (incorporated by reference to Exhibit 10.1 on HC2's Current Report on Form 8-K, filed on September 9, 2020 (File No.

10.48 Form of Registration Rights Agreement by and between HC2 and Lancer Capital LLC (included in Exhibit 10.1) (incorporated by reference to Exhibit 10.2 on HC2's Current Report on Form 8-K, filed on September 9, 2020 (File No.

10.49 Third Omnibus Amendment to Secured Notes and Second Amendment to Intercreditor Agreement dated September 25, 2020 by and among HC2 Station Group, Inc., HC2 LPTV Holdings, Inc., HC2 Broadcasting Inc., HC2 Network Inc., HC2 Broadcasting Intermediate Holdings Inc., HC2 Broadcasting Holdings Inc., MSD PCOF Partners XVIII, LLC, Great American Life Insurance Company and Great American Insurance Company (incorporated by reference to Exhibit 10.3 on HC2's Current Report on Quarterly Report on Form 10-Q filed on November 9, 2020) (File No.

10.50 Amended and Restated Employment Agreement, effective as of November 25, 2020, by and between HC2 Holdings, Inc.

and Wayne Barr, Jr.

(incorporated by reference to Exhibit 10.1 on HC2's Current Report on Form 8-K, filed on November 30, 2020) (File No.

21.1 Subsidiaries of HC2 (filed herewith).

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HC2 HOLDINGS, INC.

/S/ PHILIP A.

Chairman, President

and Chief Executive Officer

/S/ WAYNE BARR, JR.

Wayne Barr, Jr.

President and Chief Executive Officer

(Principal Executive Officer)

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POWER OF ATTORNEY

Each of the officers and directors of HC2 Holdings, Inc., whose signature appears below, in so signing, also makes, constitutes and appoints each of Philip A.

Falcone and Michael J.

Each of the officers and directors of HC2 Holdings, Inc., whose signature appears below, in so signing, also makes, constitutes and appoints each of Wayne Barr, Jr.

and Michael J.

Sena, and each of them, his true and lawful attorneys-in-fact, with full power and substitution, for him in any and all capacities, to execute and cause to be filed with the SEC any and all amendments to this Annual Report on Form 10-K, with exhibits thereto and other documents connected therewith and to perform any acts necessary to be done in order to file such documents, and hereby ratifies and confirms all that said attorneys-in-fact or their substitute or substitutes may do or cause to be done by virtue hereof.

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Signature Title Date

/S/ PHILIP A.

FALCONE Director and Chairman, President and Chief Executive Officer (Principal Executive Officer) March 16, 2020

/S/ MICHAEL J.

SENA Chief Financial Officer (Principal Financial and Accounting Officer) March 16, 2020

/S/ WAYNE BARR, JR.

Director March 16, 2020

President and Chief Executive Officer (Principal Executive Officer) March 10, 2021

Wayne Barr, Jr.

/S/ ROBERT LEFFLER Director March 16, 2020

Robert Leffler

/S/ LEE HILLMAN Director March 16, 2020

/S/ MICHAEL J.

SENA Chief Financial Officer (Principal Financial and Accounting Officer) March 10, 2021

/S/ WARREN H.

GFELLER Director March 10, 2021

/S/ JULIE SPRINGER Director March 16, 2020

Julie Springer

GLAZER Director March 10, 2021

/S/ MICHAEL GORZYNSKI Director March 10, 2021

Michael Gorzynski

/S/ SHELLY LOMBARD Director March 10, 2021

Shelly Lombard

/S/ KENNETH S.

COURTIS Director March 10, 2021

HC2 HOLDINGS, INC.

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(2) Summary of Significant Accounting Policies

(3) Discontinued Operations

(5) Business Combinations

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(15) Debt Obligations

(1 6 ) Leases

(17) Income Taxes

(18) Commitments and Contingencies

(18) Employee Retirement Plans

(19) Share-based Compensation

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Revenue Recognition - Estimated Costs to Complete

As described in Note 4 to the consolidated financial statements, with respect to the Company's Infrastructure segment (DBM Global Inc.), the Company recognizes a significant portion of its revenue over time using the input method to measure the progress of costs incurred for its service and construction contracts.

The cost estimation process for these contracts is based on the knowledge and experience of the Company’s project managers, engineers and financial professionals.

Changes in job performance, job conditions and management’s assessment of expected variable consideration are factors that influence estimates of the total contract transaction price, total costs to complete those contracts and the Company’s revenue recognition.

We identified estimated costs to complete revenue contracts as a critical audit matter.

The determination of the total estimated cost and progress toward completion requires management to make significant estimates and assumptions.

Total estimated costs to complete projects include various costs such as direct material, labor, subcontract costs, indirect labor, and fabrication plant

overhead costs.

Changes in these estimates can have a significant impact on the revenue recognized each period.

Auditing these elements involved especially challenging auditor judgment in evaluating the reasonableness of management’s assumptions and estimates over the duration of these contracts.

The primary procedures we performed to address this critical audit matter included:

• Testing the design and operating effectiveness of certain controls related to estimated costs to complete, including controls over management’s review of cost estimates for significant inputs such as direct material, labor, subcontractor costs, indirect labor, and fabrication plant overhead costs.

• Evaluating the reasonableness of a sample of project budgets for projects completed during the year through a retrospective review against actual performance at project completion.

• Assessing the reasonableness of the estimated costs to complete for a sample of open projects through:

(i) evaluating the reasonableness of project budgets and the nature of costs required to complete open projects, (ii) assessing the status of completion of respective projects through testing of a sample of project costs incurred to date, (iii) evaluating the reasonableness of project status by performing inquiries of project managers and assessing the nature of activities required to complete open projects, and (iv) performing retrospective review for open projects and investigating budget to actual variances (if any).

• Assessing the reasonableness of changes in estimated costs to complete during quarterly reviews and at year end and investigating reasons for changes in expected costs and project margins.

Valuation of Investment in Securities

As described in Note 7 to the consolidated financial statements, with respect to the Company's Insurance segment (Continental Insurance Group Ltd.), the Company's Level 3 fixed maturity securities and equity securities totaled $687.3 million at December 31, 2020, a portion of which are valued based on non-binding broker quotes or internally developed estimates using significant inputs not based on, or corroborated by, observable market information.

The lack of visibility into assumptions used in non-binding broker quotes are significant unobservable inputs, which create greater subjectivity when determining the fair values.

We identified the use of non-binding broker quotes as a critical audit matter.

The use of non-binding broker quotes was the significant unobservable input and assumption used by the Company in determining the fair value of certain financial instruments reflected as Level 3 fixed maturity securities and equity securities in circumstances where vendor pricing is not available.

The evaluation of non-binding broker quotes required a high degree of auditor judgment and an increased extent of effort, including the need to involve valuation specialists who possess the skill and knowledge to assist in the evaluation of these inputs and assumptions.

The primary procedures we performed to address this critical audit matter included:

• Evaluating the valuation methodologies used by the Company for Level 3 fixed maturity securities and equity securities.

• Comparing the Company’s fair value estimates of Level 3 fixed maturity securities and equity securities to a range of fair value estimates independently calculated utilizing valuation specialists.

We evaluated information that corroborated or contradicted the Company’s fair value estimates, including observable yields, transaction data for similar securities, and historical collateral performance data.

Reserves for Long-Term Care Policy and Contract Benefits

As disclosed in Note 13 to the consolidated financial statements, with respect to the Company's Insurance segment (Continental Insurance Group Ltd.), the Company's total reserves for long-term care policies was $4,269.0 million as of December 31, 2020, which is included in total life, accident and health reserves on the consolidated balance sheet.

Notes 2 and 13 to the consolidated financial statements describe the accounting for these reserves.

Liabilities for estimates of benefits that will become payable on future claims on long-term care policies are based on the net level premium method.

The assumptions used are based on the original projections of investment yields, mortality, morbidity and surrenders and include provisions for unfavorable deviations unless a loss recognition event (premium deficiency) occurs.

After the liabilities are initially established, management performs premium deficiency tests, using current best estimate assumptions.

If a premium deficiency is recognized, the assumptions as of the date of the loss recognition are locked in and used in subsequent periods.

We identified the loss recognition evaluation of the reserves for long-term care policies as a critical audit matter based on the judgment used by management in developing the current best estimate assumption as of the measurement date.

This degree of management judgment led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence relating to the current best estimate assumptions, including expected premium rate increases, maintenance costs, morbidity rates, policy persistency and interest rates earned on assets supporting the liability.

Additionally, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.

The primary procedures we performed to address this critical audit matter included:

• Testing the design and operating effectiveness of certain controls related to the loss recognition testing, including controls over management's review of current best estimates assumptions such as expected premium rate increases, maintenance costs, morbidity rates, policy persistency and interest rates earned on assets supporting the liability.

• Evaluating the reasonableness of the current best estimate assumptions used, including expected premium rate increases, maintenance costs, morbidity rates, policy persistency and interest rates earned on assets supporting the liability.

Our actuarial specialists were used to assist in evaluating the reasonableness of management’s current best estimate assumptions used in the valuation of reserves for long-term care policies.

• Testing the completeness and accuracy of underlying data used by management in the development of the current best estimate assumptions.

We have served as the Company's auditor since 2011.

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Total operating expenses 1,009.9 1,051.7

Income (loss) from operations 29.1 ( 55.8 )

(Loss) income from operations ( 4.1 ) 25.3

Interest expense ( 79.4 ) ( 76.1 )

Gain on sale and deconsolidation of subsidiary — 105.1

Income from equity investees 2.2 15.4

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

(Loss) income from equity investees ( 3.4 ) 1.6

Gain on bargain purchase — 1.1

Other income 68.5 6.3

(Loss) income from continuing operations ( 56.7 ) 182.3

Loss from continuing operations before income taxes ( 27.8 ) ( 41.8 )

Income tax benefit (expense) ( 10.5 ) 19.6

Net (loss) income ( 36.1 ) 179.9

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

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

Loss from continuing operations ( 38.3 ) ( 22.2 )

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

( 63.8 ) ( 13.9 )

Net loss ( 102.1 ) ( 36.1 )

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

Net loss attributable to HC2 Holdings, Inc.

( 92.0 ) ( 31.5 )

Preferred dividends, deemed dividends, and repurchase gains 3.6 —

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

(Loss) income per common share

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

Loss per common share - continuing operations

Basic $ ( 0.94 ) $ ( 0.40 )

Diluted $ ( 0.94 ) $ ( 0.40 )

Loss per common share - discontinued operations

Basic $ ( 0.94 ) $ ( 0.30 )

Diluted $ ( 0.94 ) $ ( 0.30 )

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

Basic $ ( 1.88 ) $ ( 0.70 )

Diluted $ ( 1.88 ) $ ( 0.70 )

Weighted average common shares outstanding:

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Years Ended December 31,

Net (loss) income $ ( 36.1 ) $ 179.9

Other comprehensive income (loss)

Net loss $ ( 102.1 ) $ ( 36.1 )

Other comprehensive income

Foreign currency translation adjustment 7.9 ( 1.9 )

Unrealized gains (losses) on available-for-sale securities 288.4 ( 158.2 )

Unrealized gains on available-for-sale securities 191.6 288.4

Actuarial loss on pension plan — ( 7.8 )

Other comprehensive income (loss) 278.7 ( 160.8 )

Dispositions 30.3 —

Other comprehensive income 229.8 278.7

Comprehensive income 127.7 242.6

Comprehensive income attributable to noncontrolling interests and redeemable noncontrolling interests ( 7.5 ) ( 15.1 )

Comprehensive income (loss) attributable to noncontrolling interests and redeemable noncontrolling interests ( 8.2 ) ( 7.5 )

Comprehensive income attributable to HC2 Holdings, Inc.

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Intangibles, net 174.6 210.6

Assets held for sale 126.4 555.2

Other assets 172.4 181.4

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Debt obligations 561.5 723.9

Liabilities held for sale 74.7 334.9

Other liabilities 116.0 137.5

8 unchanged sentences

Shares authorized:

80,000,000 at December 31, 2019 and December 31, 2018;

160,000,000 and 80,000,000 at December 31, 2020 and 2019, respectively

Shares issued:

46,810,676 and 45,391,397 at December 31, 2019 and December 31, 2018;

77,836,586 and 46,810,676 at December 31, 2020 and 2019, respectively

Shares outstanding:

46,067,852 and 44,907,818 at December 31, 2019 and December 31, 2018, respectively

76,726,835 and 46,067,852 at December 31, 2020 and 2019, respectively

Additional paid-in capital 355.7 281.1

Treasury stock, at cost:

742,824 and 483,579 shares at December 31, 2019 and December 31, 2018, respectively ( 3.3 ) ( 2.6 )

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

( 4.2 ) ( 3.3 )

Accumulated deficit ( 188.7 ) ( 96.7 )

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Balance as of December 31, 2018 44.9 $ — $ 260.5 $ ( 2.6 ) $ ( 57.2 ) $ ( 112.6 ) $ 88.1 $ 105.6 $ 193.7 $ 28.3

Cumulative effect of accounting for revenue recognition (1)

— — — — 0.4 — 0.4 0.3 0.7 —

Cumulative effect of accounting for the recognition and measurement of financial assets and financial liabilities (1)

— — — — 1.6 0.1 1.7 — 1.7 —

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

Cumulative effect of accounting for warrants — — 6.6 — ( 3.7 ) — 2.9 — 2.9 —

Share-based compensation — — 8.7 — — — 8.7 — 8.7 —

Fair value adjustment of redeemable noncontrolling interest — — ( 2.0 ) — — — ( 2.0 ) — ( 2.0 ) 2.0

Exercise of stock options 0.1 — 0.2 — — — 0.2 — 0.2 —

Taxes paid in lieu of shares issued for share-based compensation ( 0.2 ) — — ( 0.7 ) — — ( 0.7 ) — ( 0.7 ) —

Preferred stock dividend and accretion — — ( 5.7 ) — — — ( 5.7 ) — ( 5.7 ) —

Amortization of issuance cost — — ( 0.1 ) — — — ( 0.1 ) — ( 0.1 ) 0.1

Preferred stock dividend — — ( 0.9 ) — — — ( 0.9 ) — ( 0.9 ) —

Issuance of common stock 1.4 — — — — — — — — —

2 unchanged sentences

Other — — ( 0.3 ) — — — ( 0.3 ) — ( 0.3 ) —

Net income (loss) — — — — 162.0 — 162.0 19.1 181.1 ( 1.2 )

Other comprehensive loss — — — — — ( 158.0 ) ( 158.0 ) ( 1.7 ) ( 159.7 ) ( 1.1 )

Net loss — — — — ( 31.5 ) — ( 31.5 ) ( 3.3 ) ( 34.8 ) ( 1.3 )

Other comprehensive income — — — — — 281.3 281.3 ( 2.3 ) 279.0 ( 0.6 )

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

Cumulative effect of accounting for leases (1)

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

Cumulative effect of accounting for warrants (1)

— — 6.6 — ( 3.7 ) — 2.9 — 2.9 —

Share-based compensation — — 6.3 — — — 6.3 — 6.3 —

Fair value adjustment of redeemable noncontrolling interest — — ( 1.3 ) — — — ( 1.3 ) — ( 1.3 ) 1.3

Preferred stock accretion — — ( 2.0 ) — — — ( 2.0 ) — ( 2.0 ) 2.0

Taxes paid in lieu of shares issued for share-based compensation ( 0.4 ) — — ( 0.9 ) — — ( 0.9 ) — ( 0.9 ) —

1 unchanged sentence

Issuance of common stock 2.3 — 0.2 — — — 0.2 — 0.2 —

Purchase of preferred stock by subsidiary — — 1.7 — — — 1.7 — 1.7 ( 10.0 )

Rights Offering 16.8 0.1 34.4 — — — 34.5 — 34.5 —

Issuance of preferred stock — — 2.0 — — — 2.0 — 2.0 25.0

Series B Preferred Share Conversion 11.9 — 27.0 — — — 27.0 — 27.0 ( 27.0 )

Transactions with noncontrolling interests — — 6.7 — — — 6.7 ( 57.0 ) ( 50.3 ) ( 4.0 )

Other — — 2.1 — — — 2.1 — 2.1 —

Net income (loss) — — — — ( 31.5 ) — ( 31.5 ) ( 3.3 ) ( 34.8 ) ( 1.3 )

Other comprehensive income (loss) — — — — — 281.3 281.3 ( 2.3 ) 279.0 ( 0.6 )

Net loss — — — — ( 92.0 ) — ( 92.0 ) ( 5.4 ) ( 97.4 ) ( 4.7 )

Other comprehensive income — — — — — 228.2 228.2 9.0 237.2 1.5

Balance as of December 31, 2020 76.7 $ 0.1 $ 355.7 $ ( 4.2 ) $ ( 188.7 ) $ 396.9 $ 559.8 $ 40.4 $ 600.2 $ 15.7

(1) See Note 2.

Summary of Significant Accounting Policies for further information about adjustments resulting from the Company’s adoption of new accounting standards in 2019 and 2018, respectively

See notes to Consolidated Financial Statements

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Cash flows from operating activities

Net (loss) income $ ( 36.1 ) $ 179.9

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

Net loss $ ( 102.1 ) $ ( 36.1 )

Loss from discontinued operations, net of tax ( 63.8 ) ( 13.9 )

( 38.3 ) ( 22.2 )

Adjustments to reconcile net loss to cash provided by operating activities

Share-based compensation expense 2.9 6.3

1 unchanged sentence

Amortization of deferred financing costs and debt discount 15.5 12.1

Amortization of (discount) premium on investments 8.5 6.2

Gain on sale and deconsolidation of subsidiary — ( 105.1 )

Amortization of (discount) premium on investments, net 7.8 8.5

Loss on extinguishment of debt 9.4 —

Gain on bargain purchase — ( 1.1 )

Income from equity investees ( 2.2 ) ( 15.4 )

(Loss) Income from equity investees 3.4 ( 1.6 )

Asset impairment expense 13.5 50.0

Net realized and unrealized gains on investments ( 63.4 ) ( 9.0 )

Receipt of dividends from equity investees 9.8 19.8

Deferred income taxes 8.1 ( 27.2 )

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Cash provided by operating activities 52.4 53.2

Cash (used in) provided by discontinued operating activities ( 10.7 ) 57.5

Cash provided by operating activities 41.7 110.7

Cash flows from investing activities

Purchase of property, plant and equipment ( 17.8 ) ( 24.7 )

Disposal of property, plant and equipment 4.6 5.9

Proceeds from disposal of property, plant and equipment 41.1 1.3

Purchase of investments ( 997.1 ) ( 1,060.1 )

1 unchanged sentence

Maturities and redemptions of investments 98.1 123.5

Cash received from the sale of equity method investments 85.5 —

Cash received from dispositions, net 147.4 13.5

1 unchanged sentence

Other investing activities 6.4 8.4

Cash used in investing activities ( 263.7 ) ( 224.6 )

Cash provided by (used in) investing activities 185.7 ( 209.2 )

Cash used in discontinued investing activities ( 23.4 ) ( 54.4 )

Cash provided by (used in) investing activities 162.3 ( 263.6 )

Cash flows from financing activities

1 unchanged sentence

Principal payments on debt obligations ( 181.8 ) ( 29.5 )

Proceeds from sale of HC2 preferred stock 27.0 —

Proceeds from rights offering 34.5 —

Cash received by subsidiary to issue preferred stock 10.0 8.9

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Other financing activities ( 5.0 ) ( 4.7 )

Cash provided by financing activities 62.4 115.2

Cash (used in) provided by financing activities ( 196.4 ) 33.7

Cash (used in) provided by discontinued financing activities ( 8.2 ) 28.7

Cash (used in) provided by financing activities ( 204.6 ) 62.4

Effects of exchange rate changes on cash, cash equivalents and restricted cash 0.7 0.7

Net increase in cash and cash equivalents, including cash classified within assets held for sale 0.1 ( 89.8 )

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

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

1 unchanged sentence

Cash, cash equivalents and restricted cash, end of period $ 233.8 $ 195.1

Supplemental cash flow information:

Cash paid for interest $ 75.9 $ 69.9

Cash paid for taxes, net of refunds $ 7.9 $ 13.1

Non-cash investing and financing activities:

Property, plant and equipment included in accounts payable $ 7.3 $ 2.9

Investments included in accounts payable $ 30.1 $ 0.3

See notes to Consolidated Financial Statements

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HC2 Holdings, Inc.

("HC2" and, together with its consolidated subsidiaries, the "Company", "we" and "our") is a diversified holding company which seeks to acquire and grow attractive businesses that we believe can generate long-term sustainable free cash flow and attractive returns.

("HC2" and, together with its consolidated subsidiaries, the "Company", "we" and "our") is a diversified holding company that has a portfolio of subsidiaries in a variety of operating segments.

We seek to grow these businesses so that they can generate long-term sustainable free cash flow and attractive returns in order to maximize value for all stakeholders.

While the Company generally intends to acquire controlling equity interests in its operating subsidiaries, the Company may invest to a limited extent in a variety of debt instruments or noncontrolling equity interest positions.

The Company’s shares of common stock trade on the NYSE under the symbol "HCHC".

The Company currently has eight reportable segments based on management’s organization of the enterprise - Construction, Marine Services, Energy, Telecommunications, Insurance, Life Sciences, Broadcasting, and Other, which includes businesses that do not meet the separately reportable segment thresholds.

Our Construction segment is comprised of DBM Global Inc.

The Company currently has four reportable segments, plus our Other segment, based on management’s organization of the enterprise- Infrastructure, Life Sciences, Spectrum, Insurance, and Other which includes businesses that do not meet the separately reportable segment thresholds.

Our Infrastructure segment (f/k/a Construction segment) is comprised of DBM Global Inc.

("DBMG") and its wholly-owned subsidiaries.

DBMG is a fully integrated Building Information Modelling modeler, detailer, fabricator and erector of structural steel and heavy steel plate.

DBMG models, details, fabricates and erects structural steel for commercial and industrial construction projects such as high- and low-rise buildings and office complexes, hotels and casinos, convention centers, sports arenas, shopping malls, hospitals, dams, bridges, mines and power plants.

DBMG is a fully integrated Industrial Construction, Structural Steel and Facility Maintenance provider who provides 3D Building Information Modeling (“BIM”) modeling, detailing, fabrication and erection of structural steel and heavy steel plate.

DBMG provides these services on commercial, industrial, and infrastructure construction projects such as high- and low-rise buildings and office complexes, hotels and casinos, convention centers, sports arenas and stadiums, shopping malls, hospitals, dams, bridges, mines, metal processing, refineries, pulp and paper mills and power plants.

DBMG also fabricates trusses and girders and specializes in the fabrication and erection of large-diameter water pipe and water storage tanks.

Through GrayWolf, DBMG provides services including maintenance, repair, and installation to a diverse range of end markets in order to provide high-quality outage, turnaround, and new installation services to customers.

Through GrayWolf, DBMG provides integrated solutions for digital engineering, modeling and detailing, construction, heavy equipment installation and facility services including maintenance, repair, and installation to a diverse range of end markets.

Through Aitken Manufacturing, DBMG manufactures pollution control scrubbers, tunnel liners, pressure vessels, strainers, filters, separators and a variety of customized products.

The Company maintains an approximately 92 % controlling interest in DBMG.

Our Marine Services segment is comprised of Global Marine Systems Limited ("GMSL").

GMSL is a leading provider of engineering and underwater services on submarine cables and operates under the Global Marine Group brand.

GMSL aims to maintain its leading market position in the telecommunications maintenance segment and seeks opportunities to grow its installation activities in the three market sectors (telecommunications, offshore power, and oil and gas) while capitalizing on high market growth in the offshore power sector through expansion of its installation and maintenance services in that sector.

The Company maintains an approximately 73 % controlling interest in GMSL.

Our Energy segment is comprised of American Natural Energy Corp.

(f/k/a American Natural Gas, Inc.) ("ANG").

ANG is a premier distributor of natural gas motor fuel.

ANG designs, builds, owns, acquires, operates and maintains compressed natural gas fueling stations for transportation vehicles.

The Company maintains an approximately 69 % controlling interest in ANG.

Our Telecommunications segment is comprised of PTGi International Carrier Services, Inc.

ICS operates a telecommunications business including a network of direct routes and provides premium voice communication services for national telecommunications operators, mobile operators, wholesale carriers, prepaid operators, voice over internet protocol service operators and internet service providers.

ICS provides a quality service via direct routes and by forming strong relationships with carefully selected partners.

The Company maintains a 100 % interest in ICS.

Our Insurance segment is comprised of Continental Insurance Group Ltd.

("CIG") and its wholly-owned subsidiary Continental General Insurance Company ("CGI").

CGI provides long-term care, life, annuity, and other accident and health coverage that help protect policy and certificate holders from the financial hardships associated with illness, injury, loss of life, or income continuation.

The Company maintains a 100 % interest in CIG.

Our Life Sciences segment is comprised of Pansend Life Sciences, LLC ("Pansend").

3 unchanged sentences

Pansend also invests in other early stage or developmental stage healthcare companies including an approximately 47 % interest in MediBeacon Inc., and an investment in Triple Ring Technologies, Inc.

Our Broadcasting segment is comprised of HC2 Broadcasting Holdings Inc.

Our Spectrum segment (f/k/a Broadcasting segment) is comprised of HC2 Broadcasting Holdings Inc.

("HC2 Broadcasting") and its subsidiaries.

3 unchanged sentences

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

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

Our Insurance segment is comprised of Continental Insurance Group Ltd.

("CIG") and its wholly-owned subsidiary Continental General Insurance Company ("CGI").

The Company maintains a 100 % interest in CIG.

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

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

GMH results include the current and prior year equity investment in Huawei Marine Networks Co., Limited (“HMN”), its 19 % equity method investment with Huawei Technologies Co., Ltd., and the discontinued operations of Global Marine Systems Limited ("GMSL").

Also included in the Other segment is the discontinued operations of Beyond6, Inc.

("Beyond6") and PTGi International Carrier Services, Inc.

and its subsidiaries ("ICS").

HC2 HOLDINGS, INC.

4 unchanged sentences

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

As of December 31, 2019, the results of DBMG, GMSL, ANG, ICS, CIG, Genovel, R2, and HC2 Broadcasting have been consolidated into the Company’s results based on guidance from the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC" 810, Consolidation) .

As of December 31, 2020, the results of DBMG, Genovel, R2, HC2 Broadcasting, CIG, GMSL, Beyond6, and ICS have been consolidated into the Company’s results based on guidance from the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC" 810, Consolidation) .

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

5 unchanged sentences

Accordingly, the Company cannot provide assurance that the estimates, assumptions, and values reflected in the valuations will be realized, and actual results could vary materially.

Any changes to the initial estimates of the fair value of the assets and liabilities will be recorded as adjustments to those assets and liabilities, and residual amounts will be allocated to goodwill or Bargain Purchase Gain.

In accordance with ASC 805, Business Combinations ("ASC 805") , if additional information is obtained about the initial estimates of the fair value of the assets acquired and liabilities assumed within the measurement period, including finalization of asset appraisals, the Company will refine its estimates of fair value to allocate the purchase price more accurately.

22 unchanged sentences

The Company applies the equity method to investments in common stock and to other investments when such other investments possess substantially identical subordinated interests to common stock.

In applying the equity method, the Company records the investment at cost and subsequently increases or decreases the carrying amount of the investment by its proportionate share of the net earnings or losses in Income from equity investees and other comprehensive income of the investee.

In applying the equity method, the Company records the investment at cost and subsequently increases or decreases the carrying amount of the investment by its proportionate share of the net earnings or losses in (Loss) income from equity investees and other comprehensive income of the investee.

The Company records dividends or other equity distributions as reductions in the carrying value of the investment.

47 unchanged sentences

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 financial statement bases and the tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

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.

3 unchanged sentences

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.

At December 31, 2020, our U.S.

and foreign companies have significant deferred tax assets resulting from tax loss carryforwards.

The foreign deferred tax assets with minor exceptions are fully offset with valuation allowances.

Additionally, the deferred tax assets generated by certain businesses that do not qualify to be included in the HC2 U.S.

6 unchanged sentences

The Insurance segment is in a cumulative income position and the positive trend of profitability in 2019 and 2020 is expected to continue as supported by the projections of future income.

As a result of the three-year cumulative income position and reliance upon future projections of income, the Insurance segment has released the valuation allowance recorded against its deferred tax assets.

As a result of the three-year cumulative income position and reliance upon future projections of income, the Insurance segment does not have a valuation allowance recorded against its deferred tax assets.

Property, Plant and Equipment

6 unchanged sentences

Costs incurred during the application development stage are capitalized and amortized over the estimated useful life of the software, beginning when the software project is ready for its intended use, over the estimated useful life of the software.

Depreciation is determined on a straight-line basis over the estimated useful lives of the assets, which range from 5 to 40 years for buildings and leasehold improvements, up to 35 years for cable-ships and submersibles, 3 to 15 years for equipment, furniture and fixtures, and 3 to 20 years for plant and transportation equipment.

Plant includes equipment on the cable-ships that is portable and can be moved around the fleet and computer equipment.

Depreciation is determined on a straight-line basis over the estimated useful lives of the assets, which range from 5 to 40 years for buildings and leasehold improvements, 3 to 15 years for equipment, furniture and fixtures, and 3 to 20 years for transportation equipment.

Leasehold improvements are amortized over the lives of the leases or estimated useful lives of the assets, whichever is shorter.

9 unchanged sentences

Intangible assets that have finite lives are amortized over their estimated useful lives and are subject to the provisions of ASC 360, Property, plant, and equipment ("ASC 360").

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment.

Topic 350, Intangibles - Goodwill and Other (Topic 350) , currently requires an entity that has not elected the private company alternative for goodwill to perform a two-step test to determine the amount, if any, of goodwill impairment.

In Step 1, an entity compares the fair value of a reporting unit with its carrying amount, including goodwill.

If the carrying amount of the reporting unit exceeds its fair value, the entity performs Step 2 and compares the implied fair value of goodwill with the carrying amount of the goodwill for that reporting unit.

An impairment charge equal to the amount by which the carrying amount of goodwill for the reporting unit exceeds the implied fair value of that goodwill is recorded, limited to the amount of goodwill allocated to that reporting unit.

To address concerns over the cost and complexity of the two-step goodwill impairment test, the amendments in this ASU remove the second step of the test.

An entity will now apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit.

The new guidance does not amend the optional qualitative assessment of goodwill impairment.

The Company elected to early adopt ASU 2017-04 effective March 31, 2017.

Goodwill impairment is tested at least annually (October 1st) or when factors indicate potential impairment using a two-step process that begins with a qualitative evaluation of each reporting unit.

24 unchanged sentences

They are renewable after application and reviewed by the FCC and historically are renewed except in rare cases in which a petition to deny, a complaint or an adverse finding as to the licensee's qualifications results in loss of the license.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Valuation of Long-lived Assets

6 unchanged sentences

The Company derives future cash flow estimates from its historical experience and its internal business plans, which include consideration of industry trends, competitive actions, technology changes, regulatory actions, available financial resources for marketing and capital expenditures and changes in its underlying cost structure.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

The Company makes assumptions about the remaining useful life of its long-lived assets.

24 unchanged sentences

The charge is recorded as an additional reserve (if unamortized acquisition costs have been eliminated).

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

In addition, reserves for traditional life and long-term care insurance policies are subject to adjustment for loss recognition charges that would have been recorded if the unrealized gains from securities had actually been realized.

2 unchanged sentences

The Company reports a value-added tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction between the Company and a customer on a net basis (excluded from revenues).

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Foreign Currency Transactions

10 unchanged sentences

The Company evaluates and accounts for conversion options embedded in convertible instruments in accordance with ASC 815, Derivatives and Hedging Activities.

Applicable GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria.

Applicable U.S.

Generally Accepted Accounting Principals ("GAAP") requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria.

The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not remeasured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.

8 unchanged sentences

If the Company extinguishes portions of its debt prior to the maturity date, deferred financing costs are charged to expense on a pro-rata basis and are included in loss on early extinguishment or restructuring of debt on the consolidated statements of operations.

The Company has an investment management agreement between CIG and CGI to which CIG acts as an investment manager of certain CGI’s invested assets and cash.

The revenues, costs, receivable and payables attributed to fees earned under this agreement are fully eliminated in consolidation.

Fees are paid on a quarterly basis based on internal calculations and trued up, to the extent necessary, on a quarter basis for any under or over payments.

At December 31, 2019, the payable at CGI of $ 2.6 million for the asset management fee, which was eliminated in consolidation, was reduced to reflect an overpayment of $ 2.4 million which was paid in Q1 2020.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions.

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions.

These estimates and assumptions affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of net revenue and expenses during the reporting period.

4 unchanged sentences

Accordingly, the Company cannot provide assurance that the estimates, assumptions, and values reflected in the valuations will be realized, and actual results could vary materially.

GMSL operates various pension schemes comprising both defined benefit plans and defined contribution plans.

GMSL also makes contributions on behalf of employees who are members of the Merchant Navy Officers Pension Fund ("MNOPF").

For the defined benefit plans and the MNOPF plan, the amounts charged to income (loss) from operations are the current service costs and the gains and losses on settlements and curtailments.

These are included as part of staff costs.

Past service costs are recognized immediately if the benefits have vested.

If the benefits have not vested immediately, the costs are recognized over the period vesting occurs.

The interest costs and expected return of assets are shown as a net amount and included in interest income and other income (expense).

Actuarial gains and losses are recognized immediately in the consolidated statements of operations.

Defined benefit plans are funded with the assets of the plan held separately from those of GMSL, in separate trustee administered funds.

Pension plan assets are measured at fair value and liabilities are measured on an actuarial basis using the projected unit method discounted at a rate of equivalent currency and term to the plan liabilities.

The actuarial valuations are obtained annually.

For the defined contribution plans, the amount charged to income (loss) from operations in respect of pension costs is the contributions payable in the period.

Differences between contributions payable in the period and contributions actually paid are shown as either accruals or prepayments in the consolidated balance sheets.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Share-Based Compensation

3 unchanged sentences

The Company issues new shares of common stock upon the exercise of stock options.

The Company elected to adopt the alternative transition method for calculating the tax effects of share-based compensation.

The alternative transition method includes simplified methods to determine the beginning balance of the APIC pool related to the tax effects of share-based compensation and to determine the subsequent impact on the APIC pool and the statement of cash flows of the tax effects of share-based awards that were fully vested and outstanding upon the adoption of ASC 718.

The Company uses a Black-Scholes option valuation model to determine the grant date fair value of share-based compensation under ASC 718.

10 unchanged sentences

The Company maintains its cash with high quality credit institutions, and its cash equivalents are in high quality securities.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Income (Loss) Per Common Share

7 unchanged sentences

The Company does not use the two-class method in periods when it generates a loss as the holders of the preferred stock do not participate in losses.

Discontinued Operations

In accordance with ASC 205-20, Presentation of Financial Statements - Discontinued Operations , the Company reports the results of operations of a business as discontinued operations if a disposal represents a strategic shift that has or will have a major effect on the Company's operations and financial results when the business is disposed of or classified as held-for-sale.

Under ASC 360, Property, Plant and Equipment , assets may be classified as held-for-sale even though the discontinued operations criteria is not met.

The results of discontinued operations are reported in Loss from discontinued operations in the Consolidated Statement of Operations.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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

Years Ended December 31,

Gain on reinsurance recaptures $ — $ 47.0

Gain on investment in Inseego — 34.4

Gain (loss) on embedded derivatives $ ( 2.8 ) $ 5.4

Gain on sale of equity method investments 71.1 8.1

Other income (expenses), net 0.2 ( 7.2 )

8 unchanged sentences

Total cash and cash equivalents and restricted cash $ 233.8 $ 195.1

Cash and cash equivalents classified in Assets held for sale, beginning of period $ 45.3 $ 24.2

Restricted cash classified in Assets held for sale 0.2 0.4

Total cash and cash equivalents and restricted cash classified in Assets held for sale $ 45.5 $ 24.6

Cash and cash equivalents classified in Assets held for sale, end of period $ 6.7 $ 45.3

Restricted cash classified in assets held for sale 0.2 0.2

Total cash and cash equivalents and restricted cash classified in Assets held for sale $ 6.9 $ 45.5

Supplemental cash flow information:

Cash paid for interest $ 62.5 $ 70.9

Cash paid for taxes, net of refunds $ ( 0.1 ) $ 7.5

Non-cash investing and financing activities:

Property, plant and equipment included in accounts payable $ 2.3 $ 5.3

Investments included in accounts payable $ 17.2 $ 30.1

Reclassification

Certain previous year amounts have been reclassified to conform with current year presentations, as related to the reporting of new balance sheet line items.

Accounting Pronouncements Adopted in the Current Year

The following discussion provides information about recently adopted and recently issued or changed accounting guidance (applicable to the Company) that have occurred since the Company filed its 2018 Form 10-K.

The Company has implemented all new accounting pronouncements that are in effect and that may impact its Consolidated Financial Statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial condition, results of operations or liquidity.

Effective January 1, 2019 the Company adopted the accounting pronouncements described below.

Accounting for Leases

ASU 2016-02, Leases , was issued by FASB in February 2016.

This standard requires the Company, as the lessee, to recognize most leases on the balance sheet thereby resulting in the recognition of right of use assets and lease obligations for those leases currently classified as operating leases.

The standard became effective for the Company on January 1, 2019 and the Company elected the optional transition method as well as the package of practical expedients upon adoption.

Upon adoption, the Company recognized right of use ("ROU") assets and lease liabilities in the amount of $ 67.1 million and $ 74.1 million, respectively, within Other assets and Other liabilities lines of the Consolidated

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

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

Discontinued Operations for further information;

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

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

Operating Segment and Related Information for further information;

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

Formerly the Telecommunications segment, this entity has been reclassified to the Other segment.

Operating Segment and Related Information for further information;

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Financial Statements, respectively, and utilizing the modified retrospective approach, we evaluated ROU assets for impairment and determined that approximately $ 5.1 million of newly recognized ROU assets that existed immediately prior to the effective date were impaired.

The impairment of ROU assets as of January 1, 2019, was recorded as a reduction to retained earnings and noncontrolling interests.

Instruments with Down Round Feature

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260) Distinguishing Liabilities from Equity (Topic 480) Derivatives and Hedging (Topic 815) , which changes the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features.

When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock.

ASU 2017-11 also clarifies existing disclosure requirements for equity-classified instruments.

As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature.

For freestanding equity classified financial instruments, ASU 2017-11 requires entities that present Earnings Per Share ("EPS") in accordance with ASC Topic 260 to recognize the effect of the down round feature when it is triggered.

That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS.

This standard was adopted retrospectively on January 1, 2019 and resulted in a $ 3.7 million cumulative adjustment to retained earnings.

• As a result of the sale of Beyond, and in accordance with ASC 280, the Company no longer considers the results of operations and Balance Sheets of Beyond6 as a separate segment.

Formerly the Clean Energy segment, this entity has been reclassified to the Other segment.

Operating Segment and Related Information for further information;

• The recast of prior year earnings per share 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.

Basic and Diluted Income Per Common Share for further details.

Accounting Pronouncements to be Adopted Subsequent to December 31, 2020

3 unchanged sentences

The FASB has voted to delay the effective date of ASU 2016-13 to January 1, 2023 for smaller reporting companies with a revised ASU in the fourth quarter of 2019.

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

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

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

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The Company plans to use the modified retrospective method which will include a cumulative effect adjustment on the balance sheet as of the beginning of the fiscal year of adoption.

However, prospective application is required for purchased credit deteriorated assets previously accounted for under ASU 310-39 for debt securities for which an other-than-temporary impairment ("OTTI") was recognized prior to the date of adoption.” To the first paragraph of the Credit Loss Standard Section.

The Company does not currently expect to early adopt this standard and is currently evaluating the impact of this new accounting guidance on its consolidated financial statements.

However, prospective application is required for purchased credit deteriorated assets previously accounted for under ASU 310-30 for debt securities for which an other-than-temporary impairment ("OTTI") was recognized prior to the date of adoption.

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

Outlined below are key areas of change, although there are other changes not noted below:

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

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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

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

While the requirements of the new guidance represent a material change from existing GAAP, the underlying economics of items in scope and related cash flows are unchanged.

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

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Long-Duration Contracts

ASU 2018-12, Financial Services - Insurance (Topic 944) :

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

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

The Company does not currently expect to early adopt this standard and is currently evaluating the impact of this new accounting guidance on its consolidated financial statements.

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

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

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

Outlined below are key areas of change, although there are other changes not noted below:

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• Disaggregated rollforwards of beginning to ending balances of the liability for future policy benefits, policyholder account balances, VOBA, as well as information about significant inputs, judgments, assumptions, and methods used in measurement are required to be disclosed.

The Company anticipates that the requirement to update assumptions for liability for future policy benefits will increase volatility in the Company's Consolidated Statements of Operations while the requirement to update the discount rate will increase volatility in the Company's Consolidated Statements of Stockholders' Equity.

The Company anticipates that the requirement to update assumptions for liability for future policy benefits will increase volatility in the Company's Condensed Consolidated Statements of Operations while the requirement to update the discount rate will increase volatility in the Company's Condensed Consolidated Statements of Stockholders' Equity.

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

While the requirements of the new guidance represent a material change from existing GAAP, the underlying economics of the Company's Insurance segment and related cash flows are unchanged.

The FASB has voted to delay the effective date of ASU 2018-12 to January 1, 2024 for smaller reporting companies with a revised ASU in the fourth quarter of 2019.

On September 30, 2020, the FASB voted to delay the effective date of ASU 2018-12 to January 1, 2025 for smaller reporting companies.

Currently, the Company plans to focus on developing models and procedures through 2021, with testing and refinement of models occurring in 2022 and parallel testing performed in 2023.

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

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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

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

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

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

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

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

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

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

Subsequent Events

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Subsequent Events for the summary of the subsequent events.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Discontinued Operations

The results of GMSL, ICS, and Beyond6, and the related expenses directly attributable to the entities were reported as discontinued operations.

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

Years Ended December 31,

Net Revenue $ 519.6 $ 907.2

Cost of revenue 492.4 828.9

Selling, general and administrative 26.2 37.3

Depreciation and amortization 12.6 33.0

Other operating expenses 0.3 4.4

Income (loss) from operations ( 11.9 ) 3.6

Interest Expense ( 7.7 ) ( 19.1 )

Loss on sale and liquidation of subsidiaries ( 44.2 ) —

Income from equity investees 0.5 0.6

Other income (loss) ( 1.5 ) ( 0.2 )

Pre-tax loss from discontinued operations ( 64.8 ) ( 15.1 )

Income tax benefit 1.0 1.2

Loss from discontinued operations $ ( 63.8 ) $ ( 13.9 )

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 on sale of $ 2.4 million as a result of the cash collateralized bonding facility release.

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

As a result of the repayment of $ 15.0 million 2019 Revolving Credit Agreement, the Company allocated the following interest and the amortization of deferred financing costs for the years ended December 31, 2020 and 2019 associated with the principal prepayment from continuing operations to discontinued operations on the Company’s Condensed Consolidated Statement of Operations:

Years Ended December 31,

Interest expense $ 0.2 $ 0.9

Amortization of deferred financing costs and original issuance discount $ 0.1 $ 0.3

As a result of the mandatory redemption of $ 76.9 million on the Senior Secured Notes, the Company allocated the following pro-rata interest and amortization of deferred financing costs and original issuance discount for the years ended December 31, 2020 and 2019, from continuing operations to discontinued operations on the Company’s Consolidated Statements of Operations:

Years Ended December 31,

Interest expense $ 2.2 $ 8.8

Amortization of deferred financing costs and original issuance discount $ 0.2 $ 0.9

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 realization of foreign currency translation of PTGi International Carrier Services Ltd., which was essentially liquidated in conjunction with the sale.

Proceeds were used for general corporate purposes.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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.

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

Other invested assets $ — $ 16.9

Cash and cash equivalents 6.7 45.3

Accounts receivable, net 13.6 109.0

Property, plant and equipment, net 89.4 276.3

Goodwill 2.1 16.4

Intangibles, net 9.2 16.3

Other assets 5.4 75.0

Total assets held for sale $ 126.4 $ 555.2

Account payable and other current liabilities $ 10.3 $ 148.9

Debt obligations 56.3 115.3

Pension liability — 18.8

Other liabilities 8.1 51.9

Total liabilities held for sale $ 74.7 $ 334.9

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

ASC 606 aligns revenue recognition with the timing of when promised goods or services are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.

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When applying these methods, the Company considers all information that is reasonably available, including historical, current and estimates of future performance.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Variable consideration is included in the transaction price only to the extent it is probable, in the Company’s judgment, that a significant future reversal in the amount of cumulative revenue recognized under the contract will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

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Based upon this assessment, the Company estimates the transaction price, including whether the variable consideration constraint should be applied.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Changes in the estimates of transaction prices are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are made.

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Years Ended December 31,

Construction $ 713.3 $ 716.4

Marine Services 172.5 194.3

Energy 39.0 20.7

Telecommunications 696.1 793.6

Broadcasting 41.8 45.4

Infrastructure

$ 676.6 $ 713.3

Spectrum 40.3 41.8

Total revenue $ 716.9 $ 755.6

(1) The Insurance segment does not have revenues in scope of ASC 606.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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

Accounts receivables with customers

Construction $ 199.2 $ 196.6

Marine Services 26.0 48.3

Energy 31.1 3.3

Telecommunications 51.9 117.6

Broadcasting 8.5 9.2

Infrastructure

$ 168.5 $ 199.2

Spectrum 7.3 8.5

Total accounts receivables with customers $ 175.8 $ 207.7

Construction Segment

Infrastructure Segment

DBMG performs its services primarily under fixed-price contracts and recognizes revenue over time using the input method to measure progress for its projects.

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Provisions for estimated losses on uncompleted contracts are made in the period a loss on a contract becomes determinable.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Service Contracts

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DBMG's revenues are principally derived from contracts to provide fabrication and erection services to its customers.

Contracts represent majority of the revenue of the Construction segment and are generally recognized over time.

Contracts represent majority of the revenue of the Infrastructure segment and are generally recognized over time.

A majority of contracts are domestic, fixed priced, and are in excess of one year.

Disaggregation of the Construction segment, by market or type of customer, is used to evaluate its financial performance.

Disaggregation of the Infrastructure segment, by market or type of customer, is used to evaluate its financial performance.

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

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Commercial $ 217.7 $ 205.4

Convention 77.4 155.8

Healthcare 49.5 105.0

Industrial 214.9 238.0

Transportation 72.6 64.8

Leisure 42.8 45.7

Healthcare 29.5 49.5

Convention 10.6 77.4

Other 87.8 32.1

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Other revenue 0.7 0.4

Total Construction segment revenue $ 713.3 $ 716.4

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Total Infrastructure segment revenue $ 676.6 $ 713.3

Contract Assets and Contract Liabilities

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Contract liabilities $ ( 52.2 ) $ ( 50.6 )

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

The change in contract assets is a result of the recording of $ 30.4 million of costs in excess of billings driven by new commercial projects, offset by $ 25.4 million of costs in excess of billings transferred to receivables from contract assets recognized at the beginning of the period.

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Transportation 27.7 — 27.7

Leisure 10.4 — 10.4

Other 58.9 — 58.9

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Although many of DBMG's contracts are subject to cancellation at the election of its customers, in accordance with industry practice, DBMG does not limit the amount of unrecognized revenue included within its remaining unsatisfied performance obligations due to the inherent substantial economic penalty that would be incurred by its customers upon cancellation.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Marine Services Segment

GMSL generally generates revenue by providing maintenance services for subsea telecommunications cabling, installing subsea cables, providing installation, maintenance and repair of fiber optic communication and power infrastructure to offshore oil and gas platforms, and installing inter-array power cables for use in offshore wind farms.

Telecommunication - Maintenance & Installation

GMSL performs its services within telecommunication market primarily under fixed-price contracts and recognizes revenue over time using the input method to measure progress for its projects.

The nature of the projects does not provide measurable value to the customer over time and control does not transfer to the customer at discrete points in time.

The customer receives value over the term of the project based on the amount of work that has been completed towards the delivery of the completed project.

Depending on the project, the most reliable measure of progress is either the cost incurred or time elapsed towards delivery of the completed project.

Therefore, the input method provides the most reliable method to measure progress.

Revenue recognition begins when work has commenced.

Costs include all direct material and labor costs related to contract performance, indirect labor, and overhead costs, which are charged to contract costs as incurred.

Revisions in estimates during the course of contract work are reflected in the accounting period in which the facts requiring the revision become known.

Provisions for estimated losses on uncompleted contracts are made in the period a loss on a contract becomes determinable.

Maintenance revenues within this market are attributable to standby vessels and the provision of cable storage depots for repair of fiber optic telecommunications cables in defined geographic zones, and its maintenance business is provided through contracts with consortia of approximately 60 global telecommunications providers.

These contracts are generally five to seven years long.

Installation revenues within this market are generated through installation of cable systems including route planning, mapping, route engineering, cable laying, and trenching and burial.

GMSL’s installation business is project-based with contracts typically lasting one to five months.

Power - Operations, Maintenance & Construction Support

Majority of revenues within this market are generated through the provision of crew transfer vessels and turbine technicians on the maintenance of offshore wind farms.

Services are provided at agreed day rates and are recognized as revenues at the point in time at which the performance obligations are met.

Additional revenues are generated through the provision of approved safety training courses to personnel operating on offshore wind turbines.

Courses are supplied at agreed rates and recognized at the point in time at which the courses are provided.

Power - Cable Installation & Repair

Installation and repair revenues within this market are attributable to the provision of engineering solutions, which includes the charter of cable laying vessels and related subsea assets.

These contracts are either charged at agreed day rates and are recognized as revenues at the point in time at which the performance obligations are met, or are under fixed-price contracts, in which case revenue is recognized over time using the input method to measure progress for its projects.

Disaggregation of Revenues

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

Years Ended December 31,

Telecommunication - Maintenance $ 86.8 $ 87.0

Telecommunication - Installation 33.2 41.5

Power - Operations, Maintenance & Construction Support 19.9 31.0

Power - Cable Installation & Repair 32.6 34.8

Total revenue from contracts with customers 172.5 194.3

Other revenue — —

Total Marine Services segment revenue $ 172.5 $ 194.3

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Contract Assets and Contract Liabilities

The timing of revenue recognition may differ from the timing of invoicing to customers.

Contract assets include unbilled amounts from our long-term projects when revenue recognized exceeds the amounts invoiced to our customers, as the amounts cannot be billed under the terms of our contracts.

Such amounts are recoverable from our customers based upon various measures of performance, including achievement of certain milestones, completion of specified units or completion of a contract.

In addition, many of our time and materials arrangements, as well as our contracts to perform services are billed in arrears pursuant to contract terms that are standard within the industry, resulting in contract assets and/or unbilled receivables being recorded, as revenue is recognized in advance of billings.

Contract assets are included in Other assets in the Consolidated Balance Sheets.

Contract liabilities from our long-term construction contracts occur when amounts invoiced to our customers exceed revenues recognized.

Contract liabilities additionally include advanced payments from our customers on certain contracts.

Contract liabilities decrease as we recognize revenue from the satisfaction of the related performance obligation.

Contract liabilities are included in Other liabilities in the Consolidated Balance Sheets.

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

Contract assets $ 15.1 $ 5.2

Contract liabilities $ ( 14.8 ) $ ( 1.0 )

Transaction Price Allocated to Remaining Unsatisfied Performance Obligations

The transaction price allocated to remaining unsatisfied performance obligations consisted of the following (in millions):

Within one year Within five years Thereafter Total

Telecommunication - Maintenance $ 76.4 $ 160.8 $ 40.6 $ 277.8

Telecommunication - Installation 13.8 — — 13.8

Power - Operations, Maintenance & Construction Support 11.6 17.4 — 29.0

Power - Cable Installation & Repair 56.8 — — 56.8

Remaining unsatisfied performance obligations $ 158.6 $ 178.2 $ 40.6 $ 377.4

GMSL's remaining unsatisfied performance obligations, otherwise referred to as backlog, increase with awards of new contracts and decrease as it performs work and recognizes revenue on existing contracts.

GMSL includes a project within its remaining unsatisfied performance obligations at such time the project is awarded and agreement on contract terms has been reached.

GMSL's remaining unsatisfied performance obligations include amounts related to contracts for which a fixed price contract value is not assigned when a reasonable estimate of total transaction price can be made.

Remaining unsatisfied performance obligations consist predominantly from projects within telecommunication maintenance market.

These revenues are generated through long-term contracts for the provision of vessels and cable depots in maintaining and repairing subsea telecoms cables around the globe.

Revenues are recognized over time to reflect both the duration that the vessels and depots are provided on standby duties and the amount of work that has been completed.

Energy Segment

ANG's revenues are principally derived from sales of compressed natural gas.

ANG recognizes revenue from the sale of natural gas fuel primarily at the time the fuel is dispensed.

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.

As a result of the Bipartisan Budget Act of 2018, signed into law on February 9, 2018, all AFTC revenue for vehicle fuel ANG sold in 2017 was collected in the second quarter of 2018.

Net revenue after customer rebates for such credits recognized in 2018 was $ 2.6 million.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Disaggregation of Revenues

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

Years Ended December 31,

Volume-related $ 27.5 $ 16.5

Maintenance services 0.1 0.1

Total revenue from contracts with customers 27.6 16.6

RNG incentives 0.5 1.3

Alternative fuel tax credit 10.6 2.6

Other revenue 0.3 0.2

Total Energy segment revenue $ 39.0 $ 20.7

Telecommunications Segment

ICS operates an extensive network of direct routes and offers premium voice communication services for carrying a mix of business, residential and carrier long-distance traffic, data and transit traffic.

Customers may have a bilateral relationship with ICS, meaning they have both a customer and vendor relationship with ICS.

In these cases, ICS sells the customer access to the ICS supplier routes but also purchases access to the customer’s supplier routes.

Net revenue is derived from the long-distance data and transit traffic.

Net revenue is earned based on the number of minutes during a call multiplied by the price per minute, and is recorded upon completion of a call.

Completed calls are billable activity while incomplete calls are non-billable.

Incomplete calls may occur as a result of technical issues or because the customer’s credit limit was exceeded and thus the customer routing of traffic was prevented.

Revenue for a period is calculated from information received through ICS’s billing software, such as minutes and market rates.

Customized billing software has been implemented to track the information from the switch and analyze the call detail records against stored detailed information about revenue rates.

This software provides ICS with the ability to perform a timely and accurate analysis of revenue earned in a period.

ICS evaluates gross versus net revenue recognition for each of its contractual arrangements by assessing indicators of control and significant influence to determine whether the ICS acts as a principal (i.e.

gross recognition) or an agent (i.e.

net recognition).

ICS has determined that it acts as a principal for all of its performance obligations in connection with all revenue earned.

Net revenue represents gross revenue, net of allowance for doubtful accounts receivable, service credits and service adjustments.

Cost of revenue includes network costs that consist of access, transport and termination costs.

The majority of ICS’s cost of revenue is variable, primarily based upon minutes of use, with transmission and termination costs being the most significant expense.

Disaggregation of Revenues

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

Years Ended December 31,

Termination of long distance minutes $ 696.1 $ 793.6

Total revenue from contracts with customers 696.1 793.6

Other revenue — —

Total Telecommunications segment revenue $ 696.1 $ 793.6

Broadcasting Segment

Spectrum Segment

Network advertising revenue is generated primarily from the sale of television airtime for programs or advertisements.

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Transaction prices are based on the contract terms, with no material judgments or estimates.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Broadcast station revenue is generated primarily from the sale of television airtime in return for a fixed fee or a portion of the related ad sales recognized by the third party.

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Transaction prices are based on the contract terms, with no material judgments or estimates.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Disaggregation of Revenues

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

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

Years Ended December 31,

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Other revenue — —

Total Broadcasting segment revenue $ 41.8 $ 45.4

Total Spectrum segment revenue $ 40.3 $ 41.8

Transaction Price Allocated to Remaining Unsatisfied Performance Obligations

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Acquisitions, Dispositions, and Deconsolidations

Construction Segment

On November 30, 2018, DBMG consummated acquisition of GrayWolf Industrial ("GrayWolf"), a premier specialty maintenance, repair and installation services provider, pursuant to that certain Agreement and Plan of Merger, dated October 10, 2018, as amended by Amendment No.

1 to the Agreement and Plan of Merger, dated November 29, 2018.

The aggregate fair value of the cash consideration paid in connection with the acquisition of GrayWolf was $ 139.8 million.

The transaction was accounted for as business acquisition.

The allocation of the fair value of consideration transferred among the identified assets acquired, liabilities assumed, intangibles and residual goodwill were as follows (in millions):

Other invested assets $ 0.9

Cash and cash equivalents 8.6

Accounts receivable 28.8

Property, plant and equipment 15.4

Goodwill 50.7

Intangibles 44.1

Other assets 18.9

Total assets acquired 167.4

Accounts payable and other current liabilities ( 23.7 )

Other liabilities ( 3.9 )

Total liabilities assumed ( 27.6 )

Total net assets acquired $ 139.8

Goodwill was determined based on the residual differences between fair value of consideration transferred and the value assigned to tangible and intangible assets and liabilities.

Among the factors that contributed to goodwill was approximately $ 10.9 million assigned to the assembled and trained workforce.

Goodwill is not amortized and is not deductible for tax purposes.

Acquisition costs incurred by DBMG in connection with the acquisition of GrayWolf were approximately $ 4.2 million, which were included in selling, general and administrative expenses.

The acquisition costs were primarily related to legal, accounting and valuation services.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Results of GrayWolf were included in our Consolidated Statements of Operations since the acquisition date.

Pro forma results of operations have not been presented because they are not material to our consolidated results of operations.

Energy Segment

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.

Transaction was accounted for as asset acquisition.

To finance the acquisition, ANG entered into a term loan with M&T bank for $ 28.0 million and issued preferred stock and ten year warrants for common stock for $ 14.0 million.

The preferred stock bears a 14 % coupon and is mandatorily redeemable in four years.

The warrants are exercisable at $ 0.001 per share of common stock and will represent 6 % of ANG when exercised.

ANG received $ 5.0 million of proceeds from CGI.

Consequently, related preferred stock and warrants are eliminated in consolidation.

Mandatorily redeemable preferred stock and warrants are recorded within Other liabilities.

Insurance Segment

On August 9, 2018, CGI completed the acquisition all of the outstanding shares of KMG America Corporation (“KMG”), the parent company of Kanawha Insurance Company (“KIC”), Humana Inc.’s ("Humana") long-term care insurance subsidiary for cash consideration of ten thousand dollars.

The decision to acquire was made as part of CGI’s core strategy to acquire additional accretive LTC run-off businesses.

The transaction was accounted for as business acquisition.

The allocation of the fair value of consideration transferred among the identified assets acquired, liabilities assumed and bargain purchase gain are summarized as follows (in millions):

Fixed maturity securities, available-for-sale at fair value $ 1,575.4

Equity securities 0.3

Mortgage loans 0.9

Policy loans 2.9

Cash and cash equivalents 806.6

Recoverable from reinsurers 902.5

Other assets 28.2

Total assets acquired 3,316.8

Life, accident and health reserves ( 2,931.3 )

Annuity reserves ( 11.3 )

Value of business acquired ( 214.4 )

Accounts payable and other current liabilities ( 6.5 )

Deferred tax liability ( 25.3 )

Other liabilities ( 11.5 )

Total liabilities assumed ( 3,200.3 )

Total net assets acquired 116.5

Total fair value of consideration —

Gain on bargain purchase $ 116.5

Gain on bargain purchase

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, corresponding deferred tax position and, ultimately, recognition of the bargain purchase gain, largely driven by the following attributes:

• 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.

• The reduction in the federal income tax rate, from 35% at the time the seller contribution was established to 21% effective January 1, 2018, effectively generates the remaining balance for the bargain purchase price.

• 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, amongst other closing conditions.

HC2 HOLDINGS, INC.

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Reinsurance Recoverable

The reinsurance recoverable balance represents amounts recoverable from third parties.

GAAP requires insurance reserves and reinsurance recoverable balances to be presented on a gross basis, as opposed to U.S.

statutory accounting principles, where reserves are presented net of reinsurance.

Accordingly, the Company grossed up the fair value of the net insurance contract liability for the amount of reinsurance of approximately $ 902.5 million, to arrive at a gross insurance liability, and recognized an offsetting reinsurance recoverable amount of approximately $ 902.5 million.

As part of this process, management considered reinsurance counterparty credit risk and considers it to have an immaterial impact on the reinsurance fair value gross-up.

To mitigate this risk substantially all reinsurance is ceded to companies with investment grade S&P ratings.

Amounts recoverable from reinsurers were estimated in a manner consistent with the liability associated with the reinsured policies and were an estimate of the reinsurance recoverable on paid and unpaid losses, including an estimate for losses incurred but not reported.

Reinsurance recoverable represent expected cash inflows from reinsurers for liabilities ceded and therefore incorporate uncertainties as to the timing and amount of claim payments.

Reinsurance recoverable includes the balances due from reinsurers under the terms of the reinsurance agreements for these ceded balances as well as settlement amounts currently due.

The Value of Business Acquired

VOBA reflects the estimated fair value of in-force contracts in a life insurance company acquisition less the amount recorded as insurance contract liabilities.

It represents the portion of the purchase price that is allocated to the value of the rights to receive future cash flows from the business in force at the acquisition date.

A VOBA liability (negative asset) occurs when the estimated fair value of in-force contracts in a life insurance company acquisition is less than the amount recorded as insurance contract liabilities.

HC2 calculated VOBA by adjusting the purchase price, which was derived on a statutory accounting basis, for differences between statutory and U.S.

GAAP accounting requirements.

Amortization is based on assumptions consistent with those used in the development of the underlying contract adjusted for emerging experience and expected trends.

Life, accident and health reserves

HC2 estimated the fair value of reserves on a fair value basis, using actuarial assumptions consistent with those used for the buyer’s valuation of the acquired business, and discount rates reflecting capital market conditions.

The reserve accounts for the present value of all future cash flows, net of reinsurance, of the acquired block of insurance, including premium, benefit payments, and expenses.

HC2 estimated the fair value of recoverable from reinsurers using the same assumptions as those for reserves of the net retained business, but applied to business ceded through various, existing reinsurance agreements.

Life Sciences Segment

On June 8, 2018, Pansend closed on the sale of its approximately 75.9 % ownership in BeneVir to Janssen Biotech, Inc.

In conjunction with the closing of the transaction, Janssen made an upfront cash payment of $ 140.0 million.

Pansend received a cash payment of $ 93.4 million and received an additional cash payment of $ 13.3 million on September 16, 2019, which was previously held in escrow, for a total consideration of $ 106.7 million.

Pansend recorded a gain on the sale of $ 102.1 million, of which $ 21.7 million was allocated to noncontrolling interests.

HC2 received a cash payment of $ 72.8 million and an additional cash payment of $ 9.8 million from the release of the escrow.

Under the terms of the merger agreement, Pansend is eligible to receive payments of up to $ 189.7 million upon the achievement of specified development milestones and up to $ 493.1 million upon the achievement of specified levels of annual net sales of licensed products.

From these potential milestone payments, HC2 is eligible to receive up to $ 512.2 million.

Broadcasting Segment

During the years ended December 31, 2019 and 2018, HC2 Broadcasting acquired a series of licenses for a total consideration of $ 20.5 million and $ 71.4 million, respectively.

Spectrum Segment

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

All transactions were accounted for as asset acquisitions.

Other Segment

On August 14, 2018, 704Games issued a 53.5 % equity interest to international media and technology company Motorsport Network.

As a result, HC2’s ownership percentage in 704Games was diluted to 26.2 % resulting in the loss of control and deconsolidation of the entity.

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 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 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.

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.

In the first quarter of 2020, 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 as a result of the cash collateralized bonding facility release.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Pro Forma Adjusted Summary

The following schedule presents unaudited consolidated pro forma results of operations data as if the acquisition of KMG had occurred on January 1, 2018.

This information does not purport to be indicative of the actual results that would have occurred if the acquisitions had actually been completed on the date indicated, nor is it necessarily indicative of the future operating results or the financial position of the combined company (in millions):

Year Ended December 31, 2018

Net revenue $ 2,106.4

Net income from operations $ 234.3

Net income attributable to HC2 Holdings, Inc.

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 million, and GMH's 49 % stake, through New Saxon, at approximately $ 140 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 proceeds were used for general corporate purposes.

Sale of Beyond6

The sale closed on January 15, 2021.

Discontinued Operations for further details.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Fixed Maturity Securities

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Total $ 3,929.9 $ 4,456.1

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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

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Total $ 2,970.1 $ 3,452.4 100.0 % $ 2,569.1 $ 2,827.0 100.0 %

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

A portion of certain OTTI losses on fixed maturity securities is recognized in Accumulated Other Comprehensive Income ("AOCI").

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

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

The following tables present the estimated fair values and gross unrealized losses for the 125 and 139 fixed maturity securities held by the Company that have estimated fair values below amortized cost as of each of December 31, 2020 and December 31, 2019, respectively.

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Total fixed maturity securities $ 331.0 $ ( 22.1 ) $ 277.0 $ ( 30.6 ) $ 608.0 $ ( 52.7 )

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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

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Total $ 11.3 $ 45.9 $ — $ 68.1

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Summarized financial information for equity method investees not consolidated as of and for the year ended December 31, 2019 were not significant.

Summarized financial information for equity method investees not consolidated as of and for the year ended December 31, 2018 were as follows (information for one of the investees is reported on a one month lag, in millions):

Years Ended December 31,

Net revenue $ 462.0 $ 382.9

Gross profit $ 88.1 $ 98.8

Income from continuing operations $ 4.1 $ 38.7

Net income $ 2.0 $ 30.9

Current assets $ 373.3 $ 282.5

Noncurrent assets $ 95.1 $ 90.5

Current liabilities $ 246.9 $ 177.0

Noncurrent liabilities $ 18.9 $ 19.5

Net investment income

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Net investment income $ 188.9 $ 203.8

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Net realized and unrealized gains (losses) on investments

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Net realized and unrealized gains (losses) $ ( 15.1 ) $ 0.7

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Fair Value of Financial Instruments

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Total liabilities accounted for at fair value $ 6.2 $ — $ — $ 6.2

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

December 31, 2019 Fair Value Measurement Using:

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

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

The Company’s assessment resulted in a net transfer into Level 3 of $ 51.5 million primarily related to corporate securities during the year ended December 31, 2020.

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

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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

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

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Level 3 Measurements and Transfers

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Total financial assets $ 763.0 $ ( 14.2 ) $ ( 4.9 ) $ 161.2 $ ( 269.3 ) $ 322.3 $ ( 270.8 ) $ 687.3

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Total realized/unrealized (gains) losses included in

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Total financial liabilities $ 4.3 $ 1.9 $ — $ — $ — $ — $ — $ 6.2

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Total realized/unrealized gains (losses) included in

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Fixed maturity securities

Government and government agencies $ — $ — $ — $ 2.3 $ — $ — $ ( 2.3 ) $ —

States, municipalities and political subdivisions $ — $ — $ 0.1 $ — $ ( 0.5 ) $ 4.2 $ ( 3.8 ) $ —

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

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Fair Value of Financial Instruments Not Measured at Fair Value

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Total liabilities not accounted for at fair value $ 798.2 $ 814.0 $ — $ 578.8 $ 235.2

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

December 31, 2019 Fair Value Measurement Using:

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Contracts in progress $ 118.6 $ 149.0

Trade receivables 60.6 127.5

Unbilled retentions 50.3 51.7

Trade receivables 7.5 8.3

Other receivables 8.9 21.0

Allowance for doubtful accounts ( 0.6 ) ( 1.1 )

Total accounts receivable, net $ 337.8 $ 379.2

Total $ 184.7 $ 228.9

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Inventory is recognized in the Consolidated Balance Sheets within Other assets, and consists of the following (in millions):

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Finished goods 1.2 0.3

$ 22.6 $ 21.3

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Total $ 9.9 $ 10.7

Recoverable from Reinsurers

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Total $ 957.5 100.0 % $ 953.7 100.0 %

During the year ended December 31, 2018, CGI recaptured two of their reinsurance treaties.

The first of which received $ 161.4 million of cash, reduced its ceded reinsurance by $ 140.8 million and recognizing a gain of $ 20.6 million, included in Other income (expense), net.

The second recapture received $ 168.0 million of cash, reduced its ceded reinsurance by $ 141.7 million and recognizing a gain of $ 26.3 million, included in Other income.

Property, Plant and Equipment, net

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

Cable-ships and submersibles $ 246.5 $ 251.1

Equipment, furniture and fixtures, and software $ 116.3 $ 117.8

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Depreciation expense was $ 21.1 million and $ 21.6 million for the years ended December 31, 2020 and 2019, respectively.

These amounts included $ 9.1 million and $ 7.0 million of depreciation expense recognized within cost of revenue for the years ended December 31, 2019 and 2018, respectively.

As of December 31, 2019 and 2018 total net book value of equipment, cable-ships, and submersibles under capital leases consisted of $ 35.1 million and $ 40.0 million, respectively.

For the year ended December 31, 2019, our Marine Services segment recorded an impairment expense of $ 0.6 million, due to the under-utilization of assets on one of the segment's barges.

For the year ended December 31, 2018, our Energy segment recorded an impairment expense of $ 0.7 million, of which $ 0.4 million was due to station performance and $ 0.3 million was related to the abandonment of a station development project.

These amounts included $ 9.1 million of depreciation expense recognized within cost of revenue for each of the years ended December 31, 2020 and 2019.

As of December 31, 2020 and 2019 the total net book value of equipment under capital leases consisted of $ 0.9 million and $ 2.1 million, respectively.

HC2 HOLDINGS, INC.

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Goodwill and Intangibles, net

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

Construction Marine Services Energy Telecom Insurance Life Sciences Broadcasting Other Total

Balance at December 31, 2017 $ 38.6 $ 14.3 $ 2.1 $ 3.4 $ 47.3 $ 3.6 $ 20.6 $ 1.8 $ 131.7

Measurement Period Adjustment — — — — — — 0.8 — 0.8

Acquisitions 43.6 — — 1.0 — — — — 44.6

Dispositions — — — — — ( 3.6 ) — ( 1.8 ) ( 5.4 )

Balance at December 31, 2018 82.2 14.3 2.1 4.4 47.3 — 21.4 — 171.7

Measurement Period Adjustment 7.1 — — 0.1 — — — — 7.2

Impairments — — — ( 4.5 ) ( 47.3 ) — — — ( 51.8 )

Translation ( 0.3 ) — — — — — — — ( 0.3 )

Balance at December 31, 2019 $ 89.0 $ 14.3 $ 2.1 $ — $ — $ — $ 21.4 $ — $ 126.8

On an annual basis, the Company performs it's goodwill impairment review in accordance with ASC 350.

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After considering all quantitative and qualitative factors, the Company has determined that other than noted below it is more likely than not that the reporting units' fair values exceed carrying values as of the period end.

Company reports goodwill impairment charges within the Asset impairment expense line of our Consolidated Statements of Operations.

Telecommunications

The Company impaired $ 4.5 million of Goodwill at our Telecommunications segment primarily due to the declining performance driven by deteriorating industry trends.

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.

The Company reports goodwill impairment charges within the Asset impairment expense line of our Consolidated Statements of Operations.

The Company considered the current and expected future economic and market conditions surrounding the COVID-19 pandemic and its impact on each of the reporting units.

Further, the Company assessed the current market capitalization, forecasts and the amount of headroom in the 2020 impairment test.

As a result of the goodwill assessment, the Company determined that COVID-19's impact to the Spectrum segment in the first quarter of 2020 was a “triggering event” and, as required, performed a quantitative analysis, with the assistance of a third-party valuation firm, of the value of the Spectrum reporting unit and its indefinite-lived intangible assets.

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

Determining the fair value of the Spectrum reporting unit and indefinite-lived intangible assets requires significant judgment and estimates by management, utilizing the income-approach, which utilizes several key inputs, including future cash flows consistent with management’s strategic plans, sales growth rates and a discount rate, amongst others.

Estimating sales growth rates requires significant judgment by management in areas such as future economic conditions, growth rates, pricing, and consumer tastes and preferences.

Given the inherent uncertainties in estimating the future impacts of the COVID-19 pandemic on global macroeconomic conditions and interest rates in general and on the Spectrum business, actual results may differ from management’s current estimates and could have an adverse impact on one or more of the assumptions used in our quantitative models related to the Spectrum reporting unit, resulting in potential impairment charges in subsequent periods.

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

At December 31, 2020, the Company further reviewed qualitative factors of potential impairment for Goodwill and Intangible assets, inclusive of further impact of COVID-19, and there were no triggering events which would indicate impairment may have occurred.

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.

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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

Through the sale of BeneVir in the second quarter of 2018, $ 3.6 million of goodwill was deconsolidated.

Through the deconsolidation of 704Games in the third quarter of 2018, $ 1.8 million of goodwill was deconsolidated.

Acquisitions, Dispositions, and Deconsolidations, for additional detail regarding our acquisitions and dispositions.

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

Infrastructure

Spectrum Insurance Total

Balance at December 31, 2018 $ 82.2 $ 21.4 $ 47.3 $ 150.9

Measurement Period Adjustment 7.1 — — 7.1

Impairments — — ( 47.3 ) ( 47.3 )

Translation ( 0.3 ) — — ( 0.3 )

Balance at December 31, 2019 89.0 21.4 — 110.4

Translation 0.6 — — 0.6

Balance at December 31, 2020 $ 89.6 $ 21.4 $ — $ 111.0

HC2 HOLDINGS, INC.

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Total $ 115.5 $ 138.7

The Broadcasting segment strategically acquires assets across the United States, which results in the recording of FCC licenses.

The Spectrum segment strategically acquires assets across the United States, which results in the recording of FCC licenses.

Providing the Company acts within the requirements and constraints of the regulatory authorities, the renewal and extension of these licenses is reasonably certain at minimal costs.

Accordingly, we have concluded that the acquired FCC licenses are indefinite-lived intangible assets.

In 2019, FCC licenses increased $ 15.6 million, $ 18.2 million of which was through acquisitions, offset by $ 2.3 million of impairments and $ 0.3 million loss on the sale of licenses.

Our Broadcasting segment recorded the impairment as a result of its decision to forfeit FCC licenses in certain lower-ranked markets, and does not expect any significant changes to future cash flows as a result of these forfeitures.

The Company reports intangible impairment charges within the Asset impairment expense line of our Consolidated Statements of Operations.

In 2020, FCC licenses decreased $ 23.2 million.

The decrease was primarily related to $ 20.5 million of dispositions and $ 3.0 million of impairments.

Definite Lived Intangible Assets

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Channel sharing arrangements 35 years 20.2 ( 1.6 ) 18.6 27.2 ( 0.9 ) 26.3

Developed technology 4 Years 1.2 ( 1.2 ) — 1.2 ( 1.2 ) —

Other 7 years 5.5 ( 2.7 ) 2.8 5.4 ( 1.9 ) 3.5

Total $ 80.1 $ ( 21.0 ) $ 59.1 $ 86.7 $ ( 14.8 ) $ 71.9

During the third quarter of 2020, the Spectrum segment recorded an impairment of certain channel sharing arrangements of $ 7.0 million as a result of management's decision to sell certain non-core assets.

Amortization expense for definite lived intangible assets was $ 6.0 million and $ 9.9 million for the years ended December 31, 2020 and 2019, respectively, and was included in Depreciation and amortization in our Consolidated Statements of Operations.

VOBA is amortized in relation to the projected future premium of the acquired long-term care blocks of business and recorded amortization increases net income for the respective period.

VOBA is amortized in relation to the projected future premium of the acquired long-term care blocks of business and recorded amortization increases in net income for the respective period.

Negative amortization of VOBA was $ 21.3 million and $ 23.5 million for the years ended December 31, 2020 and 2019, respectively,

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Beginning balance, net 630.3 602.3

Opening balance due to business acquired — 295.4

recoverable from reinsurers — ( 55.9 )

Net balance of business acquired — 239.5

Incurred related to insured events of:

Current year 217.5 211.8

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Ending balance $ 782.4 $ 761.3

The Insurance segment experienced a favorable claims reserve development of $ 47.2 million and an unfavorable claims reserve development of $ 81.6 million for the years ended December 31, 2019 and 2018, respectively.

The main drivers of the current year favorable development were due to an update to the estimate for remaining benefits to be paid and due to favorable development in claim termination rates experienced relative to prior years.

The main drivers of the prior year deficiency were post-acquisition recapture of two reinsurance treaties on the KIC block, post-acquisition reserve strengthening on the acquired KIC block, and variance in the development of claim termination rates and care transition settings on prior year incurred claims.

The Insurance segment experienced a favorable claims reserve development of $ 49.8 million and $ 47.2 million for the years ended December 31, 2020 and 2019, respectively.

The main drivers of the current year were favorable development with paid claims and claim terminations in the current year for claims incurred prior to 2020.

This favorable development in the current year relative to the prior year was influenced by the COVID-19 pandemic.

The main drivers of the prior year favorable development were due to an update to the estimate for remaining benefits to be paid and due to favorable development in claim termination rates experienced relative to prior years.

Accounts Payable and Other Current Liabilities

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Accrued expenses and other current liabilities 52.7 70.1

Accrued interconnection costs 43.5 103.0

Accrued payroll and employee benefits 38.2 38.7

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Debt obligations consist of the following (in millions):

Infrastructure

LIBOR plus 5.85 % Note, due 2023

2 unchanged sentences

Obligations under finance leases 0.2 0.2

Marine Services (1)

Obligations under finance leases 33.0 40.4

8.50 % Note due 2021

Notes payable and revolving lines of credit, various maturity dates 10.4 12.9

LIBOR plus 3.0 % Term Loan due in 2023

5.00 % Term Loan due in 2022

4.50 % Note due in 2022

Other, various maturity dates 2.4 3.2

Life Sciences

Notes payable due in 2019 — 1.7

8.50 % Notes due 2019

10.50 % Note due 2021

10.50 % Note due 2020

Other, various maturity dates 2.9 7.9

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Debt obligations $ 561.5 $ 723.9

(1) In March 2020, HC2 sold GMSL

(2 ) In March 2020, HC2 issued a 30 days redemption notice for $ 76.9 million of its 11.50 % Senior Secured Notes, due 2021

(3) In March 2020, HC2 repaid its LIBOR plus 6.75 % Line of Credit

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

The proceeds from the issuance of the Notes were used to redeem in full HC2’s existing 11.50 % senior secured notes and repay the outstanding indebtedness under the 2020 Revolving Credit Agreement.

(2) As part of the February 1, 2021 refinancing of the senior secured notes, HC2 entered into exchange agreements with certain holders of approximately $ 51.8 million of our outstanding 7.50 % Convertible Senior Notes due June 1, 2022, which extended the maturity date of the notes to August 1, 2026.

(3) On February 23, 2021, the Company entered into a third amendment of the 2020 Revolving Credit Agreement with MSD PCOF Partners IX, LLC, increasing the aggregate principal amount of the Revolving Credit Facility to $ 20.0 million, and extending the maturity date of the Revolving Credit Facility to February 23, 2024.

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

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2024 — 7.8 7.8

2024 2.5 12.1 14.6

Thereafter — — —

Total minimum principal & interest payments 39.4 985.8 1,025.2

Total minimum principal and interest payments 0.8 653.4 654.2

Amount representing interest — ( 77.6 ) ( 77.6 )

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The interest rates on the finance leases range from approximately 2.0 % to 11.5 %.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Infrastructure

Wells Fargo Facility

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The amendment also created a $ 17.0 million long-term tranche under the $ 70.0 million Revolving Line with a maturity date of May 31, 2025.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Additionally, The Real Estate Term Advance and Real Estate Advance 2 interest rates were modified to daily three month LIBOR plus 2.25 % with a maturity date of April 2024.

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The Wells Fargo Facility maturity date was also extended to April 2024.

In April 2020, the Wells Fargo Facility was amended, increasing LIBOR floor from zero to 0.75 %.

As of December 31, 2020, $ 17.0 million was issued through term loans and $ 21.7 million was issued through the revolver.

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and (c) the 60 days prior to the maturity of the Senior Secured Notes and/or Convertible Notes if, on that day (and solely for so long as), any of such indebtedness remain outstanding.

In April 2020, the TWC Loan was amended, increasing the LIBOR floor from 1.50 % to 1.75 % and linking the margin rate to certain covenant levels.

The TCW Loan bears interest at a rate of 5.85 % above the three month LIBOR.

Marine Sciences

Shawbrook Loan

In April 2018, GMSL entered into a 7.49 % fixed interest only loan, due April 2019, with Shawbrook Bank Limited for £ 7.2 million, or approximately $ 9.4 million at issuance ("Shawbrook Loan"), the net proceeds used to fund capital expenditures, being mainly upgrades to cable ships, and working capital requirements on installation contracts.

In September 2018, GMSL refinanced the Shawbrook loan, extending the principal balance to £ 11.0 million, or approximately $ 14.4 million at issuance, and extending the maturity date to September 2019.

The net proceeds were used to pay the principal balance of the original Shawbrook loan and repay the debt associated with the purchase of the Fugro trenching business acquisition.

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.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

In May 2017, ANG entered into a term loan with M&T Bank for $ 12.0 million.

The loan bears fixed interest annually at 5.00 % and matures in 2022.

During the third quarter 2017, ANG drew on the term loan for an additional $ 2.5 million at 4.85 %.

In January 2017, ANG refinanced and consolidated all three of its loans with Pioneer Savings Bank ("Pioneer") into a new term loan.

The principal balance outstanding bears fixed interest at a fixed rate annually equal to 4.5 % and matures in 2022.

The agreement with Pioneer also includes a revolving demand note for $ 1.0 million with an annual renewal provision that bears interest at monthly LIBOR plus 3.0 % (the "Pioneer Demand Note").

In September 2017, ANG increased the availability under the Pioneer Demand Note to $ 1.5 million.

As of December 31, 2019, there was $ 10.2 million aggregate principal outstanding under the Pioneer term loan and $ 1.3 million drawn under the Pioneer Demand Note.

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 3.0 % and matures in 2023.

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

In July 2018, in connection with the signed agreement to purchase the long-term care block of Humana, CGI obtained a three month surplus note (the "Surplus Note") from Humana, issued July 17, 2018 and due September 14, 2018, in the amount of $ 32.0 million.

The Surplus Note was paid in full in August 2018.

Life Sciences

In December 2017, R2 issued 11 % secured convertible drawdown promissory notes for $ 1.25 million, maturing on December 2018.

In 2018, R2 drew on the notes for an additional $ 0.5 million, and entered into an amendment extending the maturity date to December 2019.

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

The remaining portion was 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.

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

In January 2019, the capacity of the Secured Note was increased by $ 15.0 million to $ 50.0 million and institutional investors funded $ 7.5 million of the Secured Note bringing the total outstanding balance to $ 42.5 million.

In April 2019, an additional $ 0.7 million of notes were issued at 8.50 %.

In May, August, and September of 2019, Spectrum issued an additional $ 21.5 million of notes bearing interest of 8.50 %.

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

The 2020 Notes were comprised of a $ 36.2 million, 8.50 %,tranche, funded by an affiliate of MSD Partners, L.P.

(the “ 8.50 % Note”).

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

The 2020 Notes had an original maturity date of October 2020, and were amended multiple times during 2020 as further described below.

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.

In connection with the issuance of the 10.50 % Note due 2020, Spectrum 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 8.50 % 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 8.50 % Note and 10.50 % Note to October 2021.

In September 2020, Spectrum further amended its agreement governing 8.50 % Note, 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 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 and 10.5 % Note, respectively from the proceeds from the sale of stations.

Non-Operating Corporate

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The Convertible Notes have an effective interest rate of 17.54 % which reflects $ 12.5 million discount due to the bifurcated conversion feature and $ 1.9 million deferred financings fees.

The Company accounted for the transaction under the debt extinguishment model as the present value cash flows under the terms of the Senior Secured Notes and Convertible Notes was at least 10% different from the present value of the remaining cash flows under the 11.0 % Notes.

Unamortized debt issuance costs and net original issuance premium in the amount of $ 2.6 million were recorded within Other income.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Unamortized debt issuance costs and net original issuance premium in the amount of $ 2.6 million were recorded within Other income.

Senior Secured Notes

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The Senior Secured Notes were issued at 98.75 % of par, which translated into a discount of $ 5.9 million.

In March 2020, with the cash proceeds from the sale of GMSL, HC2 redeemed $ 76.9 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 $ 5.4 million in extinguishment loss related to the redemption of its Senior Secured Notes, which is included in Loss on early extinguishment or restructuring of debt in our Condensed Consolidated 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 Condensed 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 Condensed Consolidated Statement of Operations.

Convertible Notes

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The Company used the proceeds for working capital and general corporate purposes.

In March 2020, with the cash proceeds from the sale of GMSL, HC2 fully repaid its $ 15.0 million 2019 Revolving Credit Agreement.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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

The 2020 Revolving Credit Agreement matures in September 2021.

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

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

The Company used the proceeds for general corporate purposes.

Senior Secured Notes Terms and Conditions

The Secured Notes mature on December 1, 2021.

The Secured Notes accrue interest at a rate of 11.50 % per year.

Interest on the Secured Notes is paid semi-annually on December 1 and June 1 of each year.

Issue Price .

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.

The notes and the note guarantees will rank:

(i) senior in right of payment to all of the Company’s and the Subsidiary Guarantors’ future subordinated debt;

(ii) equal in right of payment, subject to the priority of any First-Out Obligations (as defined in the Secured Indenture), with all of the Company’s and the Subsidiary Guarantors’ existing and future senior debt and effectively senior to all of its and the Subsidiary Guarantor’s unsecured debt to the extent of the value of the collateral;

and (iii) effectively subordinated to all liabilities of its non-guarantor subsidiaries.

The notes and the note guarantees are secured on a first-priority basis by substantially all of the Company’s assets and the assets of the Subsidiary Guarantors, subject to certain exceptions and permitted liens.

The Secured Notes are secured by a first priority lien on substantially all of the Company’s assets (except for certain "Excluded Assets," and subject to certain "Permitted Liens," each as defined in the Secured Indenture), including, without limitation:

• all equity interests owned by the Company or a Subsidiary Guarantor (which, in the case of any equity interest in a foreign subsidiary, will be limited to 100 % of the non-voting stock (if any) and 65 % of the voting stock of such foreign subsidiary) and the related rights and privileges associated therewith (but excluding Equity Interests of Insurance Subsidiaries (as defined in the Secured Indenture), to the extent the pledge thereof is deemed a "change of control" under applicable insurance regulations);

• all equipment, goods and inventory owned by the Company or a Subsidiary Guarantor;

• all cash and investment securities owned by the Company or a Subsidiary Guarantor;

• all documents, books and records, instruments and chattel paper owned by the Company or a Subsidiary Guarantor;

• all general intangibles owned by the Company or a Subsidiary Guarantor;

• any proceeds and supporting obligations thereof.

The Secured Indenture permits the Company, under specified circumstances, to incur additional debt in the future that could equally and ratably share in the collateral.

The amount of such debt is limited by the covenants contained in the Secured Indenture.

Events of Default .

The Secured Indenture contains customary events of default which could, subject to certain conditions, cause the Secured

Notes to become immediately due and payable.

Convertible Notes Terms and Conditions

Certain terms and conditions of the Convertible Notes are as follows:

The Convertible Notes mature on June 1, 2022 unless earlier converted, redeemed or purchased.

The Convertible Notes accrue interest at a rate of 7.5 % per year.

Interest on the Convertible Notes is paid semi-annually on December 1 and June 1 of each year.

Issue Price .

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, 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 .

The Company may not redeem the notes prior to June 1, 2020.

On or after June 1, 2020, the Company may redeem for cash all of the notes if the last reported sale price of the Company’s common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days (which need not be consecutive trading days) during any 30 consecutive trading-day period ending within five trading days prior to the date on which the Company provides notice of redemption.

The redemption price will equal 100 % of the

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

principal amount of the notes being redeemed, plus accrued and unpaid interest, including additional interest, if any, to, but excluding, the redemption date.

Conversion Rights .

The Convertible Notes are convertible into shares of the Company’s common stock based on an initial conversion rate of 228.3105 shares of common stock per $1,000 principal amount of Convertible Notes (equivalent to an initial conversion price of approximately $ 4.38 per share of the Company’s common stock), at any time prior to the close of business on the business day immediately preceding the maturity date, in principal amounts of $ 1,000 or an integral multiple of $ 1,000 in excess thereof.

In addition, following a Make-Whole Fundamental Change (as defined in the Convertible Indenture) or the Company’s delivery of a notice of redemption for the Convertible Notes, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its Convertible Notes in connection with (i) such Make-Whole Fundamental Change or (ii) such notice of redemption.

However, to comply with certain listing standards of The New York Stock Exchange, the Company will settle in cash its obligation to increase the conversion rate in connection with a Make-Whole Fundamental Change or redemption until it has obtained the requisite stockholder approval.

Events of Default .

The Convertible Indenture contains customary events of default which could, subject to certain conditions, cause the Convertible Notes to become immediately due and payable.

2020 Revolving Credit Agreement

MSD PCOF Partners IX, LLC (“MSD”)

Obligations under the 2020 Revolving Credit Agreement constitute a First-Out Debt, as defined in the Senior Indenture, and are secured on a pari passu basis with the Secured Notes.

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.

HC2 is in compliance with our debt covenants as of December 31, 2020.

Operating lease right-of-use-assets and finance leases are recognized in the consolidated balance sheets within Other assets and Property, plant and equipment, net, respectively.

Operating lease liability and finance lease liability are recognized in the consolidated balance sheet within Other liabilities and Debt obligations, respectively.

As of December 31, 2019, l ease right-of-use assets and lease liabilities consists of the following (in millions):

As of December 31, 2020 and 2019, lease right-of-use assets and lease liabilities consists of the following (in millions):

Right-of-use assets:

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The tables below present financial information associated with the Company's leases.

This information is only presented as of, and for the year ended December 31, 2019 as the Company adopted ASC 842 using a transition method that does not require application to periods prior to adoption.

The Company has entered into operating and finance lease agreements primarily for land, office space, vessels, equipment and vehicles, expiring between 2020 and 2045.

This information is presented as of, and for the years ended December 31, 2020 and 2019.

The Company has entered into operating and finance lease agreements primarily for land, office space, equipment and vehicles, expiring between 2021 and 2045.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

The following table summarizes the components of lease expense for the year ended December 31, 2019 (in millions):

The following table summarizes the components of lease expense for the year ended December 31, 2020 and 2019 (in millions):

Years Ended December 31,

Finance lease cost:

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Total lease cost $ 18.8 $ 15.4

Cash flow information related to leases for the year ended December 31, 2019 are as follows (in millions):

Cash flow information related to leases for the year ended December 31, 2020 and 2019 are as follows (in millions):

Years Ended December 31,

Cash paid for amounts included in the measurement of lease liabilities:

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Operating leases $ 15.8 $ 60.3

As of December 31, 2019, the weighted-average remaining lease term and the weighted-average discount rate for finance leases and operating leases are as follows:

As of December 31, 2020 and 2019, the weighted-average remaining lease term and the weighted-average discount rate for finance leases and operating leases are as follows:

Weighted-average remaining lease term (years) - operating lease 4.3 5.0

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2022 12.8 0.1

2022 13.3 10.0

2023 10.2 4.3

Thereafter 4.2 —

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Transaction costs 0.5 —

Tax credits generated/utilized ( 2.2 ) —

Return to provision 4.3 ( 6.0 )

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Goodwill impairment — 10.0

Transition to the Coronavirus Aid, Relief, and Economic Security Act ( 10.9 ) —

Withholding Tax Expense 7.3 —

Gain/loss on sale or deconsolidation of a subsidiary ( 6.4 ) —

Bargain purchase gain — ( 24.2 )

Outside Basis Difference ( 0.9 ) —

Contingent Liability 2.2 —

AOCI Recycling 2.1 —

Other ( 1.8 ) ( 1.8 )

1 unchanged sentence

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

The income tax benefit as of December 31, 2019 is $ 20.6 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.

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 income tax expense as of December 31, 2020 is $ 10.5 million.

The amount recorded 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, primarily the Insurance segment, offset by the gain on sale of HMN entities in the second quarter of 2020 and a tax benefit from the carryback of net operating losses at the Insurance segment as a result of the enactment of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) 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.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

The amount recorded as of December 31, 2018 primarily relates to separate state filings that do not have net operating losses available to offset income.

In the third quarter of 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 the second quarter of 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 was $ 19.6 million for the year ended December 31, 2019.

Deferred income taxes reflect the net income tax effect of temporary differences between the basis of assets and liabilities for financial reporting purposes and for income tax purposes.

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Net deferred tax liabilities $ ( 139.0 ) $ ( 81.0 )

At December 31, 2020, the above deferred tax asset, $ 8.6 million of deferred tax asset and $ 0.4 million of valuation allowance is classified as held for sale asset on the balance sheet, and $ 9.3 million of deferred tax liability is classified as held for sale liabilities on the balance sheet.

At December 31, 2019, $ 51.3 million of deferred tax asset and $ 41.0 million of valuation allowance is classified as held for sale asset on the balance sheet, and $ 12.5 million of deferred tax liability is classified as held for sale liabilities on the balance sheet.

Deferred tax assets refer to assets that are attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

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Thus, it is more likely than not that the group’s US deferred tax assets will not be realized.

Management evaluated the need to maintain the valuation allowance against the deferred taxes of the Insurance Company for each of the reporting periods.

Management evaluated the need to establish the valuation allowance against the deferred taxes of the Insurance Company for each of the reporting periods.

Included in this assessment was the Insurance Company’s historical operating results over the prior three-year period.

Additional positive and negative evidence was considered including the timing of the reversal of the deferred tax assets and liabilities, and projections of future income from the runoff of the insurance business.

As a result of management’s assessment, it was determined that since the Insurance Company is in a cumulative three-year income position which is expected to continue as supported by the projections of future income, the Insurance segment has released, in full, the $ 37.4 million valuation allowance as part of continuing operations.

As a result of management’s assessment, it was determined that the Insurance Company is in a cumulative three-year income position which is expected to continue as supported by the projections of future income.

As such, a valuation allowance was not recorded against the deferred tax assets of the Insurance Company.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Valuation allowances have been maintained against deferred tax assets of the European entities, including GMSL’s UK non-tonnage tax trading losses, and losses generated by certain businesses that do not qualify to be included in the HC2 Holdings, Inc.

Valuation allowances have been maintained against deferred tax assets based on losses generated by certain businesses that do not qualify to be included in the HC2 Holdings, Inc.

consolidated income tax return.

1 unchanged sentence

net operating loss carryforwards available to reduce future taxable income in the amount of $ 170.3 million.

The Company expects that approximately $ 96.0 million of the gross U.S.

net operating loss carryforwards would be available to offset taxable income in 2021.

This estimate may change based on changes to actual results reported on the 2020 U.S.

The amount of U.S.

net operating loss carryforwards reflected in the financial statements differ from the amounts reported on the U.S.

tax return due to uncertain tax positions related to tax laws and regulations that are subject to varied interpretation by the IRS.

Additionally, the Company has $ 112.6 million of gross U.S.

net operating loss carryforwards from its subsidiaries that do not qualify to be included in the HC2 U.S.

consolidated income tax return, including $ 117.1 million from the Insurance segment, $ 34.9 million from R2, $ 22.3 million from DTV America, and $ 20.5 million from ANG and other entities of $ 4.2 million.

consolidated income tax return, including $ 49.6 million from R2, $ 29.5 million from DTV America, and $ 29.3 million from ANG which is a discontinued operation and classified as held for sale, and other entities of $ 4.2 million.

enacted Public Law 115-97, known informally as the Tax Cuts and Jobs Act (the "TCJA") in 2017, U.S.

10 unchanged sentences

$ 25.4 million of the GrayWolf U.S.

net operating losses subject to Section 382 were generated in 2018, therefore they do not expire.

net operating losses subject to Section 382 were generated in 2018, and, therefore, they do not expire.

Additionally, the Company has $ 11.4 million of acquired U.S.

net operating losses from DTV America, which is subject to an annual limitation under Section 382 of the Internal Revenue Code.

As of December 31, 2019, the Company had foreign operating loss carryforwards of approximately $ 228.1 million.

Of the foreign NOLs, $ 212.7 million were generated by GMSL’s historical non-tonnage tax operations.

As of December 31, 2020, the Company had foreign operating loss carryforwards of approximately $ 3.6 million, of which $ 2.3 million is related to discontinued operations and classified as held for sale.

The Company follows the provision of ASC 740 which prescribes a comprehensive model for how a company should recognize, measure, present, and disclose in its financial statements uncertain tax positions that the Company has taken or expects to take on a tax return.

The Company is subject to challenge from various taxing authorities relative to certain tax planning strategies, including certain intercompany transactions as well as regulatory taxes .

The Company did not have any unrecognized tax benefits as of December 31, 2019 and 2018 related to uncertain tax positions.

The Company did not have any unrecognized tax benefits as of December 31, 2020 and 2019 related to uncertain tax positions that would impact the effective income tax rate if recognized.

The company has reduced the net operating loss carryforward by $ 69.6 million for uncertain tax positions based on our interpretation of tax laws and regulations that are subject to varied interpretation by the IRS.

Below is a tabular reconciliation of the total amount of unrecognized tax benefits (in millions):

Uncertain tax benefits - January 1 $ — $ —

Gross increases - Tax positions in prior period — —

Gross decreases - Tax positions in prior period — —

Gross increases - Tax positions in current period 22.9 —

Settlement — —

Lapse in statute of limitations — —

Uncertain tax benefits - December 31 $ 22.9 $ —

The Company conducts business globally, and as a result, HC2 or one or more of its subsidiaries files income tax returns in the United States federal jurisdiction and various state and foreign jurisdictions.

4 unchanged sentences

Given the nature of tax audits, there is a risk that disputes may arise.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Commitments and Contingencies

1 unchanged sentence

Total obligations $ 78.7

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

The Company is subject to claims and legal proceedings that arise in the ordinary course of business.

Such matters are inherently uncertain, and there can be no guarantee that the outcome of any such matter will be decided favorably to the Company or that the resolution of any such matter will not have a material adverse effect upon the Company’s Consolidated Financial Statements.

The Company does not believe that any of such pending claims and legal proceedings will have a material adverse effect on its Consolidated Financial Statements.

The Company records a liability in its Consolidated Financial Statements for these matters when a loss is known or considered probable and the amount can be reasonably estimated.

The Company does not believe that any of such pending claims and legal proceedings will have a material adverse effect on its Condensed Consolidated Financial Statements.

The Company records a liability in its Condensed Consolidated Financial Statements for these matters when a loss is known or considered probable and the amount can be reasonably estimated.

The Company reviews these estimates each accounting period as additional information is known and adjusts the loss provision when appropriate.

If a matter is both probable to result in a liability and the amounts of loss can be reasonably estimated, the Company estimates and discloses the possible loss or range of loss to the extent necessary for its Consolidated Financial Statements not to be misleading.

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

CGI Producer Litigation

On November 28, 2016, CGI, a subsidiary of the Company, Great American Financial Resource, Inc.

("GAFRI"), American Financial Group, Inc., and CIGNA Corporation were served with a putative class action complaint filed by John Fastrich and Universal Investment Services, Inc.

in The United States District Court for the District of Nebraska alleging breach of contract, tortious interference with contract and unjust enrichment.

The plaintiffs contend that they were agents of record under various CGI policies and that CGI allegedly instructed policyholders to switch to other CGI products and caused the plaintiffs to lose commissions, renewals, and overrides on policies that were replaced.

The complaint also alleges breach of contract claims relating to allegedly unpaid commissions related to premium rate increases implemented on certain long-term care insurance policies.

Finally, the complaint alleges breach of contract claims related to vesting of commissions.

On August 21, 2017, the Court dismissed the plaintiffs’ tortious interference with contract claim.

CGI believes that the remaining allegations and claims set forth in the complaint are without merit.

The case was set for voluntary mediation, which occurred on January 26, 2018.

The Court stayed discovery pending the outcome of the mediation.

On February 12, 2018, the parties notified the Court that mediation did not resolve the case and that the parties’ discussions regarding a possible settlement of the action were still ongoing.

The Court held a status conference on March 22, 2018, during which the parties informed the Court that settlement negotiations remain ongoing.

Nonetheless, the Court entered a scheduling order setting the case for trial during the week of October 15, 2019.

Meanwhile, the parties’ continued settlement negotiations led to a tentative settlement.

On February 4, 2019, the plaintiffs executed a class settlement agreement with CGI, Loyal American Life Insurance Company, American Retirement Life Insurance Company, GAFRI, and American Financial Group, Inc.

(collectively, the Defendants).

The settlement agreement, which would require GAFRI to make a $ 1.25 million payment on behalf of the Defendants, is subject to Court approval.

On February 4, 2019, the plaintiffs filed a motion for preliminary approval of the class settlement in a parallel action in the Southern District of Ohio, Case No.

17-CV-00615-SJD, which motion was granted by the Southern District of Ohio on April 2, 2019.

Meanwhile, the case pending before the District of Nebraska was stayed on February 6, 2019, pending final approval of the class action settlement in the Ohio action.

The Court held a final settlement hearing on September 17, 2019.

On October 7, 2019, the Court entered a final approval order certifying the class and approving the class settlement.

On October 22, 2019, the Court granted Plaintiffs’ motion for attorney’s fees and costs.

On October 25, 2019, the Court entered final judgment and closed the Ohio action.

The case pending before the District of Nebraska was dismissed with prejudice on November 12, 2019, pursuant to the parties’ joint stipulation.

The Company and CGI sought defense costs and indemnification for plaintiffs’ claims from GAFRI and Continental General Corporation ("CGC") under the terms of an Amended and Restated Stock Purchase Agreement ("SPA") related to the Company’s acquisition of CGI in December 2015.

GAFRI and CGC rejected CGI’s demand for defense and indemnification and, on January 18, 2017, the Company and CGI filed a Complaint against GAFRI and CGC in the Superior Court of Delaware seeking a declaratory judgment to enforce their indemnification rights under the SPA.

On February 23, 2017, GAFRI answered CGI’s complaint, denying the allegations.

The dispute is ongoing and CGI intends to continue to pursue its right to a defense and indemnity under the SPA regardless of the tentative settlement in the class action.

Meanwhile, the parties’ continued settlement negotiations resulted in a settlement agreement in the Delaware action.

The settlement agreement, which was contingent on the final approval of the class action settlement in the Ohio action, required CGI to contribute $ 250,000 to the settlement payment made by GAFRI in the class action.

No further contributions to the class action settlement will be required of CGI.

Once the class action settlement became final, CGI and GAFRI filed a joint stipulation to dismiss the Delaware action, which stipulation was entered by the Court on January 21, 2020.

The Delaware action is now closed.

If a matter is both probable to result in a liability and the amounts of loss can be reasonably estimated, the Company estimates and discloses the possible loss or range of loss to the extent necessary for its Condensed Consolidated Financial Statements not to be misleading.

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

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

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

VAT assessment

On February 20, 2017, and on August 15, 2017, the Company's subsidiary, ICS, received notices from Her Majesty’s Revenue and Customs office in the U.K.

On February 20, 2017, and on August 15, 2017, the Company's subsidiary, PTGi International Carrier Services Ltd., received notices from Her Majesty’s Revenue and Customs office in the U.K.

(the "HMRC") indicating that it was required to pay certain Value-Added Taxes ("VAT") for the 2015 and 2016 tax years.

ICS disagrees with HMRC’s assessments on technical and factual grounds and intends to dispute the assessed liabilities and vigorously defend its interests.

The Company disagrees with HMRC’s assessments on technical and factual grounds and intends to dispute the assessed liabilities and vigorously defend its interests.

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

Fair Value Investments Litigation

On October 1, 2020, Fair Value Investments Incorporated (“FVI”) filed a putative stockholder class action and derivative complaint in the Delaware Court of Chancery against HC2 and certain of DBMG’s current and former officers and directors, including current and former HC2 officers and directors AJ Stahl, Kenneth S.

Courtis, Robert V.

Leffler, Jr., Philip A.

Falcone, Michael J.

Sena, and Paul Voigt (together with HC2, the “HC2 Defendants”) styled Fair Value Investments Incorporated v.

Roach, et al., C.A.

2020-0847-JTL (Del.

Ch.) (the “FVI Action”).

In the FVI Action, FVI alleges that HC2, in its capacity as DBMG’s controlling stockholder, and DBMG’s current and former officers and directors breached their fiduciary duties to DBMG and DBMG’s minority stockholders by approving certain transactions that allegedly provide disproportionate benefits to HC2.

FVI challenges the following transactions:

(i) DBMG’s payments to HC2 from 2016–present pursuant to a Tax Sharing Agreement between DBMG and HC2;

(ii) DBMG acting as a guarantor or providing collateral for loans taken on by HC2;

(iii) DBMG’s issuance of dividends to its common and preferred stockholders in 2017–2020;

(iv) DBMG’s issuance of preferred stock to HC2 to finance DBMG’s 2018 acquisition of GrayWolf Industrial;

and (v) HC2’s appointment of directors to DBMG’s board of directors by written consent in lieu of holding an annual stockholder meeting.

On February 23, 2021, FVI filed an Amended Verified Stockholder Class Action Complaint (the "Amended Complaint").

In the Amended Complaint, FVI named two additional defendants:

HC2’s Chief Executive Officer, Wayne Barr, and DBMG’s General Counsel, Scott D.

The Amended Complaint includes additional fact allegations in support of the largely similar claims raised in the original complaint.

Defendants expect to file a motion to dismiss the Amended Complaint in early April.

HC2 believes the allegations in the FVI Amended Complaint are without merit and the HC2-related defendants have filed a motion to dismiss the complaint, which continues to be pending.

HC2 intends to vigorously defend this litigation.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

DBMG Class Action

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

Falcone, Keith M.

Hladek, Paul Voigt, Michael R.

Hill, Rustin Roach, D.

Ronald Yagoda, Phillip O.

Elbert, HC2 Holdings, Inc., and Schuff International, Inc., Civil Action No.

10323 (the "Complaint").

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

Schuff International, Inc.

Falcone, Keith M.

Hladek, Paul Voigt, Michael R.

Hill, Rustin Roach, D.

Ronald Yagoda, Phillip O.

Elbert, HC2 Holdings, Inc., Civil Action No.

On February 19, 2015, the court consolidated the actions (now designated as Schuff International, Inc.

Stockholders Litigation) and appointed lead plaintiff and counsel.

The currently operative complaint is the Complaint filed by Mark Jacobs.

The Complaint alleges, among other things, that in connection with the tender offer, the individual members of the DBMG Board of Directors and HC2, the now-controlling stockholder of DBMG, breached their fiduciary duties to members of the plaintiff class.

The Complaint also purports to challenge a potential short-form merger based upon plaintiff’s expectation that the Company would cash out the remaining public stockholders of DBMG following the completion of the tender offer.

The Complaint seeks rescission of the tender offer and/or compensatory damages, as well as attorney’s fees and other relief.

The defendants filed answers to the Complaint on July 30, 2015.

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

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

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

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

The Court expressed concerns about certain terms of the proposed settlement and the parties are considering how to address the Court’s concerns.

There can be no assurance that any settlement will be resubmitted by the parties or that the Delaware Courts will approve any settlement proposed by the parties.

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

OSHA Complaint

On November 4, 2020, the Company received notice that a complaint was filed on August 27, 2020, with the U.S.

Department of Labor (OSHA Complaint Number 2-4173-20-156), by a former employee of Continental Insurance Group Ltd.

alleging retaliatory employment practices in violation of the whistleblower provisions of the Sarbanes-Oxley Act.

The Company submitted a position statement to the DOL denying the material allegations in the complaint.

The DOL has not issued a determination.

Separation from Philip A.

The Company has engaged in ongoing negotiations with Philip A.

Falcone, the former Chairman, President and Chief Executive Officer of the Company, regarding his separation.

Falcone rejected the Company’s most recent severance offer, and on December 18, 2020, Mr.

Falcone filed a demand for arbitration against the Company with the American Arbitration Association.

The Company contends that the claims in Mr.

Falcone’s demand are without merit and that the Company has both factual and legal defenses.

In addition, Mr.

Falcone made two books and records demands of the Company, which the Company has denied, including in light of the fact that Mr.

Falcone is no longer a director of the Company.

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

1 unchanged sentence

To date, CRA has not proposed any specific adjustments and the audit is ongoing.

Employee Retirement Plans

The Company sponsors a 401(k) employee benefit plan (the "401(k) Plan") that covers substantially all United States based employees.

Employees may contribute amounts to the 401(k) Plan not to exceed statutory limitations.

The 401(k) Plan provides an employer matching contribution in cash of 50 % of the first 6 % of employee annual salary contributions capped at $ 6,000 .

The matching contribution made during each of the years ended December 31, 2019,and 2018 was $ 0.3 million and $ 0.4 million, respectively.

Certain of DBMG’s fabrication and erection workforce are subject to collective bargaining agreements.

DBMG contributes to union-sponsored, multi-employer pension plans.

Contributions are made in accordance with negotiated labor contracts.

The passage of the Multi-Employer Pension Plan Amendments Act of 1980 (the "Act") may, under certain circumstances, cause DBMG to become subject to liabilities in excess of contributions made under collective bargaining agreements.

Generally, liabilities are contingent upon the termination, withdrawal, or partial withdrawal from the plans.

Under the Act, liabilities would be based upon DBMG’s proportionate share of each plan’s unfunded vested benefits.

DBMG made contributions to various Pension Trusts of $ 6.2 million and $ 12.2 million during the years ended December 31, 2019 and 2018, respectively.

DBMG’s funding policy is to make monthly contributions to the plan.

DBMG’s employees represent less than 5 % of the participants in the Pension Trusts.

As of December 31, 2019, DBMG has not undertaken to terminate, withdraw, or partially withdraw from the Field Pension.

DBMG maintains a 401(k) retirement savings plan which covers eligible employees and permits participants to contribute to the plan, subject to Internal Revenue Code restrictions and which features matching contributions of 100 % of the first 1 %, and 50 % of the next 5 % of employee annual salary contributions, depending on the subsidiary.

The matching contributions for the years ended December 31, 2019 and 2018 was $ 1.8 million and $ 1.2 million, respectively.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

GMSL has established a number of pension schemes and contribute to other pension schemes around the world covering many of its employees.

The principal funds are those in the UK comprising The Global Marine Systems Pension Plan, The Global Marine Personal Pension Plan (established in 2008), and Global Marine Systems (Guernsey) Pension Plan.

A small number of employees are members of the MNOPF, a centralized defined benefit scheme to which the GMSL contributes.

The Global Marine Systems Pension Plan, the Global Marine Systems (Guernsey) Pension Plan and the MNOPF are defined benefit plans with assets held in separate trustee administered funds.

However as the Global Marine Systems (Guernsey) Pension Plan, which operates both a Career Average Re-valued Earnings ("CARE") defined benefit section and a defined contribution section is small with few members, the scheme is accounted for as defined contribution type plan.

The Global Marine Personal Pension Plan is predominantly of the money purchase type.

The Global Marine Systems Pension Plan was a hybrid, exempt approved, occupational pension scheme for the majority of staff, which provides pension and death in service benefits.

The defined benefit section of the Plan provided final salary benefits up to December 31, 2003 and CARE benefits from January 1, 2004.

In 2008 the defined contribution section was closed to new contributions and all the accumulated funds attributable to the defined contribution members were transferred to a Contracted in Money Purchase Scheme ("CIMP") set up by GMSL.

These funds were held on behalf of the defined contribution members and were all transferred to the Global Marine Personal Pension plan of each member on or before June 30, 2009.

From August 31, 2006 the defined benefit section of the Scheme closed to future accrual and active members were offered membership of the existing defined contribution section (with some enhanced benefits).

Global Marine Systems Pension Plan - Defined Benefit Section

The defined benefit section of the Global Marine Systems Plan (prior to its closure on August 31, 2006) was contributory, with employees contributing between 5 % and 8 % (depending on their age) and the employer contributing at a rate of 9.2 % of pensionable salary plus deficit contributions of $ 1.4 million per year.

The defined benefit section of the Global Marine Systems Pension Plan is funded by the payment of contributions determined with the advice of qualified independent actuaries on the basis of triennial valuations using the projected unit method.

The most recent full actuarial valuation was conducted as of December 31, 2016 valuation, for the purpose of determining the funding requirements of the plan.

The main assumptions used were as follows:

Retail price inflation Break even RPI curve

Consumer price inflation RPI inflation curve less 1.1 %

Rate of return on investments (post-retirement) Fixed interest gilt yield curve plus 0.7 %

At the actuarial valuation date the market value of the defined benefit section’s assets (in millions) $ 173.3

On a statutory funding objective basis the value of these assets covered the value of technical provisions by 80 %

Under a revised deficit recovery plan agreed between GMSL and the trustees of GMSL's pension plan dated March 20, 2018, which was subsequently submitted to the UK government’s Pension Regulator, contributions of approximately $ 13.1 million deferred from 2016 and 2017 due in December 2017 have been further deferred.

To support this deferral, the Company has provided secured assets in the form of the CWind Phantom crew transfer vessel and two trenchers.

Consistent with earlier recovery plans, the revised deficit recovery plan comprises three elements:

fixed contributions, variable contributions (profit-related element) and variable contributions (dividend-related element), though the amounts and some definitions have been modified.

As of December 31, 2019, the fixed contributions are payable in installments, comprise approximately $ 7.1 million in 2020, approximately $ 7.2 million in 2021 and approximately $ 3.1 million in 2022.

The variable contributions (profit-related element) are calculated as 10 % of GMSL's audited operating profit and paid two years in arrears in December each year from 2018.

The variable contributions (dividend-related) equate to 50 % of any future dividend paid by GMSL.

Global Marine Personal Pension Plan

This is a defined contribution pension scheme and is contributory from the employee;

the rate of contributions is split as follows:

• ex-CARE employees contributing between 2.5 % and 7.5 % and the employer contributing at a matching rate plus an additional 5 % fixed contributions;

• defined contribution employees contributing between 2 % and 7.5 % and the employer contributing at a matching rate.

For the year ended December 31, 2019, $ 7.0 million of contributions have been made to the Company's pension plans, comprising $ 6.7 million of fixed contributions and $ 0.3 million of profit-related contributions.

For the year ended December 31, 2018, GMSL made contributions of $ 3.8 million, comprising $ 2.6 million of fixed contributions and $ 1.2 million of profit-related contributions.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

The MNOPF is funded by the payment of contributions determined with the advice of qualified independent actuaries on the basis of triennial valuations using the projected unit method.

The most recent available full actuarial valuation was conducted as at March 31, 2015 for the purpose of determining the funding requirements of the plan.

The main assumptions used were that Retail Price Inflation would be 3.1 % per year, Consumer Price Inflation would be 2.1 % per year, the rate of return on investments (pre-retirement) would be 4.75 % per year, the rate of return on investments (post-retirement) would be 2.6 % per year and with pensions increasing (where relevant) by 2.9 % per year.

At the actuarial valuation date the market value of the total assets in the scheme amounted to $ 3.6 billion of which 0.08 % ($ 2.8 million) relates to GMSL.

On an on-going basis the value of these assets, together with the deficit contributions receivable of $ 394 million, covered the value of pensioner liabilities, preserved pension liabilities for former employees and the value of benefits for active members based on accrued service and projected salaries, to the extent of 99.7 %.

Following the March 31, 2016 actuarial valuation, contributions are payable by the GMSL as follows:

• Maintain employer contributions to 20 % of pensionable salaries to September 30, 2016, and then no more contributions thereafter.

Global Marine Systems (Guernsey) Pension Plan

The defined benefit section of the Guernsey Scheme is contributory, with employees contributing between 5 % and 8 % (depending on their age), the employer ceased contributing after July 2004.

The defined contribution section is also contributory, with employees contributing between 2 % and 7.5 % (depending on their age and individual choice) and the employer contributing at a matching rate.

The defined benefit section of the Guernsey Scheme is funded by the payment of contributions determined with the advice of qualified independent actuaries on the basis of triennial valuations using the projected unit method.

The most recent full actuarial valuation was conducted as of December 31, 2016 for the purpose of determining the funding requirements of the plan.

The principal actuarial assumptions used by the actuary were investment returns of 3.5 % per year pre-retirement, 2.6 % per year post-retirement, inflation of 3.7 % per year and pension increases of 3.4 % per year.

At the valuation date the market value of the assets amounted to $ 2.6 million.

The results show a past service shortfall of $ 1.0 million corresponding to a funding ratio of 73 %.

Following the December 31, 2016 actuarial valuation, contributions are as follows:

• Six annual contributions of less than $ 0.2 million from December 31, 2019 to 2024 with a final contribution of $ 0.1 million on April 30, 2025.

Collectively hereafter, the defined benefit plans will be referred to as the "Plans".

Obligations and Funded Status

For all company sponsored defined benefit plans and our portion of the MNOPF, the benefit obligation is the "projected benefit obligation," the actuarial present value, as of our December 31 measurement date, of all benefits attributed by the pension benefit formula to employee service rendered to that date.

The amount of benefit to be paid depends on a number of future events incorporated into the pension benefit formula, including estimates of the average life of employees/survivors and average years of service rendered.

It is measured based on assumptions concerning future interest rates and future employee compensation levels.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

The following table presents this reconciliation and shows the change in the projected benefit obligation for the Plans for the period from December 31, 2017 through December 31, 2019 (in millions):

Projected benefit obligation at December 31, 2017 $ 208.7

Service cost - benefits earning during the period —

Interest cost on projected benefit obligation 5.3

Contributions —

Actuarial loss ( 11.6 )

Benefits paid ( 10.0 )

Foreign currency loss ( 11.1 )

Projected benefit obligation at December 31, 2018 181.3

Service cost - benefits earning during the period —

Interest cost on projected benefit obligation 5.3

Contributions —

Actuarial loss 20.2

Benefits paid ( 6.8 )

Foreign currency loss 5.9

Projected benefit obligation at December 31, 2019 $ 205.9

The following table presents the change in the value of the assets of the Plans for the period from December 31, 2017 through December 31, 2019 and the plans’ funded status at December 31, 2019 (in millions):

Fair value of plan assets at December 31, 2017 $ 190.2

Actual return on plan assets ( 11.7 )

Benefits paid ( 10.0 )

Contributions 3.8

Foreign currency gain (loss) ( 9.5 )

Fair value of plan assets at December 31, 2018 162.8

Actual return on plan assets 18.7

Benefits paid ( 6.8 )

Contributions 7.0

Foreign currency gain (loss) 5.7

Fair value of plan assets at December 31, 2019 187.4

Unfunded status at end of year $ 18.5

Amounts recognized in the consolidated balance sheets within Other assets and Other liabilities at December 31, 2019 and 2018 are listed below (in millions):

Pension Asset $ 0.4 $ —

Pension Liability 18.8 18.6

Net pension liability recognized $ 18.4 $ 18.6

The accumulated benefit obligation for the Plans represents the actuarial present value of benefits based on employee service and compensation as of a certain date and does not include an assumption about future compensation levels.

As of December 31, 2019 contributions of $ 32.0 million were due to be payable to the Plans.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Net Periodic Benefit Cost and Other Amounts Recognized in Other Comprehensive Income

Periodic Benefit Costs

The aggregate net pension cost recognized in the consolidated statements of operations were costs of $ 6.5 million and $ 4.6 million for the years ended December 31, 2019 and 2018, respectively.

The following table presents the components of net periodic benefit cost are as follows (in millions):

Years Ended December 31,

Service cost—benefits earning during the period $ — $ —

Interest cost on projected benefit obligation 5.3 5.3

Expected return on assets ( 6.7 ) ( 7.5 )

Actuarial (gain) loss 7.9 6.7

Foreign currency gain (loss) — 0.1

Net pension (benefit) cost $ 6.5 $ 4.6

Of the amounts presented above, income of $ 1.4 million has been included in cost of revenue and loss of $ 7.9 million included in other comprehensive income for the year ended December 31, 2019, and income of $ 2.1 million has been included in cost of revenue and loss of $ 6.7 million included in other comprehensive income for the year ended December 31, 2018.

In determining the net periodic pension cost for the Plans, GMSL used the following weighted average assumptions:

the pension increase assumption is that for benefits increasing with RPI limited to 5 % per year, to which the majority of the Plan’s liabilities relate.

GMSL employs a building block approach in determining the long-term rate of return of pension plan assets.

Historical markets are studied and assets with higher volatility are assumed to generate higher returns consistent with widely accepted capital market principles.

The overall expected rate of return on assets is then derived by aggregating the expected return for each asset class over the actual asset allocation for the Plans as of December 31, 2019.

Years Ended December 31,

Discount rate 3.00 % 2.60 %

Rate of compensation increases (MNOPF only) N/A N/A

Rate of future RPI inflation 3.15 % 3.15 %

Rate of future CPI inflation 2.05 % 2.05 %

Pension increases in payment 3.05 % 3.00 %

Long-term rate of return on assets 4.15 % 3.99 %

Other Changes in Benefit Obligations Recognized in Other Comprehensive Income

The following tables present the after-tax changes in benefit obligations recognized in comprehensive income and the after-tax prior service credits that were amortized from AOCI into net periodic costs are as follows (in millions):

Years Ended December 31,

Net loss (gain) $ 6.3 $ 4.9

Total recognized in net periodic benefit cost and other comprehensive income (loss) $ 6.3 $ 4.9

Years Ended December 31,

Actuarial (gain) loss $ 7.9 $ 6.7

Total recognized in other comprehensive (income) loss $ 7.9 $ 6.7

There is zero estimated loss for pension benefits to be amortized from AOCI into net periodic benefit cost in fiscal year 2020.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Estimated Future Benefit Payments

Expected benefit payments are estimated using the same assumptions used in determining the Plan’s benefit obligation at December 31, 2019.

Because benefit payments will depend on future employment and compensation levels, average years employed, average life spans, and payment elections, among other factors, changes in any of these factors could significantly affect these expected amounts.

The following table provides expected benefit payments under our pension and post-retirement plans (in millions):

Thereafter 43.0

Aggregate expected contributions in the coming fiscal year are expected to be $ 32.0 million.

Plan Assets - Description of plan assets and investment objectives

The assets of the Plans consist primarily of private and public equity, government and corporate bonds, among others.

The asset allocations of the Plans are maintained to meet regulatory requirements where applicable.

Any contributions to the Plans are made to a pension trust for the benefit of plan participants.

The principal investment objectives are to ensure the availability of funds to pay pension benefits as they become due under a broad range of future economic scenarios, to maximize long-term investment return with an acceptable level of risk based on our pension and post-retirement obligations, and to be broadly diversified across and within the capital markets to insulate asset values against adverse experience in any one market.

Each asset class has broadly diversified characteristics.

Substantial biases toward any particular investing style or type of security are sought to be avoided by managing the aggregation of all accounts with portfolio benchmarks.

Asset and benefit obligation forecasting studies are conducted periodically, generally every two to three years, or when significant changes have occurred in market conditions, benefits, participant demographics or funded status.

Decisions regarding investment policy are made with an understanding of the effect of asset allocation on funded status, future contributions and projected expenses.

The Plans’ weighted-average asset targets and actual allocations as a percentage of Plan assets, including the notional exposure of future contracts by asset categories at December 31, 2019, are as follows:

Target December 31,

Liability hedging 29.9 % 37.1 %

Equities 12.9 % 6.9 %

Hedge funds 29.4 % 36.3 %

Corporate bonds 20.8 % 18.1 %

Property 6.1 % 1.6 %

Other 0.9 % — %

Total 100.0 % 100.0 %

Investment Valuation

GMSL’s plan investments related to the Global Marine Systems Pension Plan and MNOPF consist of the following (in millions):

Global Marine Systems Pension Plan MNOPF

2019 December 31,

2018 December 31,

2019 December 31,

Equities $ 23.9 $ 29.6 $ 0.3 $ 0.3

Liability Hedging Assets 53.6 52.5 2.0 1.6

Hedge Funds 54.8 42.8 0.5 0.4

Corporate Bonds 38.6 25.8 0.5 0.4

Property 11.4 8.6 0.2 0.1

Other 1.6 0.7 — —

Total market value of assets 183.9 160.0 3.5 2.8

Present value of liabilities ( 202.7 ) ( 178.6 ) ( 3.1 ) ( 2.8 )

Net pension liability $ ( 18.8 ) $ ( 18.6 ) $ 0.4 $ —

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Investments are stated at fair value.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Generally, investments are valued based on information provided by fund managers to our trustee as reviewed by management and its investment advisers.

Investments in securities traded on a national securities exchange are valued at the last reported sales price on the last business day of the year.

If no sale was reported on that date, they are valued at the last reported bid price.

Investments in securities not traded on a national securities exchange are valued using pricing models, quoted prices of securities with similar characteristics or discounted cash flows.

Over-the-counter (OTC) securities and government obligations are valued at the bid price or the average of the bid and asked price on the last business day of the year from published sources where available and, if not available, from other sources considered reliable.

Depending on the types and contractual terms of OTC derivatives, fair value is measured using a series of techniques, such as Black-Scholes option pricing model, simulation models or a combination of various models.

Alternative investments, including investments in private equities, private bonds, limited partnerships, hedge funds, real assets and natural resources, do not have readily available market values.

These estimated fair values may differ significantly from the values that would have been used had a ready market for these investments existed, and such differences could be material.

Private equity, private bonds, limited partnership interests, hedge funds and other investments not having an established market are valued at net asset values as determined by the investment managers, which management has determined approximates fair value.

Private equity investments are often valued initially based upon cost;

however, valuations are reviewed utilizing available market data to determine if the carrying value of these investments should be adjusted.

Such market data primarily includes observations of the trading multiples of public companies considered comparable to the private companies being valued.

Investments in real assets funds are stated at the aggregate net asset value of the units of these funds, which management has determined approximates fair value.

Real assets and natural resource investments are valued either at amounts based upon appraisal reports prepared by appraisers or at amounts as determined by an internal appraisal performed by the investment manager, which management has determined approximates fair value.

Purchases and sales of securities are recorded as of the trade date.

Realized gains and losses on sales of securities are determined on the basis of average cost.

Interest income is recognized on the accrual basis.

Dividend income is recognized on the ex-dividend date.

The following table sets forth by level, within the fair value hierarchy, the pension assets and liabilities at fair value for the Global Marine Systems Pension Plan (in millions):

As of December 31, 2019 Fair Value Measurement Using:

Level 1 Level 2 Total

Equities $ — $ 23.9 $ 23.9

Liability Hedging Assets — 53.6 53.6

Hedge Funds — 54.8 54.8

Corporate Bonds — 38.6 38.6

Property — 11.4 11.4

Other 0.9 0.7 1.6

Total Plan Net Assets $ 0.9 $ 183.0 $ 183.9

As of December 31, 2018 Fair Value Measurement Using:

Level 1 Level 2 Total

Equities $ — $ 29.6 $ 29.6

Liability Hedging Assets — 52.5 52.5

Hedge Funds — 42.8 42.8

Corporate Bonds — 25.8 25.8

Property — 8.6 8.6

Other 0.4 0.3 0.7

Total Plan Net Assets $ 0.4 $ 159.6 $ 160.0

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

The following table sets forth by level, within the fair value hierarchy, the pension assets and liabilities at fair value for the MNOPF (in millions):

Fair Value Measurement Using Level 3

2019 December 31,

Equities $ 0.3 $ 0.3

Liability Hedging Assets 2.0 1.6

Hedge Funds 0.5 0.4

Corporate Bonds 0.5 0.4

Property 0.2 0.1

Total Plan Net Assets $ 3.5 $ 2.8

The table below set forth a summary of changes in the fair value of the Level 3 pension assets for the period from December 31, 2017 through December 31, 2019 for the MNOPF (in millions):

Balance at December 31, 2017 $ 3.2

Actual return on plan assets ( 0.1 )

Contributions —

Benefits paid ( 0.1 )

Foreign currency gain (loss) ( 0.2 )

Balance at December 31, 2018 2.8

Actual return on plan assets 0.8

Contributions —

Benefits paid ( 0.3 )

Foreign currency gain (loss) 0.2

Balance at December 31, 2019 $ 3.5

Share-based Compensation

14 unchanged sentences

The guidance generally requires that such transactions be accounted for using a fair-value based method and share-based compensation expense be recorded, based on the grant date fair value, estimated in accordance with the guidance, for all new and unvested stock awards that are ultimately expected to vest as the requisite service is rendered.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

The Company granted zero and 662,769 options during the year ended December 31, 2019 and 2018, respectively.

The Company granted 143,096 and zero options during the year ended December 31, 2020 and 2019, respectively.

For the year ended December 31, 2020, the weighted average fair value at date of grant for options granted was $ 1.47 per option.

The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions shown as a weighted average for the year:

Years Ended December 31,

Expected option life (in years) — 0.88 - 5.84

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Year Ended December 31,

Expected option life (in years) 4.3 years

Risk-free interest rate 0.24 %

33 unchanged sentences

Eligible for exercise 4,697,653 $ 5.13

At December 31, 2020, the intrinsic value and average remaining life of the Company's outstanding options were $ 0.1 million and approximately 3.6 years, and intrinsic value and average remaining life of the Company's exercisable options were $ 0.1 million and approximately 3.6 years.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

At December 31, 2019, the intrinsic value and average remaining life of the Company's outstanding options were zero and approximately 5.25 years, and intrinsic value and average remaining life of the Company's exercisable options were zero and approximately 5.1 years.

At December 31, 2019, total unrecognized stock-based compensation expense related to unvested stock options was $ 0.7 million.

At December 31, 2020, the total unrecognized stock-based compensation expense related to unvested stock options was $ 0.1 million.

The unrecognized compensation cost is expected to be recognized over the remaining weighted average period of 0.38 years.

There are 42,205 unvested stock options expected to vest, with a weighted average remaining life of 3.8 years, a weighted average exercise price of $ 5.27 , and an intrinsic value of zero .

Series A Preferred Stock and Series A-2 Preferred Stock

Rights Offering

On September 9, 2020, HC2 announced its intention to commence a rights offering (the “Rights Offering”), pursuant to which each holder of its outstanding common stock and participating preferred stock would receive transferable subscription rights entitling such stockholder to purchase shares of HC2’s common stock at a subscription price equal to $ 2.27 per share based on last sale price for our common stock on the trading day prior to September 9, 2020.

On the same date, HC2 entered into an investment agreement (the "Investment Agreement") with Lancer Capital LLC ("Lancer Capital"), an investment fund led by Avram Glazer, the Chairman of our Board of Directors, pursuant to which Lancer Capital agreed to purchase up to $ 35.0 million of Series B Preferred Stock (as defined below) in connection with the Rights Offering based on subscription participation of common shareholders (the "Backstop Commitment").

The Investment Agreement provides for an advance of up to $ 10.0 million of the Backstop Commitment at the option of the Company.

On September 17, 2020, Lancer Capital funded $ 5.56 million, receiving 5,560 shares of Series B Preferred stock.

The Investment Agreement provides that, to the extent that Lancer Capital is precluded by applicable rules and regulations (including those of the NYSE, the Texas Department of Insurance and any other applicable regulators) from purchasing common stock by exercising rights received in the Rights Offering, Lancer Capital will purchase additional shares of Series B Preferred Stock (in excess of any Initial Funding amount) equivalent to its allocable participation right.

The Investment Agreement also restricts Lancer Capital from purchasing or otherwise acquiring any other rights we issue in the Rights Offering.

Lancer Capital did not receive any compensation or other consideration for entering into or consummating the Investment Agreement.

The Backstop Commitment is defined as a financial instrument and measurable at fair value on each reporting period.

HC2 used both market observable inputs and unobservable data to derive the fair value as of the reporting date.

The Backstop Commitment was classified as Level 3.

Fair value for the Backstop Commitment as of September 30, 2020, was zero .

The Backstop Commitment ceased upon the consummation of the Rights Offering.

On November 20, 2020, HC2's stockholders voted to approve (i) an amendment to the Company’s certificate of incorporation to increase the number of authorized shares of common stock of the Company to 160,000,000 shares and (ii) the conversion of up to 35,000 shares of Series B preferred stock of the Company in connection with the Company’s Rights Offering.

On November 20, 2020, we completed the Rights Offering and issued a total of 28,716,820 shares of our common stock, 16,825,280 common shares were issued immediately, and 11,891,540 were issued from the conversion of 26,994 shares of Series B Preferred stock as noted below.

Net proceeds of the November 20, 2020 issuance was $ 59.6 million.

Inclusive of the initial Series B issuance on September 17, 2020, total net proceeds of the Rights Offering, after deducting the dealer manager fees and other offering expenses, were approximately $ 61.5 million.

Preferred Shares

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

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Series A-2 shares issued and outstanding 4,000 4,000

Series B shares issued and outstanding — —

Series A Shares

In connection with the issuance of the Series A Convertible Preferred Stock, the Company adopted a Certificate of Designation of Series A Convertible Participating Preferred Stock on May 29, 2014 (the "Series A Certificate").

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In connection with the issuance of the Series A-2 Preferred Stock on January 5, 2015, the Company adopted the Certificate of Designation of Series A-2 Convertible Participating Preferred Stock (the "Series A-2 Certificate") and also amended and restated the Series A Certificate and the Series A-1 Certificate.

On August 10, 2015, the Company adopted certain Certificates of Correction of the Certificates of Amendment to the Certificates of Designation of the Series A Certificate, the Series A-1 Certificate and the Series A-2 Certificate, and on June 24, 2016 the Company adopted certain amendments to the Series A-1 Certificate of Designation.

On August 10, 2015, the Company adopted certain Certificates of Correction of the Certificates of Amendment to the Certificates of Designation

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

of the Series A Certificate, the Series A-1 Certificate and the Series A-2 Certificate, and on June 24, 2016 the Company adopted certain amendments to the Series A-1 Certificate of Designation.

The Series A Certificate, the Series A-1 Certificate and the Series A-2 Certificate together, as amended, are referred to as the "Certificates of Designation."

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At any time after May 29, 2017, the Company may redeem the Preferred Stock, in whole but not in part, at a price per share generally equal to 150 % of the original accrued value or on that date, plus accrued but unpaid dividends (to the extent not included in the accrued value of Preferred Stock), subject to the holder’s right to convert prior to such redemption.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Forced Conversion.

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For so long as any of the Preferred Stock is outstanding, consent of the holders of shares representing at least 75 % of certain of the Preferred Stock then outstanding is required for certain material actions.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Participation Rights.

3 unchanged sentences

Preferred Share Activity

On December 18, 2018 and December 20, 2018, CGI, a wholly owned subsidiary of the Company closed on the purchase of 6,125 shares of Series A Preferred Stock, convertible into a total of 1,464,209 shares of the Company's common stock.

Series B Preferred Stock

On September 9, 2020, HC2 issued a Certificate of Designation for 35,000 Series B Non-Voting participating Convertible Preferred Shares (the "Series B Preferred Stock") of HC2.

The certificate of designation authorized the existing 20,000,000 shares of preferred stock, par value $ 0.001 to apply to this series.

The Series B Preferred Stock is intended to be the economic equivalent of common stock, participating on an as-converted basis in all dividends, distributions, merger consideration and all other consideration receivable by holders of common stock, and a means through which the Backstop Arrangement can be effected prior to the completion of the stockholder vote and the satisfaction of any other regulatory requirements.

The issued Series B Preferred Stock was classified as temporary equity as it was not mandatorily redeemable due to the presence of substantive conversion features, and would have become mandatorily redeemable on the sixth anniversary of initial issuance if not previously converted.

The Series B Preferred Stock issued was recognized at fair value upon issuance.

As the Series B was contingently redeemable, subsequent accretion to redemption value will occur once the contingency is resolved and the redemption becomes probable (i.e., Rights Offering and Stockholder Approval is no longer reasonably possible).

On September 17, 2020 Lancer Capital funded $ 5.56 million of the Backstop Commitment, and the Company issued Lancer Capital 5,560 shares of Series B Preferred Stock (the "Initial Funding").

On November 20, 2020, as part of the rights offering, Lancer Capital funded $ 21.4 million, and the Company issued Lancer Capital an additional 21,434 shares of Series B Preferred Stock.

Immediately upon issuance of the shares, the Company converted all of Lancer Capital's Series B Preferred Stock into 11,891,540 shares of the Company's Common Stock.

The Series B Preferred Stock became convertible upon the approval of shareholders during the Special Meeting of Stockholders on November 20, 2020.

As a result, the Company recorded a beneficial conversion feature of $ 2.0 million related to the issuances of the Preferred B Preferred Stock, which was immediately accreted and recorded within the Preferred dividends, deemed dividends, and repurchase gains line item of the Consolidated Statements of Operations as a deemed dividend.

Series A Shares

On December 18, 2018 and December 20, 2018, CGI, a wholly owned subsidiary of the Company closed on the purchase of 6,125 shares of Series A Preferred Stock, which, as of December 31, 2020, is convertible into a total of 1,763,706 shares of the Company's common stock.

The shares and dividends accrued related to the Series A Preferred shares owned by CGI are eliminated in consolidation.

On January 11, 2019, CGI purchased 10,000 shares of Series A-2 Preferred Stock, which are convertible into a total of 1,426,534 shares of the Company's common stock, for a total consideration of $ 8.3 million.

On January 11, 2019, CGI purchased 10,000 shares of Series A-2 Preferred Stock, which, as of December 31, 2020, is convertible into a total of 1,879,699 shares of the Company's common stock.

The shares and dividends accrued related to the Series A-2 Preferred Stock owned by CGI are eliminated in consolidation.

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In conjunction with the conversions, the Company agreed to provide the following two forms of additional consideration for as long as the Preferred Stock remained entitled to receive dividend payments (the "Additional Share Consideration"):

• The Company agreed that in the event that Corrib and Luxor would have been entitled to any Participating Dividends payable, had they not converted the Preferred Stock (as defined in the respective Series A and Series A-1 Certificate of Designation), after the date of their Preferred Share conversion, then the Company will issue to Corrib and Luxor, on the date such Participating Dividends become payable by the Company, in a transaction exempt from the registration requirements of the Securities Act the number of shares of common stock equal to (a) the value of the Participating Dividends Corrib or Luxor would have received pursuant to Sections (2)(c) and (2)(d) of the respective Series A and Series A-1 Certificate of Designation, divided by (b) the Thirty Day VWAP (as defined in the respective Series A and Series A-1 Certificate of Designation) for the period ending two business days prior to the underlying event or transaction that would have entitled Corrib or Luxor to such Participating Dividend had Corrib’s or Luxor’s Preferred Stock remain unconverted.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

become payable by the Company, in a transaction exempt from the registration requirements of the Securities Act the number of shares of common stock equal to (a) the value of the Participating Dividends Corrib or Luxor would have received pursuant to Sections (2)(c) and (2)(d) of the respective Series A and Series A-1 Certificate of Designation, divided by (b) the Thirty Day VWAP (as defined in the respective Series A and Series A-1 Certificate of Designation) for the period ending two business days prior to the underlying event or transaction that would have entitled Corrib or Luxor to such Participating Dividend had Corrib’s or Luxor’s Preferred Stock remain unconverted.

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

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In Connection with the acquisition of CGI and UTA in 2015, the Company issued five year warrants to purchase 2,000,000 shares of the Company's common stock at an exercise price of $ 7.08 per share, subject to customary adjustments for stock splits or similar transactions, exercisable on or after February 3, 2016.

As of December 31, 2019, the holder can purchase 2,168,454 shares of the Company’s common stock at an exercise price of $ 6.53 .

The warrants expire on December 24, 2020.

The warrants expired on December 24, 2020.

Related Parties

Series B Preferred Stock

As detailed in Note 20.

Equity, HC2 entered into the Investment Agreement with Lancer Capital, an investment fund led by Avram Glazer, the Chairman of our Board of Directors, pursuant to which Lancer Capital agreed to the Backstop Commitment to purchase up to $ 35.0 million of Series B Preferred Stock in connection with the Rights Offering, based on subscription participation of common shareholders, of which $ 10.0 million may be funded in advance.

On September 17, 2020, Lancer Capital funded $ 5.56 million, receiving 5,560 shares of Series B Preferred stock.

On November 20, 2020, as part of the rights offering, Lancer Capital funded an $ 21.4 million, and the Company issued Lancer Capital an additional 21,434 shares of Series B Preferred Stock.

Immediately upon issuance of the shares, the Company Converted all of Lancer Capital's series B shares to 11,891,540 shares of the Company's Common Stock.

Please see Note 20.

Equity for further detail.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

HCP Services Agreement

In January 2015, the Company entered into an arm's length services agreement (the "Services Agreement") with Harbinger Capital Partners ("HCP"), a related party of the Company.

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Both of these services are charged back to HCP on the same basis described above.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

The Company recognized expenses of $ 2.7 million and $ 3.8 million, and income of $ 0.3 million and zero under the Services Agreement for each of the years ended December 31, 2019 and 2018 respectively.

The Company recognized expenses of $ 1.6 million and $ 2.7 million, and income of $ 0.1 million and $ 0.3 million under the Services Agreement for the years ended December 31, 2020 and 2019, respectively.

The following table breaks out the components of the Services Agreement net expenses, by Segment for the years ended December 31, 2020 and 2019:

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Net related party activity $ 1.0 $ 0.5 $ 1.5 $ 1.6 $ 0.8 $ 2.4

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

In June 2018, the Company funded $ 0.8 million to HCP for a refundable deposit in connection with its allocable portion of shared office space occupied by the Company.

In November 2017, GMSL acquired the trenching and cable laying services business from Fugro N.V.

As part of the transaction, Fugro became a 23.6 % holder of GMSL's parent, Global Marine Holdings, LLC ("GMH").

GMSL, in the normal course of business, incurred revenue and expenses with Fugro for various services.

For the years ended December 31, 2019 and 2018, GMSL recognized $ 11.3 million and $ 9.3 million respectively, of expenses for transactions with Fugro.

For the year ended December 31, 2019 GMSL recognized $ 0.8 million of revenues.

The parent company of GMSL, GMH, incurred management fees of $ 0.6 million for each of the years ended December 31, 2019 and 2018.

GMSL also has transactions with several of their equity method investees.

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

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

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

Rights Offering

Due to an administrative error by our transfer agent, the Company sold an additional 82,459 shares of HC2 common stock to MG Capital Management Ltd.

at the Rights Offering price in December 2020 to make MG Capital Management Ltd.

whole of the error.

GMH's subsidiary, GMSL, prior to its sale in February 2020, had transactions with several of its equity method investees.

A summary of transactions with such equity method investees and balances outstanding are as follows (in millions).

Such activity is reclassified to discontinued operations as a result of the sale of GMSL.

Discontinued Operations for further information:

Years Ended December 31,

2 unchanged sentences

Interest expense $ — $ 1.0

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Accounts receivable $ — $ 1.2

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Life Sciences

In 2017, R2 secured convertible drawdown promissory notes of $ 1.5 million to a related party, Blossom Innovations, LLC.

As of June 2019, R2 converted its secured convertible note with Blossom Innovation, LLC into shares of R2 preferred equity.

In 2018, R2 made a milestone payment to Blossom Innovations, LLC and MGH for $ 0.5 million.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Pansend has an investment in Triple Ring Technologies, Inc.

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Operating Segment and Related Information

The Company currently has two primary reportable geographic segments - United States and United Kingdom.

The Company has eight reportable operating segments based on management’s organization of the enterprise - Construction, Marine Services, Energy, Telecommunications, Insurance, Life Sciences, Broadcasting, Other, and a Non-operating Corporate segment.

Net revenue and long-lived assets by geographic segment is reported on the basis of where the entity is domiciled.

The Company currently has one primary reportable geographic segment - United States.

The Company has four reportable operating segments, plus our Other segment, based on management’s organization of the enterprise - Infrastructure, Life Sciences, Spectrum, Insurance, and Other.

We also have included a Non-operating Corporate segment.

All inter-segment revenues are eliminated.

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

Years Ended December 31,

Segment 2019 2018

Customer A Telecommunications 10.3 % 11.0 %

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

Years Ended December 31,

Net Revenue by Geographic Region

United States $ 1,777.7 $ 1,757.7

United Kingdom 169.2 192.2

Other 37.2 26.8

Total $ 1,984.1 $ 1,976.7

As a result of the sale of GMSL, ICS, and Beyond6, and in accordance with ASC 280, the Company no longer considers the results of operations and balance sheets of these entities and related subsidiaries as separate segments.

Formerly part of the Marine Services, Telecommunications, and Clean Energy segments, these entities and the investment in HMN have been reclassified to the Other segment.

In addition, as GMSL, ICS, and Beyond6 are discontinued operations, all operating results of GMSL, ICS, and Beyond6 have been reclassified to discontinued operations.

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

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

Years Ended December 31,

Construction $ 713.3 $ 716.4

Marine Services 172.5 194.3

Energy 39.0 20.7

Telecommunications 696.1 793.6

Infrastructure

$ 676.6 $ 713.3

Spectrum 40.3 41.8

Insurance 300.2 331.6

Broadcasting 41.8 45.4

Eliminations (*)

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Years Ended December 31,

Income (loss) from operations

Construction $ 45.1 $ 41.9

Marine Services ( 6.1 ) ( 15.4 )

Energy 10.1 ( 0.5 )

Telecommunications ( 1.8 ) 4.8

Insurance 37.3 1.8

(Loss) income from operations

Infrastructure

$ 20.5 $ 45.1

Life Sciences ( 16.9 ) ( 8.9 )

Broadcasting ( 11.4 ) ( 24.0 )

Spectrum ( 2.2 ) ( 11.4 )

Insurance 35.6 37.3

Other ( 2.8 ) ( 1.6 )

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( 11.3 ) ( 10.2 )

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

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

(*) 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.

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Years Ended December 31,

Income (loss) from operations $ 29.1 $ ( 55.8 )

(Loss) income from operations $ ( 4.1 ) $ 25.3

Interest expense ( 79.4 ) ( 76.1 )

Gain on sale and deconsolidation of subsidiary — 105.1

Income from equity investees 2.2 15.4

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

(Loss) income from equity investees ( 3.4 ) 1.6

Gain on bargain purchase — 1.1

Other income 68.5 6.3

(Loss) income from continuing operations ( 56.7 ) 182.3

Loss from continuing operations before income taxes ( 27.8 ) ( 41.8 )

Income tax benefit (expense) ( 10.5 ) 19.6

Net (loss) income ( 36.1 ) 179.9

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

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

Loss from continuing operations ( 38.3 ) ( 22.2 )

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

Net loss ( 102.1 ) ( 36.1 )

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

Net loss attributable to HC2 Holdings, Inc.

( 92.0 ) ( 31.5 )

Preferred dividends, deemed dividends, and repurchase gains 3.6 —

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

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

Years Ended December 31,

Depreciation and Amortization

Construction $ 15.5 7.4

Marine Services 25.7 27.2

Energy 6.9 5.5

Telecommunications 0.3 0.3

Insurance (*)

Infrastructure

$ 10.7 $ 15.5

Life Sciences 0.1 0.3

Broadcasting 6.3 3.3

Spectrum 6.8 6.3

Insurance (*)

( 20.9 ) ( 23.1 )

Non-operating Corporate 0.1 0.1

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Capital Expenditures (*)

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

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

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Construction $ 0.9 $ 0.9

Marine Services 64.4 58.3

Insurance 4,423.0 3,821.4

Infrastructure

Life Sciences 18.4 22.0

Insurance 4,711.3 4,423.0

Other 36.1 43.1

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Total $ 4,665.6 $ 4,392.1

Property, plant and equipment, net

United States $ 215.7 $ 178.2

United Kingdom 182.1 192.7

Other 8.0 5.4

Total $ 405.8 $ 376.3

Construction $ 530.4 $ 537.9

Marine Services 370.7 368.6

Energy 142.8 77.6

Telecommunications 89.3 139.9

Insurance 5,611.9 5,213.1

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Infrastructure

$ 494.8 $ 530.4

Life Sciences 21.4 28.4

Broadcasting 257.9 202.8

Spectrum 213.6 257.9

Insurance 5,913.8 5,611.9

Other 167.3 598.4

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Total $ 6,742.8 $ 6,958.3

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Basic and Diluted Income Per Common Share

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

The Company had no dilutive common share equivalents during the year ended December 31, 2019, due to the results of operations being a loss from continuing operations, net of tax.

The following potential weighted common shares were excluded from diluted EPS for the year ended December 31, 2018 as the shares were antidilutive:

2,168,454 for outstanding warrants to purchase the Company's stock, 353,960 for unvested restricted stock awards, and 4,919,760 for convertible preferred stock.

The Company had no dilutive common share equivalents during the years ended December 31, 2020 and 2019, due to the results of operations being a loss from continuing operations, net of tax.

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

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Years Ended December 31,

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

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

Income (loss) attributable to noncontrolling interest and redeemable noncontrolling interest ( 5.6 ) 4.4

Loss from continuing operations attributable to the Company ( 43.9 ) ( 17.8 )

Preferred dividends, deemed dividends and repurchase gains 3.6 —

Loss from continuing operations attributable to HC2 common stockholders ( 47.5 ) ( 17.8 )

Loss from discontinued operations ( 63.8 ) ( 13.9 )

Loss attributable to noncontrolling interest and redeemable noncontrolling interest 15.7 0.2

Loss from discontinued operations, net of tax and noncontrolling interest ( 48.1 ) ( 13.7 )

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

Earnings allocable to common shares:

Numerator for basic and diluted earnings per share

Participating shares at end of period:

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Preferred stock 0.8 % — %

Net (loss) income attributable to common stock, basic $ ( 29.7 ) $ 139.0

Distributed and Undistributed earnings to Common Shareholders:

Effect of assumed shares under treasury stock method for stock options and restricted shares and if-converted method for convertible instruments — ( 3.3 )

Income from the dilutive impact of subsidiary securities — —

Net (loss) income attributable to common stock, diluted $ ( 29.7 ) $ 135.7

Numerator for earnings per share, basic:

Net loss from continuing operations attributable to common stock, basic $ ( 47.1 ) $ ( 17.8 )

Net loss from discontinued operations attributable to common stock, basic $ ( 47.7 ) $ ( 13.7 )

Net loss attributable to common stock, basic $ ( 94.8 ) $ ( 31.5 )

Earnings allocable to common shares, diluted:

Numerator for earnings per share, diluted

Effect of assumed shares under the if-converted method for convertible instruments $ ( 0.4 ) $ —

Net loss from continuing operations attributable to common stock, basic $ ( 47.5 ) $ ( 17.8 )

Net loss from discontinued operations attributable to common stock, basic $ ( 47.7 ) $ ( 13.7 )

Net loss attributable to common stock, basic $ ( 95.2 ) $ ( 31.5 )

Denominator for basic and dilutive earnings per share

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Weighted average common shares outstanding - diluted 50.7 44.8

Net (loss) income attributable to participating security holders - Basic $ ( 0.66 ) $ 3.14

Net (loss) income attributable to participating security holders - Diluted $ ( 0.66 ) $ 2.90

Loss per share - continuing operations

Basic $ ( 0.94 ) $ ( 0.40 )

Diluted $ ( 0.94 ) $ ( 0.40 )

Loss per share - discontinued operations

Basic $ ( 0.94 ) $ ( 0.30 )

Diluted $ ( 0.94 ) $ ( 0.30 )

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

Basic $ ( 1.88 ) $ ( 0.70 )

Diluted $ ( 1.88 ) $ ( 0.70 )

HC2 HOLDINGS, INC.

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Subsequent Events

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.

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.

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

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 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.

HC2 received net proceeds of approximately $ 98.6 million from the sale.

The net proceeds were used to repay HC2’s $ 15.0 million secured revolving line of credit.

Further, 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 Senior Secured Notes, 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.

The Asset Sale Redemption Notice was sent by the Trustee to the registered holders of the Notes in accordance with the requirements of the Indenture.

Line of Credit

On March 13, 2020, HC2 entered into a $ 15.0 million secured revolving credit agreement (the “2020 Revolving Credit Agreement”) with MSD PCOF Partners IX, LLC.

The 2020 Revolving Credit Agreement matures in June 2021.

Loans under the 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 %.

As of the date of this filing HC2 has not drawn on the 2020 Revolving Credit Agreement.

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.

On February 3, 2021 the Company announced that R2 has received $ 10.0 million in funding from Huadong Medicine Company Limited (“Huadong”), a leading publicly traded Chinese pharmaceutical company.

Huadong’s investment will be used to fund the launch of R2 Technologies’ first-to-market innovations Glacial Rx and Glacial Spa.

In exchange for its equity investment in R2, Huadong receives exclusive distribution rights for R2’s products in the China and selected Asia-Pacific markets.

On February 23, 2021, the Company entered into a third amendment of the 2020 Revolving Credit Agreement with MSD PCOF Partners IX, LLC.

Among other things, the Amendment (i) increases the aggregate principal amount of the Revolving Credit Facility to $ 20.0 million, (ii) extends the maturity date of the Revolving Credit Facility to February 23, 2024, (iii) updates the affirmative and negative covenants contained in the Amended Credit Agreement so that they are substantially consistent with the affirmative and negative covenants contained in the indenture that governs the Senior Secured Notes and (iv) reduces the interest rate margin applicable to loans borrowed under the Amended Credit Agreement to the interest rate margins described below.

Except as modified by the Amendment, the terms of the Credit Agreement remain in effect.

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 9A. Controls and Procedures