INNOVATE Corp. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis of our financial condition and results of operations together with the information in our consolidated annual audited financial statements and the notes thereto, each of which are contained in Item 8 entitled "Financial Statements and Supplementary Data," and other financial information included herein. Some of the information contained in this discussion and analysis includes forward-looking statements that involve risks and uncertainties. You should review the "Risk Factors" section as well as the section below entitled "Special Note Regarding Forward-Looking Statements" for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Unless the context otherwise requires, in this Annual Report on Form 10-K, "HC2" means HC2 Holdings, Inc. and the "Company," "we" and "our" mean HC2 together with its consolidated subsidiaries. "U.S. GAAP" means accounting principles accepted in the United States of America. Our Business We are a diversified holding company with principal operations conducted through five operating platforms or reportable segments: Infrastructure ("DBMG"), Life Sciences ("Pansend"), Spectrum, Insurance ("CIG"), and Other, which includes businesses that do not meet the separately reportable segment thresholds. Certain previous year amounts have been reclassified to conform with current year presentations, including: • The recasting of GMSL's, ICS's, and Beyond6's results to discontinued operations. Further, the reclassification of prior period assets and liabilities have been classified as held for sale; • As a result of the sale of GMSL, ICS, and Beyond6, and in accordance with Accounting Standards Codification ("ASC") 280, the Company no longer includes the results of operations and balance sheets of these entities as separate segments. These entities and our investment in HMN have been reclassified to the Other segment. • The recasting of Earnings Per Share ("EPS") in the prior period, as a result of the discontinued operations noted above. This includes presenting EPS for Net (loss) income from continuing operations, Net (loss) income from discontinuing operations, and Net (loss) income. Our Operations Refer to Note 1. Organization and Business to our Consolidated Financial Statements for additional information. Seasonality and Cyclical Patterns Our segments' operations can be highly cyclical. Our volume of business in our Infrastructure segment may be adversely affected by declines or delays in projects, which may vary by geographic region. Project schedules, particularly in connection with large, complex, and longer-term projects can also create fluctuations in the services provided, which may adversely affect us in a given period. For example, in connection with larger, more complicated projects, the timing of obtaining permits and other approvals may be delayed, and we may need to maintain a portion of our workforce and equipment in an underutilized capacity to ensure we are strategically positioned to deliver on such projects when they move forward. Examples of other items that may cause our results or demand for our services to fluctuate materially from quarter to quarter include: weather or project site conditions, financial condition of our customers and their access to capital; margins of projects performed during any particular period; economic, and political and market conditions on a regional, national or global scale. Accordingly, our operating results in any particular period may not be indicative of the results that can be expected for any other period. Recent Developments COVID-19 Impact on our Business On March 11, 2020, the World Health Organization declared the outbreak of the novel coronavirus ("COVID-19") pandemic resulting in action from federal, state and local governments that has significantly affected virtually all facets of the U.S. and global economies. The U.S. federal and various state governments, have implemented enhanced screenings, quarantine requirements, and travel restrictions in connection with the COVID-19 outbreak. The Company’s top priority is to protect its employees and their families, and those of the Company’s customers. The Company continues to take precautionary measures as directed by health authorities and the local government, including changing operational procedures as necessary, providing additional protective gear and cleaning to protect them, which has resulted and may continue to result in disruptions to and increased costs of the Company’s operations. We may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers, partners, vendors, and suppliers. Work-from-home and other measures introduce additional operational risks, including cybersecurity risks, and have affected the way we conduct our operations. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus, and illness and workforce disruptions could lead to unavailability of key personnel and harm our ability to perform critical functions. The extent of the impact of COVID-19 on our operational and financial performance will depend on future developments, including, but not limited to, the duration and spread of the outbreak, the outbreak of any new strains of the coronavirus, and related travel advisories and restrictions, and its impact to the U.S. and global financial markets, all of which are highly uncertain and cannot be predicted. Preventing the effects from and responding to this market disruption if any other public health threat, related or otherwise, may further increase costs of our business and may have a material adverse effect on our business, financial condition, and results of operations. We continue to monitor the evolving situation and guidance from authorities, including federal, state and local public health departments, and may take additional actions based on their recommendations. In these circumstances, there may be developments outside our control requiring us to adjust our plans. As such, given the dynamic nature of this situation, we cannot reasonably estimate the impact of COVID-19 on our results of operations, financial condition, or cash flows in the future. However, we do expect that it could have a material adverse impact on our future revenue growth as well as our overall profitability and may lead to revised payment terms with certain of our customers. During the year ended December 31, 2020, the effects of COVID-19 and the related actions undertaken in the U.S. to attempt to control its spread, specifically impacted certain of our segments as follows: Infrastructure DBMG is dependent on its workforce to carry out its services. Developments resulting from governmental responses to COVID-19 such as social distancing and shelter-in-place directives have impacted, and will continue to impact, DBMG’s ability to deploy its workforce in its facilities and project sites efficiently. The nature of DBMG’s business does not permit alternative workforce arrangements in its facilities and project sites such as remote work schemes to be implemented effectively, and as a result of potential workforce disruptions, DBMG may continue to experience delays or suspensions of projects. DBMG has incurred significant costs related to additional procedures to maintain COVID-19 related safety measures. During the year ended December 31, 2020, $19.4 million of COVID-19 related expenses were incurred. DBMG may also experience disruptions in the supply chain depending on the spread of COVID-19 and related governmental orders. These delays, suspensions, and impacts to supply chain may negatively impact DBMG’s results of operations, cash flows or financial condition. This could cause the timing of revenue to be delayed and possibly impact earnings and backlog. Persistent delays, suspensions or 54 cancellations of projects under contract may occur while governments implement policies designed to respond to the COVID-19 pandemic. Any such continued loss or suspension of projects under contract may negatively impact the DBMG’s results of operations, cash flows or financial condition. Spectrum As a result of COVID-19, our Spectrum segment has experienced adverse effects on its advertising business because of weakness in the advertising market as advertisers seek to reduce their own costs in response to the pandemic’s impact on their businesses. We are not able to predict when or whether advertising budgets and the advertising market generally will return or be comparable to historical levels. In addition, COVID-19 could impact our Spectrum segment’s business, financial condition and results of operations in a number of other ways, including, but not limited to: • negative impact on our broadcast station revenue, as many of our customers also rely on advertising revenues and might be negatively affected by COVID-19; • slow-down of our ability to build out additional broadcast television stations, as illness, social distancing, and other pandemic-related precautions may result in equipment delivery delays and labor shortages, including the availability of tower crews, an already limited, highly-specialized work force necessary to install broadcast equipment; • negative impact on our network distribution revenues, as consumers may seek to reduce discretionary spending by cutting back or foregoing subscriptions to cable television or other multichannel video programming distributors; • negative impact on our financial condition or our ability to fund operations or future investment opportunities due to an increase in the cost or difficulty in obtaining debt or equity financing, or refinancing our debt in the future, or our ability to comply with our covenants; • impairments of our programming inventory, goodwill and other indefinite-lived intangible assets, and other long-lived assets; and • increased cyber and payment fraud risk, as cybercriminals attempt to profit from the disruption, given increased online activity. The magnitude of the impact on our Spectrum segment will depend on numerous evolving factors that we may not be able to accurately predict, including the duration and extent of the pandemic, the impact of federal, state, local and foreign governmental actions, consumer behavior in response to the pandemic and such governmental actions, and the economic and operating conditions that we may face in the aftermath of COVID-19. Even after COVID-19 has subsided, we may experience materially adverse impacts to our business as a result of its global economic impact, including any recession that has occurred or may occur in the future. For further discussion regarding the potential future impacts of COVID-19 and related economic conditions on the Company's liquidity and capital resources, see "Part I-Item 1A-Risk Factors." Insurance Our Insurance segment has been impacted by the COVID-19 pandemic, including multiple reductions in target interest rates by the Board of Governors of the Federal Reserve System, and significant market volatility, driving actual and projected results of our business operations as well as our views on potential effectiveness of certain prudent and feasible tax planning strategies. The Company’s December 31, 2020 results reflected in earnings are primarily impacted by the Insurance segment's net unrealized losses on investments of $6.5 million, included in the Net realized and unrealized gains (loss) on investments line, primarily driven by preferred stock mark to market adjustments. The impact on other comprehensive income was $244.1 million of unrealized gain on fixed maturity securities at December 31, 2020, a significant improvement as compared to prior quarter results, which reflected $355.5 million of unrealized loss at March 31, 2020, $9.2 million of unrealized gain at June 30, 2020, and $91.2 million of unrealized gain at September 30, 2020. The unrealized gains and losses were largely attributable to market factors caused by the COVID-19 crisis. The unrealized gains and losses are considered temporary in nature, as we have the ability to hold these securities to maturity. Acquisitions and Dispositions Other Sale of GMSL 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 55 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. At the time of the sale, the Company recorded a $39.3 million loss, inclusive of recognizing a $31.3 million loss from the realization of AOCI. During the fourth quarter of 2020, the Company recognized a gain on sale of $2.4 million c noted above. Sale of HMN On October 30, 2019, the Company announced the sale of its stake in HMN, its 49% joint venture with Huawei Technologies Co., Ltd., to Hengtong Optic-Electric Co Ltd. The sale valued HMN at $285.0 million, and GMH's 49% stake, through New Saxon, at approximately $140.0 million. Under the terms of the Sale and Purchase Agreement, the sale of New Saxon’s 49% interest in HMN will be affected in two tranches. The sale of the portion of New Saxon’s 30% interest of HMN, closed on May 12, 2020 (the "First HMN Close"). The remaining 19% interest of HMN is retained by New Saxon and subject to a put option agreement by New Saxon, exercisable starting on the second year anniversary of the closing date of the First HMN Close at a price equal to the greater of the share price paid for the 30% interest or fair market value as of the exercisable date. In conjunction with the first tranche of the sale, the Company received $85.5 million in cash, of which $17.5 million and $2.1 million were paid to noncontrolling interest holders and redeemable noncontrolling interest holders, respectively. New Saxon recorded a $71.1 million gain, included in Other income (loss) in the Condensed Consolidated Statements of Operations. The gain recognized includes $11.3 million related to the fair value of the put option. In addition, the Company recorded a $7.2 million tax expense related to a foreign tax payment when the first tranche closed. Sale of ICS The sale of ICS and its subsidiary, Go2 Tel, Inc., closed on October 31, 2020. The Company recorded a $0.9 million gain on the sale. Proceeds were used for general corporate purposes. Sale of Beyond6 On December 31, 2020, the Company announced a plan to sell Beyond6 to an affiliate of Mercuria Investments US, Inc., pursuant to an Agreement and Plan of Merger ( the "Merger Agreement") among Beyond6, Greenfill, Inc., a Delaware Corporation ("Parent"), Greenfill Merger Inc., a newly-formed Delaware corporation and wholly-owned subsidiary of the Parent, and an affiliate of HC2 as the Stockholder Representative for the Beyond6 stockholders. The sale closed on January 15, 2021 Debt Obligations Spectrum In February 2020, Spectrum amended its agreement governing its privately placed note funded by MSD Partners, L.P., increasing the principal balance to $39.3 million. The proceeds were used to repay principal and interest on existing debt. In August 2020, Spectrum modified its agreement with MSD Partners, L.P. and Great American Life Insurance Company to extend the maturity on its privately placed notes to October 2021. In September 2020, Spectrum amended its agreement governing its privately placed note funded by MSD Partners, L.P., increasing the principal balance by $4.0 million to $43.3 million. The proceeds were used to repay principal and interest on existing debt and for general business purposes. In November 2020, Spectrum paid down $2.9 million of its 8.50% Note due 2021 and $3.0 million on other various notes. In December 2020, Spectrum paid down $21.0 million and $9.6 million of its 8.5% Note due 2021 and 10.5% Note due 2021, respectively. 56 Non-Operating Corporate In March 2020, with the cash proceeds from the sale of GMSL, HC2 fully repaid its $15.0 million secured revolving line of credit with MSD PCOF Partners IX, LLC (the "2019 Revolving Credit Agreement"). HC2 recognized $0.4 million in extinguishment loss related to the repayment of the 2019 Revolving Credit Agreement, which is included in Loss on early extinguishment or restructuring of debt in our Consolidated Statement of Operations. In March 2020, HC2 entered into a new $15.0 million secured revolving credit agreement (the “2020 Revolving Credit Agreement”). The 2020 Revolving Credit Agreement matures in September 2021. Loans under the 2020 Revolving Credit Agreement bear interest at a per annum rate equal to, at HC2's option, one, two or three month LIBOR plus a margin of 6.75%. In April and May 2020, HC2 drew $10.0 million and $5.0 million of the 2020 Revolving Credit Agreement, respectively. The Company used the proceeds for general corporate purposes. In March 2020, with the cash proceeds from the sale of GMSL, HC2 redeemed $76.9 million of its 11.50% senior secured notes due 2021 (the "Senior Secured Notes") at a price equal to 104.5% of the principal amount plus accrued interest through the redemption date. HC2 recognized $5.4 million in extinguishment loss related to the redemption of its Senior Secured Notes, which is included in Loss on early extinguishment or restructuring of debt in our Consolidated Statement of Operations. In June 2020, with the cash proceeds from the partial sale of New Saxon's interest in HMN, HC2 redeemed $50.6 million of its Senior Secured Notes at a price equal to 104.5% of the principal amount plus accrued interest through the redemption date. HC2 recognized $3.4 million in extinguishment loss related to the this redemption, which is included in Loss on early extinguishment or restructuring of debt in our Consolidated Statement of Operations. In October 2020, HC2 redeemed an additional $2.1 million of its Senior Secured Notes at a price equal to 104.5% of the principal amount plus accrued interest through the redemption date. HC2 recognized $0.1 million in extinguishment loss related to the this redemption, which is included in Loss on early extinguishment or restructuring of debt in our Consolidated Statement of Operations. Pansend In April 2020, R2 received $10.0 million in funding from Huadong Medicine Company Limited as part of Huadong's $30 million Series B equity investment in R2. These funds are being used to commercialize R2's CryoAesthetic technology which provides physicians a new way to lighten, brighten and rejuvenate skin. This investment represents the second tranche of Huadong's investment at an approximate post-money valuation of $90.0 million and reduces Pansend's ownership by 7.8% to 56.1%. Financial Presentation Background In the below section within this Management’s Discussion and Analysis of Financial Condition and Results of Operations, we compare, pursuant to U.S. GAAP and SEC disclosure rules, the Company’s results of operations for the year ended December 31, 2020 as compared to the year ended December 31, 2019. 57 Results of Operations The following table summarizes our results of operations and a comparison of the change between the periods (in millions): Years Ended December 31, 2020 2019 Increase / (Decrease) Net revenue Infrastructure $ 676.6 $ 713.3 $ (36.7) Spectrum 40.3 41.8 (1.5) Insurance 300.2 331.6 (31.4) Other — 0.5 (0.5) Eliminations (1) (11.3) (10.2) (1.1) Total net revenue 1,005.8 1,077.0 (71.2) (Loss) income from operations Infrastructure $ 20.5 $ 45.1 $ (24.6) Life Sciences (16.9) (8.9) (8.0) Spectrum (2.2) (11.4) 9.2 Insurance 35.6 37.3 (1.7) Other (2.8) (1.6) (1.2) Non-operating Corporate (27.0) (25.0) (2.0) Eliminations (1) (11.3) (10.2) (1.1) Total (loss) income from operations (4.1) 25.3 (29.4) Interest expense (79.4) (76.1) (3.3) Loss on early extinguishment or restructuring of debt (9.4) — (9.4) (Loss) income from equity investees (3.4) 1.6 (5.0) Gain on bargain purchase — 1.1 (1.1) Other income 68.5 6.3 62.2 Loss from continuing operations (27.8) (41.8) 14.0 Income tax benefit (expense) (10.5) 19.6 (30.1) Loss from continuing operations (38.3) (22.2) (16.1) Loss from discontinued operations (including loss on disposal of $44.2 million) (63.8) (13.9) (49.9) Net loss (102.1) (36.1) (66.0) Net loss attributable to noncontrolling interest and redeemable noncontrolling interest 10.1 4.6 5.5 Net loss attributable to HC2 Holdings, Inc. (92.0) (31.5) (60.5) Less: Preferred dividends, deemed dividends, and repurchase gains 3.6 — 3.6 Net loss attributable to common stock and participating preferred stockholders $ (95.6) $ (31.5) $ (64.1) (1) The Insurance segment revenues are inclusive of realized and unrealized gains and net investment income for the year ended December 31, 2020 and 2019, which are related to transactions between entities under common control which are eliminated or are reclassified in consolidation. Net revenue : Net revenue for the year ended December 31, 2020 decreased $71.2 million to $1,005.8 million from $1,077.0 million for the year ended December 31, 2019. The decrease in revenue was driven by our Infrastructure segment, primarily driven by lower revenues from our structural steel fabrication and erection business, and our Insurance segment, net of eliminations, largely driven by lower net investment income and unfavorable market movements in values for common and preferred stock holdings and fixed maturity impairments. (Loss) income from operations : (Loss) income from operations for the year ended December 31, 2020 decreased $29.4 million to a loss of $4.1 million from income of $25.3 million for the year ended December 31, 2019. The decrease is attributable to our Infrastructure segment due to lower revenues from our structural steel fabrication and erection business and our Life Sciences segment driven by R2, which increased spending in the current period to support commercialization efforts and further develop its product platform. This was partially offset by a decrease in loss at our Spectrum segment related to cost reductions at Network and gains recognized on the sale of broadcast stations in the current period. Interest expense : Interest expense for the year ended December 31, 2020 increased $3.3 million to $79.4 million from $76.1 million for the year ended December 31, 2019. The increase was attributable to an increase in the aggregate principal amount of debt at our Spectrum segment. 58 Loss on early extinguishment or restructuring of debt : Loss on early extinguishment or restructuring of debt for the year ended December 31, 2020 was $9.4 million. This was driven by the write-off of deferred financing costs and original issuance discount related to the $15.0 million pay down of the 2019 Revolving Credit Agreement and the $129.5 million of redemptions of the Senior Secured Notes during 2020. (Loss) income from equity investees: (Loss) income from equity investees for the year ended December 31, 2020 decreased $5.0 million to a loss of $3.4 million from income of $1.6 million for the year ended December 31, 2019. The decrease was driven by a decrease in income for the HMN investment, driven by the timing of turnkey project work and the reduction of ownership from 49% to 19% during 2020, and an increase in losses recorded from our investment in MediBeacon due to the timing of clinical trials. Gain on bargain purchase: Gain on bargain purchase for the year ended December 31, 2020 decreased $1.1 million to zero from $1.1 million for the year ended December 31, 2019. The change relates to a gain recognized in 2019 due to a purchase price allocation adjustment related to the Insurance segment's acquisition of KIC in 2018. Other income: Other income for the year ended December 31, 2020 increased $62.2 million to $68.5 million from $6.3 million for the year ended December 31, 2019. The increase was primarily driven by the gain recognized on the partial HMN Sale, which closed during the second quarter of 2020. Income tax benefit (expense) : Income tax benefit (expense) was an expense of $10.5 million and a benefit of $19.6 million for the year ended December 31, 2020 and 2019, respectively. The income tax expense recorded for the year ended December 31, 2020 primarily relates to tax expense incurred in China from the partial sale of HMN and the tax expense as calculated under ASC 740 for taxpaying entities, offset by a tax benefit from the carryback of net operating losses at the Insurance segment as a result of the enactment of the CARES Act in the first quarter of 2020. Additionally, the tax benefits associated with losses generated by the HC2 Holdings, Inc. U.S. 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. The income tax benefit recorded for the year ended December 31, 2019 was $19.6 million. The benefit was primarily driven by a net valuation allowance release of $37.4 million related to the Insurance segment partially offset by an impairment of goodwill which is not deductible for tax purposes. Preferred dividends, deemed dividends, and repurchase gains: Preferred dividends, and deemed dividends, and repurchase gains for the year ended December 31, 2020 was $3.6 million compared to zero for the year ended December 31, 2019. The decrease was largely driven by the issuance of Series B Non-Voting participating Convertible Preferred Shares (the "Series B Preferred Stock") in September and November 2020, which were issued with a $2.0 million Beneficial Conversion feature. In addition, in the prior year, the Insurance segment purchased 10,000 shares of the Company's Series A-2 Preferred Stock at a $1.7 million discount. Segment Results of Operations In the Company's Consolidated Financial Statements, other operating (income) expense includes (i) (gain) loss on sale or disposal of assets, (ii) lease termination costs, (iii) asset impairment expense, (iv) accretion of asset retirement obligations, and (v) FCC reimbursements. Each table summarizes the results of operations of our operating segments and compares the amount of the change between the periods presented (in millions). Infrastructure Segment Years Ended December 31, 2020 2019 Increase / (Decrease) Net revenue $ 676.6 $ 713.3 $ (36.7) Cost of revenue 566.2 572.3 (6.1) Selling, general and administrative 79.1 79.8 (0.7) Depreciation and amortization 10.7 15.5 (4.8) Other operating (income) expense 0.1 0.6 (0.5) Income from operations $ 20.5 $ 45.1 $ (24.6) Net revenue: Net revenue from our Infrastructure segment for the year ended December 31, 2020 decreased $36.7 million to $676.6 million from $713.3 million for the year ended December 31, 2019. The decrease was primarily driven by lower revenues from our structural steel fabrication and erection business, which had increased activity in the comparable period on certain large commercial construction projects that are now at or near completion, as well as a decrease in power and industrial maintenance and repair work performed. Cost of revenue: Cost of revenue from our Infrastructure segment for the year ended December 31, 2020 decreased $6.1 million to $566.2 million from $572.3 million for the year ended December 31, 2019. The decrease was primarily driven by the timing of project work under execution and change in backlog mix, including a reduction in large commercial construction projects in the current period. The decrease was partially offset by higher costs incurred in response to the COVID-19 pandemic. 59 Selling, general and administrative: Selling, general and administrative expenses from our Infrastructure segment for the year ended December 31, 2020 decreased $0.7 million to $79.1 million from $79.8 million for the year ended December 31, 2019. The decrease was primarily driven by lower travel expenses and acquisition related costs in the current period, partially offset by higher costs incurred due to an increase in salaries and wages Depreciation and amortization : Depreciation and amortization from our Infrastructure segment for the year ended December 31, 2020 decreased $4.8 million to $10.7 million from $15.5 million for the year ended December 31, 2019. The decrease was primarily related to the full depreciation and amortization of assets that took place subsequent to the comparable period. Other operating (income) expense: Other operating (income) expense from our Infrastructure segment for the year ended December 31, 2020 decreased by $0.5 million to a loss of $0.1 million from income of $0.6 million for the year ended December 31, 2019. The change was primarily due to the gains and losses on the sale of land and assets in the comparable periods. Life Sciences Segment Years Ended December 31, 2020 2019 Increase / (Decrease) Selling, general and administrative $ 16.7 $ 8.6 $ 8.1 Depreciation and amortization 0.1 0.3 (0.2) Other operating expense 0.1 — 0.1 Loss from operations $ (16.9) $ (8.9) $ (8.0) Selling, general and administrative : Selling, general and administrative expenses from our Life Sciences segment for the year ended December 31, 2020 increased $8.1 million to $16.7 million from $8.6 million for the year ended December 31, 2019. The increase was driven by higher expenses at R2, which increased spending from the comparable period to ramp up operations to support commercialization efforts and further develop its product platform. Spectrum Years Ended December 31, 2020 2019 Increase / (Decrease) Net revenue $ 40.3 $ 41.8 $ (1.5) Cost of revenue 22.3 23.5 (1.2) Selling, general and administrative 20.1 26.4 (6.3) Depreciation and amortization 6.8 6.3 0.5 Other operating (income) expense (6.7) (3.0) (3.7) Loss from operations $ (2.2) $ (11.4) $ 9.2 Net revenue: Net revenue from our Spectrum segment for the year ended December 31, 2020 decreased $1.5 million to $40.3 million from $41.8 million for the year ended December 31, 2019. The decrease was primarily driven by a decrease in advertising revenues at the Azteca network driven by the negative impact of the COVID-19 pandemic, partially offset by higher station revenues as our Spectrum segment grew the number of operating stations and launched new customers across its broadcast platform. Cost of revenue: Cost of revenue from our Spectrum segment for the year ended December 31, 2020 decreased $1.2 million to $22.3 million from $23.5 million for the year ended December 31, 2019. The decrease was primarily driven by cost reductions at Network, partially offset by increased cost of revenues associated with the higher number of operating stations. Selling, general and administrative: Selling, general and administrative expenses from our Spectrum segment for the year ended December 31, 2020 decreased $6.3 million to $20.1 million from $26.4 million for the year ended December 31, 2019. The decrease was primarily due to lower compensation, overhead, and acquisition-related expenses. Depreciation and amortization: Depreciation and amortization from our Spectrum segment for the year ended December 31, 2020 increased $0.5 million to $6.8 million from $6.3 million for the year ended December 31, 2019. The increase was driven by additional amortization of fixed assets at new stations which were acquired or built subsequent to the comparable period. Other operating (income) expense : Other operating (income) expense from our Spectrum segment for the year ended December 31, 2020 increased $3.7 million to income of $6.7 million from income of $3.0 million for the year ended December 31, 2019. The increase was primarily due to gains recognized on the sale of stations in the current period, partially offset by the impairment of licenses in the current period and a decrease in gains from FCC reimbursements. 60 Insurance Segment Years Ended December 31, 2020 2019 Increase / (Decrease) Life, accident and health earned premiums, net $ 115.1 $ 116.8 $ (1.7) Net investment income 198.8 212.9 (14.1) Net realized and unrealized gains on investments (13.7) 1.9 (15.6) Net revenue 300.2 331.6 (31.4) Policy benefits, changes in reserves, and commissions 250.0 234.4 15.6 Selling, general and administrative 35.5 35.7 (0.2) Depreciation and amortization (20.9) (23.1) 2.2 Other operating expense — 47.3 (47.3) Income from operations (1) $ 35.6 $ 37.3 $ (1.7) (1) The Insurance segment revenues are inclusive of realized and unrealized gains and net investment income for the year ended December 31, 2020 and 2019. Such adjustments are related to transactions between entities under common control which are eliminated or are reclassified in consolidation. Life, accident and health earned premiums, net: Life, accident and health earned premiums, net from our Insurance segment for the year ended December 31, 2020 decreased $1.7 million to $115.1 million from $116.8 million for the year ended December 31, 2019. The decrease was primarily related to natural run-off of the closed blocks of business. Net investment income: Net investment income from our Insurance segment for the year ended December 31, 2020 decreased $14.1 million to $198.8 million from $212.9 million for the year ended December 31, 2019. The decrease was primarily due to decreased holdings in equity, mortgage and short-term investments to pivot investment strategy to a more conservative methodology, including decreased yield on equity method investments, partially offset by an increase in investment income from higher average invested assets as a result of the reinvestment of premiums and investment income received. Net realized and unrealized gains on investments: Net realized and unrealized gains on investments from our Insurance segment for the year ended December 31, 2020 decreased $15.6 million to $13.7 million from $1.9 million for the year ended December 31, 2019. The decrease was driven by unrealized losses due to unfavorable market movements in preferred investments, and realized losses on the sale of bond and equity investments. Policy benefits, changes in reserves, and commissions : Policy benefits, changes in reserves, and commissions from our Insurance segment for the year ended December 31, 2020 increased $15.6 million to $250.0 million from $234.4 million for the year ended December 31, 2019.The increase was due to unfavorable reserves development in the active life reserve for the LTC policies acquired in 2018 and expected increase in claims activity in the current period. Depreciation and amortization : Depreciation and amortization from our Insurance segment for the year ended December 31, 2020 decreased $2.2 million to $20.9 million from $23.1 million for the year ended December 31, 2019. The decrease was driven by a reduction in negative VOBA amortization largely due to lower policy terminations for the LTC policies acquired in 2018. Other operating expense : Other operating expense from our Insurance segment for the year ended December 31, 2020 was zero compared to $47.3 million for the year ended December 31, 2019. The decrease was due to goodwill impairment in the comparable period not recognized in the current period. Non-operating Corporate Years Ended December 31, 2020 2019 Increase / (Decrease) Selling, general and administrative $ 26.9 $ 24.9 $ 2.0 Depreciation and amortization 0.1 0.1 — Loss from operations $ (27.0) $ (25.0) $ (2.0) Selling, general and administrative : Selling, general and administrative expenses from our Non-operating Corporate segment for the year ended December 31, 2020 increased $2.0 million to $26.9 million from $24.9 million for the year ended December 31, 2019. The increase was driven by costs incurred associated with the proxy contest, acquisition and disposition costs, and increased legal activity. This was partially offset by a decrease in bonus, stock compensation expense, rent expense and various consulting expenses in the current period. 61 (Loss) income from Equity Investees Years Ended December 31, 2020 2019 Increase / (Decrease) Life Sciences $ (6.0) $ (3.4) $ (2.6) Other 2.6 5.0 (2.4) (Loss) income from equity investees $ (3.4) $ 1.6 $ (5.0) Life Sciences: Loss from equity investees within our Life Sciences segment for the year ended December 31, 2020 increased $2.6 million to $6.0 million from $3.4 million for the year ended December 31, 2019. The increase in loss was largely due to higher equity method losses recorded from our investment in MediBeacon due to the timing of clinical trials. Other: Income from equity investees within our Other segment for the year ended December 31, 2020 decreased $2.4 million to $2.6 million from $5.0 million for the year ended December 31, 2019. The decrease was driven by the equity investment in HMN, as the joint venture produced lower profits than in the comparable period, which is generally attributable to timing of turnkey project work, and a reduction in ownership from 49% to 19% as a result of the partial sale of HC2's investment in the second quarter of 2020. Non-GAAP Financial Measures and Other Information Adjusted EBITDA Adjusted EBITDA is not a measurement recognized under U.S. GAAP. In addition, other companies may define Adjusted EBITDA differently than we do, which could limit its usefulness. Management believes that Adjusted EBITDA provides investors with meaningful information for gaining an understanding of our results as it is frequently used by the financial community to provide insight into an organization’s operating trends and facilitates comparisons between peer companies, since interest, taxes, depreciation, amortization and the other items listed in the definition of Adjusted EBITDA below can differ greatly between organizations as a result of differing capital structures and tax strategies. Adjusted EBITDA can also be a useful measure of a company’s ability to service debt. While management believes that non-U.S. GAAP measurements are useful supplemental information, such adjusted results are not intended to replace our U.S. GAAP financial results. Using Adjusted EBITDA as a performance measure has inherent limitations as an analytical tool as compared to net income (loss) or other U.S. GAAP financial measures, as this non-GAAP measure excludes certain items, including items that are recurring in nature, which may be meaningful to investors. As a result of the exclusions, Adjusted EBITDA should not be considered in isolation and does not purport to be an alternative to net income (loss) or other U.S. GAAP financial measures as a measure of our operating performance. Adjusted EBITDA excludes the results of operations and any consolidating eliminations of our Insurance segment. The calculation of Adjusted EBITDA, as defined by us, consists of Net income (loss) as adjusted for depreciation and amortization; amortization of equity method fair value adjustments at acquisition; Other operating (income) expense, which is inclusive of (gain) loss on sale or disposal of assets, lease termination costs, and FCC reimbursements; asset impairment expense, interest expense; net gain (loss) on contingent consideration; loss on early extinguishment or restructuring of debt; gain (loss) on sale of subsidiaries; other (income) expense, net; foreign currency transaction (gain) loss included in cost of revenue; income tax (benefit) expense; noncontrolling interest; bonus to be settled in equity; share-based compensation expense; discontinued operations; non-recurring items; costs associated with the COVID-19 pandemic; and acquisition and disposition costs. 62 (in millions) Year ended December 31, 2020 Infrastructure Life Sciences Spectrum Other and Elimination Non-operating Corporate HC2 Net loss attributable to HC2 Holdings, Inc. $ (92.0) Less: Net Income attributable to HC2 Holdings Insurance segment 40.2 Less: Consolidating eliminations attributable to HC2 Holdings Insurance segment (6.0) Net Income (loss) attributable to HC2 Holdings, Inc., excluding Insurance segment $ 6.8 $ (14.4) $ (17.5) $ (1.5) $ (99.6) $ (126.2) Adjustments to reconcile net income (loss) to Adjusted EBITDA: Depreciation and amortization 10.7 0.1 6.8 — 0.1 17.7 Depreciation and amortization (included in cost of revenue) 9.1 — — — — 9.1 Other operating (income) expenses 0.1 0.1 (6.7) — — (6.5) Interest expense 8.5 — 14.7 — 56.2 79.4 Other (income) expense, net 0.5 (2.3) 5.7 (72.2) 3.0 (65.3) Loss on early extinguishment of debt — — — — 9.4 9.4 Income tax expense 4.2 — 0.3 11.0 0.2 15.7 Noncontrolling interest 0.6 (6.2) (5.3) 0.8 — (10.1) Discontinued operations — — — 61.7 3.9 65.6 Bonus to be settled in equity — — — — (0.5) (0.5) Share-based payment expense — 0.2 0.3 — 2.4 2.9 Non-recurring items 2.7 — — — 5.4 8.1 COVID-19 Costs 19.4 — — — — 19.4 Acquisition and disposition costs 0.6 — 0.5 1.8 3.9 6.8 Adjusted EBITDA $ 63.2 $ (22.5) $ (1.2) $ 1.6 $ (15.6) $ 25.5 (in millions) Year ended December 31, 2019 Infrastructure Life Sciences Spectrum Other and Elimination Non-operating Corporate HC2 Net loss attributable to HC2 Holdings, Inc. $ (31.5) Less: Net Income attributable to HC2 Holdings Insurance segment 59.4 Less: Consolidating eliminations attributable to HC2 Holdings Insurance segment (8.7) Net Income (loss) attributable to HC2 Holdings, Inc., excluding Insurance Segment $ 24.7 $ (0.2) $ (18.5) $ (0.6) $ (87.6) $ (82.2) Adjustments to reconcile net income (loss) to Adjusted EBITDA: Depreciation and amortization 15.5 0.3 6.3 — 0.1 22.2 Depreciation and amortization (included in cost of revenue) 9.1 — — — — 9.1 Other operating (income) expenses 0.5 — (2.9) 0.1 — (2.3) Interest expense 9.3 — 9.6 — 57.5 76.4 Other (income) expense, net (1.6) (8.6) 2.7 — 2.2 (5.3) Income tax (benefit) expense 10.9 — (1.5) — (8.1) 1.3 Noncontrolling interest 2.0 (3.4) (3.8) 0.6 — (4.6) Share-based payment expense — 0.1 0.6 — 5.5 6.2 Discontinued Operations — — — 3.5 11.0 14.5 Acquisition and disposition costs 5.3 — 1.2 0.1 1.5 8.1 Adjusted EBITDA $ 75.7 $ (11.8) $ (6.3) $ 3.7 $ (17.9) $ 43.4 Infrastructure: Net income from our Infrastructure segment for the year ended December 31, 2020 decreased $17.9 million to $6.8 million from $24.7 million for the year ended December 31, 2019. Adjusted EBITDA from our Infrastructure segment for the year ended December 31, 2020 decreased $12.5 million to $63.2 million from $75.7 million for the year ended December 31, 2019. The decrease in Adjusted EBITDA can be attributed to the timing of project work under execution and change in backlog mix, including a reduction in large commercial construction projects in the current period, as well as a decline in power and industrial repair and maintenance work performed. 63 Life Sciences: Net loss from our Life Sciences segment for the year ended December 31, 2020 decreased $14.2 million to $14.4 million from $0.2 million for the year ended December 31, 2019. Adjusted EBITDA loss from our Life Sciences segment for the year ended December 31, 2020 increased $10.7 million to $22.5 million from $11.8 million for the year ended December 31, 2019. The increase in Adjusted EBITDA loss was primarily driven by higher expenses at R2, which increased spending from the comparable period to support commercialization efforts and further develop its product platform. and higher equity method losses recorded from our investment in MediBeacon due to the timing of clinical trials. Spectrum: Net loss from our Spectrum segment for the year ended December 31, 2020 decreased $1.0 million to $17.5 million from $18.5 million for the year ended December 31, 2019. Adjusted EBITDA loss from our Spectrum segment for the year ended December 31, 2020 decreased $5.1 million to $1.2 million from $6.3 million for the year ended December 31, 2019. The overall decrease in Adjusted EBITDA loss was primarily driven by a decrease in compensation and overhead, expenses, as well as higher station revenues as our Spectrum segment grew the number of operating stations and launched new customers across its broadcast platform. This was partially offset by a decrease in advertising revenues at the Azteca network driven by the negative impact of the COVID-19 pandemic. Other and Elimination: Net income (loss) from our Other segment for the year ended December 31, 2020 decreased $0.9 million to income of $1.5 million from a loss of $0.6 million for the year ended December 31, 2019. Adjusted EBITDA from our Other segment for the year ended December 31, 2020 decreased $2.1 million to $1.6 million from $3.7 million for the year ended December 31, 2019. The decrease in Adjusted EBITDA for Other and Eliminations was driven by lower profits for the HMN investment, which is generally attributable to the timing of turnkey project work and the reduction of ownership from 49% to 19% as a result of the partial sale of HMN in the second quarter of 2020. Non-operating Corporate: Net loss from our Non-operating Corporate segment for the year ended December 31, 2020 increased $12.0 million to $99.6 million from $87.6 million for the year ended December 31, 2019. Adjusted EBITDA loss from our Non-operating Corporate segment for the year ended December 31, 2020 decreased $2.3 million to $15.6 million from $17.9 million for the year ended December 31, 2019. The decrease in Adjusted EBITDA loss was driven by a decrease in discretionary bonus and a general reduction in overhead expenses, including professional fees, travel and entertainment expenses, and rent expense, partially offset by an increase in recurring legal fees resulting from an increase in activity. (in millions): Year ended December 31, 2020 2019 Increase / (Decrease) Infrastructure $ 63.2 $ 75.7 $ (12.5) Life Sciences (22.5) (11.8) (10.7) Spectrum (1.2) (6.3) 5.1 Other and Eliminations 1.6 3.7 (2.1) Non-Operating Corporate (15.6) (17.9) 2.3 Adjusted EBITDA $ 25.5 $ 43.4 $ (17.9) Adjusted Operating Income - Insurance Adjusted Operating Income ("Insurance AOI") and Pre-tax Adjusted Operating Income (“Pre-tax Insurance AOI”) for the Insurance segment are non-U.S. GAAP financial measures frequently used throughout the insurance industry and are economic measures the Insurance segment uses to evaluate its financial performance. Management believes that Insurance AOI and Pretax Insurance AOI measures provide investors with meaningful information for gaining an understanding of certain results and provide insight into an organization’s operating trends and facilitates comparisons between peer companies. However, Insurance AOI and Pre-tax Insurance AOI have certain limitations, and we may not calculate it the same as other companies in our industry. It should, therefore, be read together with the Company's results calculated in accordance with U.S. GAAP. Similarly to Adjusted EBITDA, using Insurance AOI and Pre-tax Insurance AOI as performance measures have inherent limitations as an analytical tool as compared to income (loss) from operations or other U.S. GAAP financial measures, as these non-U.S. GAAP measures exclude certain items, including items that are recurring in nature, which may be meaningful to investors. As a result of the exclusions, Insurance AOI and Pre-tax Insurance AOI should not be considered in isolation and do not purport to be an alternative to income (loss) from operations or other U.S. GAAP financial measures as measures of our operating performance. Management defines Insurance AOI as Net income for the Insurance segment adjusted to exclude the impact of net investment gains (losses), including OTTI losses recognized in operations; asset impairment; intercompany elimination; gain on bargain purchase, gain on reinsurance recaptures; and acquisition costs. Management defines Pre-tax Insurance AOI as Insurance AOI adjusted to exclude the impact of income tax (benefit) expense recognized during the current period. Management believes that Insurance AOI and Pre-tax Insurance AOI provide meaningful financial metrics that help investors understand certain results and profitability. While these adjustments are an integral part of the overall performance of the Insurance segment, market conditions impacting these items can overshadow the underlying performance of the business. Accordingly, we believe using a measure which excludes their impact is effective in analyzing the trends of our operations. 64 The table below shows the adjustments made to the reported Net income (loss) of the Insurance segment to calculate Insurance AOI and Pre-tax Insurance AOI (in millions). Refer to the analysis of the fluctuations within the results of operations section: Year ended December 31, 2020 2019 Increase / (Decrease) Net income - Insurance segment $ 40.2 $ 59.4 $ (19.2) Effect of investment (gains) (1) 13.6 (1.9) 15.5 Asset impairment expense — 47.3 (47.3) Gain on bargain purchase — (1.1) 1.1 Acquisition costs 0.1 2.1 (2.0) Insurance AOI 53.9 105.8 (51.9) Income tax expense (benefit) (4.3) (20.1) 15.8 Pre-tax Insurance AOI $ 49.6 $ 85.7 $ (36.1) (1) The Insurance segment revenues are inclusive of realized and unrealized gains and net investment income for the year ended December 31, 2020 and 2019. Such adjustments are related to transactions between entities under common control which are eliminated or are reclassified in consolidation. Net income for the year ended December 31, 2020 decreased $19.2 million to $40.2 million from $59.4 million for the year ended December 31, 2019. Pre-tax Insurance AOI for the year ended December 31, 2020 decreased $36.1 million to $49.6 million from $85.7 million for year ended December 31, 2019. The decrease was primarily driven by non-recurring favorable claims activity recognized in the comparable period and additional unfavorable claims activity and reserve developments in the current year. Additionally, the Insurance segment had a reduction in net investment income due to lower bond yields and unfavorable market movements in values for preferred stock holdings and fixed maturity impairments and unfavorable VOBA amortization largely due to lower policy terminations for the LTC policies acquired in 2018. Backlog Projects in backlog consist of awarded contracts, letters of intent, notices to proceed, change orders, and purchase orders obtained. Backlog increases as contract commitments are obtained, decreases as revenues are recognized and increases or decreases to reflect modifications in the work to be performed under the contracts. Backlog is converted to sales in future periods as work is performed or projects are completed. Backlog can be significantly affected by the receipt or loss of individual contracts. Infrastructure Segment At December 31, 2020, DBMG's backlog was $394.5 million, consisting of $334.9 million under contracts or purchase orders and $59.6 million under letters of intent or notices to proceed. Approximately $141.8 million, representing 35.9% of DBMG’s backlog at December 31, 2020, was attributable to five contracts, letters of intent, notices to proceed or purchase orders. If one or more of these projects terminate or reduce their scope, DBMG’s backlog could decrease substantially. DBMG's backlog at December 31, 2019 was $497.7 million, consisting of $329.7 million under contracts or purchase orders and $168.0 million under letters of intent or notices to proceeds. Liquidity and Capital Resources Short- and Long-Term Liquidity Considerations and Risks HC2 is a holding company and its liquidity needs are primarily for interest payments on its Senior Secured Notes, Convertible Notes, and its Revolving Credit Agreement (each as defined below), dividend payments on its Preferred Stock and recurring operational expenses. As of December 31, 2020, the Company had $232.3 million of cash and cash equivalents compared to $193.7 million as of December 31, 2019. On a stand-alone basis, as of December 31, 2020, HC2 had cash and cash equivalents of $27.5 million compared to $11.6 million at December 31, 2019. At December 31, 2020, cash and cash equivalents in our Insurance segment was $188.5 million compared to $170.5 million at December 31, 2019. Our subsidiaries' principal liquidity requirements arise from cash used in operating activities, debt service, and capital expenditures, including purchases of steel construction equipment, OTA broadcast station equipment, liabilities associated with insurance products, development of back-office systems, operating costs and expenses, and income taxes. 65 As of December 31, 2020, the Company had $576.6 million of indebtedness on a consolidated basis compared to $754.1 million as of December 31, 2019. On a stand-alone basis, as of December 31, 2020 and December 31, 2019, HC2 had indebtedness of $410.4 million and $540.0 million, respectively. HC2's stand-alone debt consists of the $340.4 million aggregate principal amount of 11.50% senior secured notes due 2021 (the "Senior Secured Notes"), the $55.0 million aggregate principal amount of 7.5% convertible senior notes due 2022 (the "Convertible Notes"), and the $15.0 million secured revolving credit agreement ("2020 Revolving Credit Agreement"), fully drawn. HC2 is required to make semi-annual interest payments on its Senior Secured Notes and Convertible Notes, and quarterly interest payments on its 2020 Revolving Credit Agreement. HC2 is required to make dividend payments on its outstanding Preferred Stock on January 15 th , April 15 th , July 15 th , and October 15 th of each year. HC2 received $5.2 million in net management fees during the year ended December 31, 2020, related to fees earned in the fourth quarter of 2019 and the first three quarters of 2020. HC2 received $18.0 million in dividends from its Infrastructure segment during the year ended December 31, 2020. We have financed our growth and operations to date, and expect to finance our future growth and operations, through public offerings and private placements of debt and equity securities, credit facilities, vendor financing, capital lease financing and other financing arrangements, as well as cash generated from the operations of our subsidiaries. In the future, we may also choose to sell assets or certain investments to generate cash. At this time, we believe that we will be able to continue to meet our liquidity requirements and fund our fixed obligations (such as debt service and operating leases) and other cash needs for our operations for at least the next twelve months through a combination of cash on hand, distributions from our subsidiaries, and/or the sale of assets and certain investments. Historically, we have chosen to reinvest cash and receivables into the growth of our various businesses, and therefore have not kept a large amount of cash on hand at the holding company level. The ability of HC2’s subsidiaries to make distributions to HC2 is subject to numerous factors, including restrictions contained in each subsidiary’s financing agreements, regulatory requirements, availability of sufficient funds at each subsidiary and the approval of such payment by each subsidiary’s board of directors, which must consider various factors, including general economic and business conditions, tax considerations, strategic plans, financial results and condition, expansion plans, any contractual, legal or regulatory restrictions on the payment of dividends, and such other factors each subsidiary’s board of directors considers relevant. Our ability to sell assets and certain of our investments to meet our existing financing needs may also be limited by our existing financing instruments. Although the Company believes that it will be able to raise additional equity capital, refinance or renegotiate terms of our indebtedness or preferred stock, enter into other financing arrangements or engage in asset sales and sales of certain investments sufficient to fund any cash needs that we are not able to satisfy with the funds expected to be provided by our subsidiaries, there can be no assurance that it will be able to do so on terms satisfactory to the Company if at all. Such financing options, if pursued, may also ultimately have the effect of negatively impacting our liquidity profile and prospects over the long-term. In addition, the sale of assets or the Company’s investments may also make the Company less attractive to potential investors or future financing partners. We have seen significant costs increases, primarily at our Infrastructure segment, driven by expenses associated with maintaining a safe work environment, and while executing on its projects. During the year ended December 31, 2020, $19.4 million of COVID-19 costs were incurred. Although the COVID-19 pandemic did not have a material impact on the HC2’s liquidity for the year ended December 31, 2020, management believes the continuation of the pandemic and its related effect on the U.S. and global economies could introduce added pressure on the Company’s liquidity position and financial performance. Our sources of liquidity are primarily from the dividends and tax sharing agreement with DBMG, cash proceeds from completed and anticipated monetization’s and other arrangements. Additionally, in response to the COVID-19 pandemic, our corporate staff is predominantly working remotely and many of our key vendors, and consultants have similarly begun to work remotely. As a result of such remote work arrangements, certain operational, reporting, accounting and other processes may slow, which could result in longer time to execute critical business functions. Capital Expenditures Capital expenditures for the years ended December 31, 2020 and 2019 are set forth in the table below (in millions): Years Ended December 31, 2020 2019 Infrastructure $ 5.7 $ 9.8 Life Sciences 0.1 0.1 Spectrum 11.8 14.2 Insurance 0.2 0.6 Total $ 17.8 $ 24.7 66 Indebtedness Senior Secured Notes Terms and Conditions Maturity . The Secured Notes mature on December 1, 2021. Interest . 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. Ranking . 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. Collateral . 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; and • 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: Maturity . The Convertible Notes mature on June 1, 2022 unless earlier converted, redeemed or purchased. Interest . 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. Ranking . 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 principal amount of the notes being redeemed, plus accrued and unpaid interest, including additional interest, if any, to, but excluding, the redemption date. 67 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 Lender. MSD PCOF Partners IX, LLC (“MSD”) Ranking. 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. Collateral: 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. Infrastructure The Wells Fargo Facility and the TCW Loan associated with our Infrastructure segment contain customary restrictive and financial covenants related to debt levels and performance. As of December 31, 2020, DBMG was in compliance with all of the financial covenants to its debt agreements. See Note 15. Debt Obligations to the Consolidated Financial Statements for additional details regarding the Company's indebtedness. Restrictive Covenants The indenture governing the Senior Secured Notes dated November 20, 2018, by and among HC2, the guarantors party thereto and U.S. Bank National Association, a national banking association ("U.S. Bank"), as trustee (the "Secured Indenture"), contains certain affirmative and negative covenants limiting, among other things, the ability of the Company, and, in certain cases, the Company’s subsidiaries, to incur additional indebtedness; create liens; engage in sale-leaseback transactions; pay dividends or make distributions in respect of capital stock; make certain restricted payments; sell assets; engage in transactions with affiliates; or consolidate or merge with, or sell substantially all of its assets to, another person. These covenants are subject to a number of important exceptions and qualifications. The Company is also required to comply with certain financial maintenance covenants, which are similarly subject to a number of important exceptions and qualifications. These covenants include maintenance of (1) liquidity; (2) collateral coverage; (3) secured net leverage ratio; and (4) fixed charge coverage ratio. The maintenance of liquidity covenant provides that the Company will not permit the aggregate amount of (i) all unrestricted cash and Cash Equivalents of the Company and the Subsidiary Guarantors, (ii) amounts available for drawing under revolving credit facilities and undrawn letters of credit of the Company and the Subsidiary Guarantors and (iii) dividends, distributions or payments that are immediately available to be paid to the Company by any of its Restricted Subsidiaries to be less than the Company’s obligation to pay interest on the Senior Secured Notes and all other Debt, including Convertible Preferred Stock mandatory cash dividends or any other mandatory cash pay Preferred Stock but excluding any obligation to pay interest on Convertible Preferred Stock or any other mandatory cash pay Preferred Stock which, in each case, may be paid by accretion or in-kind in accordance with its terms of the Company and its Subsidiary Guarantors for the next six months. As of December 31, 2020, the Company was in compliance with this covenant. The maintenance of collateral coverage provides that the certain subsidiaries' Collateral Coverage Ratio (as defined in the Secured Indenture as the ratio of (i) the Loan Collateral to (ii) Consolidated Secured Debt (each as defined therein)) calculated on a pro forma basis as of the last day of each fiscal quarter may not be less than 1.50 to 1.00. As of December 31, 2020, the Company was in compliance with this covenant. The maintenance of secured net leverage ratio provides that the Company’s Secured Net Leverage Ratio (as defined in the Secured Indenture) as of any date of determination calculated on a pro forma basis after accounting for the net proceeds from any Asset Sale which the Company has determined to apply to the repayment of any Debt to exceed 7.75 to 1.00. As of December 31, 2020, the Company was in compliance with this covenant. 68 The maintenance of fixed charge coverage ratio provides that commencing with the fiscal year ending December 31, 2019, that the Company will not permit the Fixed Charge Coverage Ratio (as defined in the Secured Indenture) calculated as of the last day of each fiscal year of the Company to be less than 1.00 to 1.00 or that the Company’s “HC2 Corporate Overhead” (as defined in the Secured Indenture) in any fiscal year not exceed the sum of $29.0 million for such fiscal year. As of December 31, 2019 the Company was in compliance. The instruments governing the Company’s Preferred Stock also limit the Company’s and its subsidiaries ability to take certain actions, including, among other things, to incur additional indebtedness; issue additional Preferred Stock; engage in transactions with affiliates; and make certain restricted payments. These limitations are subject to a number of important exceptions and qualifications. On February 1, 2021, HC2 closed on $330.0 million of 8.500% senior secured notes due 2026 at an issue price of 100%. The Notes will be senior secured obligations of the Company and will be guaranteed by certain of the Company's domestic subsidiaries. The proceeds from the issuance of the Notes were used, together with the net cash proceeds of the Company’s previously announced sale of its majority-owned subsidiary Beyond6, Inc., to redeem in full HC2’s existing 11.50% senior secured notes, repay the outstanding indebtedness under its revolving credit agreement, pay related fees and expenses, and for general corporate purposes. The Company conducted its operations in a manner that resulted in compliance with the prior Secured Indenture; however, compliance with certain financial covenants for future periods may depend on the Company or one or more of the Company’s subsidiaries undertaking one or more non-operational transactions, such as the management of operating cash outflows, a monetization of assets, a debt incurrence or refinancing, the raising of equity capital, or similar transactions. If the Company is unable to remain in compliance and does not make alternate arrangements, an event of default would occur under the Company’s Secured Indenture which, among other remedies, could result in the outstanding obligations under the indenture becoming immediately due and payable and permitting the exercise of remedies with respect to the collateral. There is no assurance the Company will be able to complete any non-operational transaction it may undertake to maintain compliance with covenants under the Secured Indenture or, even if the Company completes any such transaction, that it will be able to maintain compliance for any subsequent period. Summary of Consolidated Cash Flows The below table summarizes the cash provided or used in our activities and the amount of the respective changes between the periods (in millions): Years Ended December 31, Increase / (Decrease) 2020 2019 Operating activities from Continuing Operations $ 52.4 $ 53.2 $ (0.8) Investing activities from Continuing Operations 185.7 (209.2) 394.9 Financing activities from Continuing Operations (196.4) 33.7 (230.1) Effect of exchange rate changes on cash and cash equivalents 0.7 0.7 — Cash flows from discontinued operations (42.3) 31.8 (74.1) Net increase (decrease) in cash, cash equivalents and restricted cash $ 0.1 $ (89.8) $ 89.9 Less: Net (decrease) increase in cash and cash equivalents classified within current assets held for sale (38.6) 20.9 (59.5) Net change in cash, cash equivalents and restricted cash $ 38.7 $ (110.7) $ 149.4 Operating Activities Cash provided by operating activities was $52.4 million for the year ended December 31, 2020 as compared to cash provided by operating activities of $53.2 million for the year ended December 31, 2019. The $0.8 million change was the result of the working capital improvements in our Infrastructure segment offset by declines in working capital at our Life Sciences segment. Our Infrastructure segment benefited from increased billings in excess of costs on new projects. Our Life Sciences segment incurred additional costs as it ramped up efforts to achieve commercialization of its products. Investing Activities Cash provided by investing activities was $185.7 million for the year ended December 31, 2020 as compared to cash used in investing activities of $209.2 million for the year ended December 31, 2019. The $394.9 million change was from the proceeds from sales of subsidiaries, largely GMSL and HMN during the current year, and a decline in net investment activity at our Insurance Segment. 69 Financing Activities Cash used in financing activities was $196.4 million for the year ended December 31, 2020 as compared cash provided by financing activities of $33.7 million for the year ended December 31, 2019. The $230.1 million change was largely a result of the principal payments on debt obligations at our Corporate segment and payments to minority stockholders at our Other segment for the portion of the proceeds received from the sale of GMSL and HMN. Further adding to the decline were payments on borrowings at our Infrastructure and Spectrum segments when compared to the prior period. This was partially offset by proceeds received from HC2's 2020 rights offering and issuance of Series B Preferred Stock. Discontinued Operations Cash used in discontinued operations was $42.3 million for the year ended December 31, 2020 as compared to cash provided by discontinued operations of $31.8 million for the year ended December 31, 2019. The $74.1 million decrease was largely due to the timing of sales of subsidiaries during the year, cash balances at the subsidiaries which was included as part of these sales, and lower working capital at ICS compared to the prior year. Infrastructure Cash Flows Cash flows from operating activities are the principal source of cash used to fund DBMG’s operating expenses, interest payments on debt, and capital expenditures. DBMG's short-term cash needs are primarily for working capital to support operations including receivables, inventories, and other costs incurred in performing its contracts. DBMG attempts to structure the payment arrangements under its contracts to match costs incurred under the project. To the extent it is able to bill in advance of costs incurred, DBMG generates working capital through billings in excess of costs and recognized earnings on uncompleted contracts. DBMG relies on its credit facilities to meet its working capital needs. DBMG believes that its existing borrowing availability together with cash from operations will be adequate to meet all funding requirements for its operating expenses, interest payments on debt and capital expenditures for the foreseeable future. DBMG is required to make monthly or quarterly interest payments on all of its debt. Based upon the December 31, 2020 debt balance, DBMG anticipates that its interest payments will be approximately $1.6 million each quarter of 2021. DBMG believes that its available funds, cash generated by operating activities and funds available under its bank credit facilities will be sufficient to fund its capital expenditures and its working capital needs. However, DBMG may expand its operations through future acquisitions and may require additional equity or debt financing. Insurance Cash flows CIG’s principal cash inflows from its operating activities relate to its premiums, annuity deposits and insurance, investment product fees and other income. CIG’s principal cash inflows from its invested assets result from investment income and the maturity and sales of invested assets. The primary liquidity concern with respect to these cash inflows relates to the risk of default by debtors and interest rate volatility. Additional sources of liquidity to meet unexpected cash outflows in excess of operating cash inflows and current cash and equivalents on hand include selling short-term investments or fixed maturity securities. CIG's principal cash outflows relate to the payment of claims liabilities, interest credited and operating expenses. CIG’s management believes its current sources of liquidity are adequate to meet its cash requirements for the next 12 months. Market environment As of December 31, 2020, CIG was in a position to hold any investment security showing an unrealized loss until recovery, provided it remains comfortable with the credit of the issuer. CIG does not rely on short-term funding or commercial paper and to date it has experienced no liquidity pressure, nor does it anticipate such pressure in the foreseeable future. CIG projects its reserves to be sufficient and believes its current capital base is adequate to support its business. Dividend Limitations CIG's insurance subsidiary is subject to Texas statutory provisions that restrict the payment of dividends. The maximum amount of dividends which can be paid to stockholders by life insurance companies domiciled in the State of Texas without prior approval of the Insurance Commissioner is the greater of 10% of surplus as regards to policyholders or net gain on operations as of the preceding year end, but only to the extent of earned surplus as of the preceding year end. The maximum amount of dividends payable in 2020 and 2019 without prior approval was $0 based on statutory earned deficit. 70 In addition to the limitations noted above, laws and regulations require, among other items, that the CIG’s insurance subsidiary maintain minimum solvency requirements, which may limit the amount of dividends this subsidiary can pay. Along with solvency regulations, the primary driver in determining the amount of capital used for dividends is the level of capital needed to maintain desired financial strength in the form of its subsidiary Risk-Based Capital ("RBC") ratio. CIG monitors its insurance subsidiary's compliance with the RBC requirements specified by the National Association of Insurance Commissioners. As of December 31, 2020, CIG’s insurance subsidiary exceeded the minimum RBC requirements. Insurance Companies Capital Contributions The Company has an agreement with the TDOI that, for two years from August 9, 2018, CIG will contribute to Continental General Insurance Company (“CGI” or the “Insurance Company”) cash or marketable securities acceptable to the TDOI to the extent required for CGI’s total adjusted capital to be not less than 450% of CGI’s authorized control level risk-based capital and for three years from August 9, 2020, CIG will contribute to CGI cash or marketable securities acceptable to the TDOI to the extent required for CGI’s total adjusted capital to be not less than 400% of CGI’s authorized control level risk-based capital (each as defined under Texas law and reported in CGI’s statutory statements filed with the TDOI). Additionally, CGI entered into a capital maintenance agreement with Great American. Under the agreement, if the applicable acquired company’s total adjusted capital reported in its annual statutory financial statements is less than 400% of its authorized control level risk-based capital, Great American agreed to pay cash or assets to the applicable acquired company as required to eliminate such shortfall (after giving effect to any capital contributions made by the Company or its affiliates since the date of the relevant annual statutory financial statement). Great American’s obligation to make such payments is capped at $35.0 million under the capital maintenance agreement. The capital maintenance agreements remained in effect from January 1, 2016 to January 1, 2021 or until payments by Great American under the applicable agreement equal the applicable cap. Pursuant to the purchase agreement, the Company is required to indemnify Great American for the amount of any payments made by Great American under the capital maintenance agreements. As of the date of this filing, the agreement has expired. Asset Liability Management CIG’s insurance subsidiary maintains investment strategies intended to provide adequate funds to pay benefits without forced sales of investments. Products having liabilities with longer durations, such as long-term care insurance, are matched with investments such as long-term fixed maturity securities. Shorter-term liabilities are matched with fixed maturity securities that have short- and medium-term fixed maturities. The types of assets in which CIG may invest are influenced by state laws, which prescribe qualified investment assets applicable to insurance companies. Within the parameters of these laws, CIG invests in assets giving consideration to four primary investment objectives: (i) maintain robust absolute returns; (ii) provide reliable yield and investment income; (iii) preserve capital and (iv) provide liquidity to meet policyholder and other corporate obligations. The Insurance segment’s investment portfolio is designed to contribute stable earnings and balance risk across diverse asset classes and is primarily invested in high quality fixed income securities. In addition, at any given time, CIG’s insurance subsidiary could hold cash, highly liquid, high-quality short-term investment securities and other liquid investment grade fixed maturity securities to fund anticipated operating expenses, surrenders and withdrawals. Investments At December 31, 2020 and December 31, 2019, CIG’s investment portfolio is comprised of the following (in millions): December 31, 2020 December 31, 2019 Fair Value Percent Fair Value Percent U.S. Government and government agencies $ 8.4 0.2 % $ 7.7 0.2 % States, municipalities and political subdivisions 441.9 9.4 % 440.1 9.9 % Residential mortgage-backed securities 52.9 1.1 % 66.9 1.5 % Commercial mortgage-backed securities 97.4 2.0 % 109.4 2.5 % Asset-backed securities 403.1 8.6 % 577.8 13.1 % Corporate and other (*) 3,494.1 74.1 % 2,866.8 64.8 % Common stocks (*) 22.0 0.5 % 25.6 0.6 % Perpetual preferred stocks 108.8 2.3 % 118.9 2.7 % Mortgage loans 57.2 1.2 % 183.5 4.1 % Policy loans 17.8 0.4 % 19.1 0.4 % Other invested assets 7.7 0.2 % 7.2 0.2 % Total $ 4,711.3 100.0 % $ 4,423.0 100.0 % (*) Balance includes fair value of certain securities held by the Company, which are eliminated in consolidation. 71 Credit Quality Insurance statutes regulate the type of investments that CIG is permitted to make and limit the amount of funds that may be used for any one type of investment. In light of these statutes and regulations, and CIG's business and investment strategy, CIG generally seeks to invest in (i) securities rated investment grade by established nationally recognized statistical rating organizations (each, a nationally recognized statistical rating organization ("NRSRO")), (ii) U.S. Government and government-sponsored agency securities, or (iii) securities of comparable investment quality, if not rated. The following table summarizes the credit quality, by NRSRO rating, of CIG's fixed income portfolio (in millions): December 31, 2020 December 31, 2019 Fair Value Percent Fair Value Percent AAA, AA, A $ 2,007.9 44.6 % $ 1,954.9 48.1 % BBB 2,185.2 48.6 % 1,834.5 45.1 % Total investment grade 4,193.1 93.2 % 3,789.4 93.2 % BB 187.9 4.2 % 210.7 5.2 % B 49.3 1.1 % 18.0 0.4 % CCC, CC, C 59.5 1.3 % 37.9 0.9 % D 8.0 0.2 % 12.7 0.3 % Total non-investment grade 304.7 6.8 % 279.3 6.8 % Total $ 4,497.8 100.0 % $ 4,068.7 100.0 % Discontinued Operations We have reclassified several entities as discontinued operations for the years ended December 31, 2020 and 2019. Accordingly, revenue, costs, and expenses of the discontinued operations have been excluded from continuing operations. The entities reported in discontinued operations are as follows: • The sale of GMSL closed on February 28, 2020. At the time of the sale, the Company recorded a $39.3 million loss on the sale, inclusive of recognizing a $31.3 million loss from the realization of AOCI. During the fourth quarter of 2020, the Company recognized a gain of $2.4 million as a result of bonding releases related to projects which existed prior to sale. • The sale of ICS and its subsidiary, Go2 Tel, Inc., closed on October 31, 2020. The Company recorded a $0.9 million gain on the sale and recognized $8.2 million of Accumulated other comprehensive loss related to the foreign currency translation of PTGi International Carrier Services Ltd., which was essentially liquidated in conjunction with the sale. The proceeds were used for general corporate purposes. • On December 31, 2020, the Company signed the Merger Agreement to sell Beyond6. The sale closed on January 15, 2021. Cash flows from discontinued operations are reported in the Statement of Cash Flows as a separate line item within the Operations, Investing and Financing activities sections for each year presented. In the absence of cash flows from the discontinued operations, the Company does not expect there to be an impact on liquidity at the Company. Off-Balance Sheet Arrangements In September 2018, the Company entered into a 75-month lease for office space. As part of the agreement, HC2 was able to pay a lower security deposit and lease payments, and received a favorable lease terms as consideration for landlord required cross default language in the event of default of the shared space leased by Harbinger Capital Partners ("HCP"), formerly a related party, as disclosed in Note. 21. Related Parties. With the adoption of ASC 842, as of January 1, 2019, this lease was recognized as a right of use asset and lease liability on the Consolidated Balance Sheets. DBMG’s off-balance sheet arrangements at December 31, 2020 included letters of credit of $9.8 million under Credit and Security Agreements and performance bonds of $88.8 million. DBMG’s contract arrangements with customers sometimes require DBMG to provide performance bonds to partially secure its obligations under its contracts. Bonding requirements typically arise in connection with public works projects and sometimes with respect to certain private contracts. DBMG’s performance bonds are obtained through surety companies and typically cover the entire project price. 72 New Accounting Pronouncements For a discussion of our New Accounting Pronouncements, refer to Note 2. Summary of Significant Accounting Policies to our Consolidated Financial Statements included in this Annual Report on Form 10-K. Critical Accounting Policies The preparation of financial statements in accordance with generally accepted accounting principles in the U.S. GAAP requires the use of estimates and assumptions that have an impact on the assets, liabilities, revenue and expense amounts reported. These estimates can also affect supplemental disclosures including information about contingencies, risk and financial condition. Critical accounting estimates are defined as those that are reflective of significant judgments and uncertainties and potentially yield materially different results under different assumptions or conditions. Given current facts and circumstances, we believe that our estimates and assumptions are reasonable, adhere to GAAP and are consistently applied. Our selection and disclosure of our critical accounting policies and estimates has been reviewed with our Audit Committee. Following is a review of the more significant assumptions and estimates and the accounting policies and methods used in the preparation of our consolidated financial statements. For all of these estimates, we caution that future events rarely develop exactly as forecast, and the best estimates routinely require adjustment. See Note 2. Summary of Significant Accounting Policies, to the Notes to Consolidated Financial Statements which discusses the significant accounting policies that we have adopted. Fair Value Measurements In determining the estimated fair value of our investments, fair values are based on unadjusted quoted prices for identical investments in active markets that are readily and regularly obtainable. When such quoted prices are not available, fair values are based on quoted prices in markets that are not active, quoted prices for similar but not identical investments, or other observable inputs. If these inputs are not available, or observable inputs are not determinable, unobservable inputs and/or adjustments to observable inputs requiring management judgment are used to determine the estimated fair value of investments. The methodologies, assumptions and inputs utilized are described in Note 2. Summary of Significant Accounting Policies. Financial markets are susceptible to severe events evidenced by rapid depreciation in asset values accompanied by a reduction in asset liquidity. Our ability to sell investments, or the price ultimately realized for investments, depends upon the demand and liquidity in the market and increases the use of judgment in determining the estimated fair value of certain investments. Valuation of fixed maturity securities Fixed maturity securities are classified as available for sale and are carried at fair value with changes in fair value recorded in accumulated other comprehensive income (loss) within stockholders' equity. Fair value is defined as the price at which an asset could be exchanged in an orderly transaction between market participants at the balance sheet date. Determining fair value for a financial instrument requires management judgment. The degree of judgment involved generally correlates to the level of pricing readily observable in the markets. Financial instruments with quoted prices in active markets or with market observable inputs to determine fair value, such as public securities, generally require less judgment. Conversely, private placements including more complex securities that are traded infrequently are typically measured using pricing models that require more judgment as to the inputs and assumptions used to estimate fair value. There may be a number of alternative inputs to select based on an understanding of the issuer, the structure of the security and overall market conditions. In addition, these factors are inherently variable in nature as they change frequently in response to market conditions. See Note 7. Fair Value of Financial Instruments for a discussion of our fair value measurements, the procedures performed by management to determine that the amounts represent appropriate estimates. Typically, the most significant input in the measurement of fair value is the market interest rate used to discount the estimated future cash flows of the instrument. Such market rates are derived by calculating the appropriate spreads over comparable U.S. Treasury securities, based on the credit quality, industry and structure of the asset. Assessment of "other-than-temporary" impairments on fixed maturity securities Certain fixed maturity securities with a fair value below amortized cost are carried at fair value with changes in fair value recorded in accumulated other comprehensive income. For these investments, we have determined that the decline in fair value below its amortized cost is temporary. To make this determination, we evaluated the expected recovery in value and our intent to sell or the likelihood of a required sale of the fixed maturity prior to an expected recovery. In making this evaluation, we considered a number of general and specific factors including the regulatory, economic and market environments, length of time and severity of the decline, and the financial health and specific near term prospects of the issuer. If we subsequently determine that the excess of amortized cost over fair value is other-than-temporary for any or all of these fixed maturity securities, the amount recorded in accumulated other comprehensive income would be reclassified to stockholders' net income as an impairment loss. 73 Income Taxes Our annual tax rate is based on our income, statutory tax rates, exchange rates and tax planning opportunities available to us in the various jurisdictions in which we operate. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining our tax expense and in evaluating our tax positions including evaluating uncertainties under ASC 740. We review our tax positions quarterly and adjust the balances as new information becomes available. Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating loss and tax credit carryforwards. We evaluate the recoverability of these future tax deductions by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income inherently rely heavily on estimates. To provide insight, we use our historical experience and our short and long-range business forecasts. We believe it is more likely than not that a portion of the deferred income tax assets may expire unused and have established a valuation allowance against them. Although realization is not assured for the remaining deferred income tax assets, we believe it is more likely than not the deferred tax assets will be fully recoverable within the applicable statutory expiration periods. However, deferred tax assets could be reduced in the near term if our estimates of taxable income are significantly reduced. We recognize deferred tax assets and liabilities for the expected future tax consequences of transactions and events. Under this method, deferred tax assets and liabilities are determined based on the difference between the book basis and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. If necessary, deferred tax assets are reduced by a valuation allowance to an amount that is determined to be more likely than not recoverable. We must make significant estimates and assumptions about future taxable income and future tax consequences when determining the amount of the valuation allowance. The additional guidance provided by ASC No. 740, “Income Taxes” (“ASC 740”), clarifies the accounting for uncertainty in income taxes recognized in the financial statements. Expected outcomes of current or anticipated tax examinations, refund claims and tax-related litigation and estimates regarding additional tax liability (including interest and penalties thereon) or refunds resulting therefrom will be recorded based on the guidance provided by ASC 740 to the extent applicable. We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. These assessments of uncertain tax positions contain judgments related to the interpretation of tax regulations in the jurisdictions in which we transact business. The judgments and estimates made at a point in time may change based on the outcome of tax audits, expiration of statutes of limitations, as well as changes to, or further interpretations of, tax laws and regulations. See Note 17. Income Taxes, to the "Notes to Consolidated Financial Statements" for further information. Goodwill and Intangible Assets Goodwill and intangible assets deemed to have indefinite lives are not amortized but rather are tested at least annually for impairment, or more often if events or changes in circumstances indicate that more likely than not the carrying amount of the asset may not be recoverable. Goodwill is tested for impairment at the reporting unit level. A reporting unit represents an operating segment or a component of an operating segment. Goodwill is tested for impairment by either performing a qualitative evaluation or a two-step quantitative test. The qualitative evaluation is an assessment of factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. We may elect not to perform the qualitative assessment for some or all reporting units and perform a two-step quantitative impairment test. Fair value is determined based on discounted cash flow analyses. The discounted estimates of future cash flows include significant management assumptions such as revenue growth rates, operating margins, weighted average cost of capital, and future economic and market conditions. If the carrying value of the reporting unit exceeds fair value, goodwill is considered impaired. The amount of the impairment is the difference between the carrying value of the goodwill and the "implied" fair value, which is calculated as if the reporting unit had just been acquired and accounted for as a business combination. The estimates of future cash flows involve considerable management judgment and are based upon assumptions about expected future operating performance, economic conditions, market conditions, and cost of capital. Inherent in estimating the future cash flows are uncertainties beyond our control, such as capital markets. The actual cash flows could differ materially from management's estimates due to changes in business conditions, operating performance, and economic conditions. See also Note 12. Goodwill and Intangibles, net, net, to the Consolidated Financial Statements for additional information on goodwill and intangible assets. Refer to Note 2. Summary of Significant Accounting Policies for New Accounting Pronouncements to be Adopted Subsequent to December 31, 2019. 74 Related Party Transactions For a discussion of our Related Party Transactions, refer to Note 21. Related Parties to our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K. Special Note Regarding Forward-Looking Statements This Annual Report on Form 10-K contains or incorporates a number of "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are based on current expectations, and are not strictly historical statements. In some cases, you can identify forward-looking statements by terminology such as "if," "may," "should," "believe," "anticipate," "future," "forward," "potential," "estimate," "opportunity," "goal," "objective," "growth," "outcome," "could," "expect," "intend," "plan," "strategy," "provide," "commitment," "result," "seek," "pursue," "ongoing," "include" or in the negative of such terms or comparable terminology. These forward-looking statements inherently involve certain risks and uncertainties and are not guarantees of performance, results, or the creation of stockholder value, although they are based on our current plans or assessments which we believe to be reasonable as of the date hereof. Factors that could cause actual results, events and developments to differ include, without limitation: the ability of our subsidiaries (including, target businesses following their acquisition) to generate sufficient net income and cash flows to make upstream cash distributions, capital market conditions, our and our subsidiaries’ ability to identify any suitable future acquisition opportunities, efficiencies/cost avoidance, cost savings, income and margins, growth, economies of scale, combined operations, future economic performance, conditions to, and the timetable for, completing the integration of financial reporting of acquired or target businesses with HC2 or the applicable subsidiary of HC2, completing future acquisitions and dispositions, litigation, potential and contingent liabilities, management’s plans, changes in regulations and taxes. We claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 for all forward-looking statements. Forward-looking statements are not guarantees of performance. You should understand that the following important factors, in addition to those discussed under the section entitled "Risk Factors" in this Annual Report and in the documents incorporated by reference, could affect our future results and could cause those results or other outcomes to differ materially from those expressed or implied in the forward-looking statements. You should also understand that many factors described under one heading below may apply to more than one section in which we have grouped them for the purpose of this presentation. As a result, you should consider all of the following factors, together with all of the other information presented herein, in evaluating our business and that of our subsidiaries. HC2 Holdings, Inc. and Subsidiaries Our actual results or other outcomes may differ from those expressed or implied by forward-looking statements contained herein due to a variety of important factors, including, without limitation, the following: • the effect of the novel coronavirus (“COVID-19”) pandemic and related governmental responses on our business, financial condition and results of operations; • limitations on our ability to successfully identify any strategic acquisitions or business opportunities and to compete for these opportunities with others who have greater resources; • our possible inability to generate sufficient liquidity, margins, earnings per share, cash flow and working capital from our operating segments; • the impact of catastrophic events including natural disasters, pandemic illness and the outbreak of war or acts of terrorism; • our dependence on distributions from our subsidiaries to fund our operations and payments on our obligations; • the impact on our business and financial condition of our substantial indebtedness and the significant additional indebtedness and other financing obligations we may incur; • the impact of covenants in the Indenture governing HC2’s new notes, the Certificates of Designation governing HC2’s Preferred Stock and all other subsidiary debt obligations as summarized in Note 15. Debt Obligations and future financing agreements on our ability to operate our business and finance our pursuit of acquisition opportunities; • our dependence on certain key personnel; • uncertain global economic conditions in the markets in which our operating segments conduct their businesses; • the ability of our operating segments to attract and retain customers; • increased competition in the markets in which our operating segments conduct their businesses; • our expectations regarding the timing, extent and effectiveness of our cost reduction initiatives and management’s ability to moderate or control discretionary spending; • management’s plans, goals, forecasts, expectations, guidance, objectives, strategies and timing for future operations, acquisitions, synergies, asset dispositions, fixed asset and goodwill impairment charges, tax and withholding expense, selling, general and administrative expenses, product plans, performance and results; • management’s assessment of market factors and competitive developments, including pricing actions and regulatory rulings; • the impact of additional material charges associated with our oversight of acquired or target businesses and the integration of our financial reporting; 75 • the impact of expending significant resources in considering acquisition targets or business opportunities that are not consummated; • our expectations and timing with respect to our ordinary course acquisition activity and whether such acquisitions are accretive or dilutive to stockholders; • our expectations and timing with respect to any strategic dispositions and sales of our operating subsidiaries, or businesses that we may make in the future and the effect of any such dispositions or sales on our results of operations; • the possibility of indemnification claims arising out of divestitures of businesses; • tax consequences associated with our acquisition, holding and disposition of target companies and assets; • the effect any interests our officers, directors, stockholders and their respective affiliates may have in certain transactions in which we are involved; • our ability to effectively increase the size of our organization, if needed, and manage our growth; • the potential for, and our ability to, remediate future material weaknesses in our internal controls over financial reporting; • our possible inability to raise additional capital when needed or refinance our existing debt, on attractive terms, or at all; and • our possible inability to hire and retain qualified executive management, sales, technical and other personnel. Infrastructure / DBM Global Inc. Our actual results or other outcomes of DBM Global, Inc. and its wholly-owned subsidiaries ("DBMG"), and, thus, our Infrastructure segment, may differ from those expressed or implied by forward-looking statements contained herein due to a variety of important factors, including, without limitation, the following: • our ability to maintain efficient staffing and productivity as well as delays and cancellations as a result of the COVID-19 pandemic; • its ability to realize cost savings from expected performance of contracts, whether as a result of improper estimates, performance, or otherwise; • potential impediments and limitations on our ability to complete ordinary course acquisitions in anticipated time frames or at all; • uncertain timing and funding of new contract awards, as well as project cancellations; • cost overruns on fixed-price or similar contracts or failure to receive timely or proper payments on cost-reimbursable contracts, whether as a result of improper estimates, performance, disputes, or otherwise; • risks associated with labor productivity, including performance of subcontractors that DBMG hires to complete projects; • its ability to settle or negotiate unapproved change orders and claims; • changes in the costs or availability of, or delivery schedule for, equipment, components, materials, labor or subcontractors; • adverse impacts from weather affecting DBMG’s performance and timeliness of completion of projects, which could lead to increased costs and affect the quality, costs or availability of, or delivery schedule for, equipment, components, materials, labor or subcontractors; • fluctuating revenue resulting from a number of factors, including the cyclical nature of the individual markets in which our customers operate; • adverse outcomes of pending claims or litigation or the possibility of new claims or litigation, and the potential effect of such claims or litigation on DBMG’s business, financial condition, results of operations or cash flow; and • lack of necessary liquidity to provide bid, performance, advance payment and retention bonds, guarantees, or letters of credit securing DBMG’s obligations under bids and contracts or to finance expenditures prior to the receipt of payment for the performance of contracts. Life Sciences / Pansend Life Sciences, LLC Our actual results or other outcomes of Pansend Life Sciences, LLC, and, thus, our Life Sciences segment, may differ from those expressed or implied by forward-looking statements contained herein due to a variety of important factors, including, without limitation, the following: • our Life Sciences segment’s ability to invest in development stage companies; • our Life Sciences segment’s ability to develop products and treatments related to its portfolio companies; • medical advances in healthcare and biotechnology; and • governmental regulation in the healthcare industry. Spectrum / HC2 Broadcasting Holdings Inc. Our actual results or other outcomes of HC2 Broadcasting Holdings Inc., and, thus, our Spectrum segment, may differ from those expressed or implied by forward-looking statements contained herein due to a variety of important factors, including, without limitation, the following: • our ability to attract advertisers during the COVID-19 pandemic; • our Spectrum segment’s ability to integrate our recent and pending broadcasting acquisitions; • our Spectrum segment’s ability to operate in highly competitive markets and maintain market share; • our Spectrum segment’s ability to effectively implement its business strategy or be successful in the operation of its business; • new and growing sources of competition in the broadcasting industry; and • FCC regulation of the television broadcasting industry. 76 Insurance / Continental Insurance Group Ltd. Our actual results or other outcomes of Continental Insurance Group Ltd. ("CIG"), the parent operating company of Continental General Insurance Company ("CGI"), which together comprise our Insurance segment, may differ from those expressed or implied by forward-looking statements contained herein due to a variety of important factors, including, without limitation, the following: • our ability to timely collect premiums resulting from impacts of regulations responding to the COVID-19 pandemic; • our Insurance segment’s ability to maintain statutory capital and maintain or improve their financial strength; • our Insurance segment’s reserve adequacy, including the effect of changes to accounting or actuarial assumptions or methodologies; • the accuracy of our Insurance segment’s assumptions and estimates regarding future events and ability to respond effectively to such events, including mortality, morbidity, persistency, expenses, interest rates, tax liability, business mix, frequency of claims, severity of claims, contingent liabilities, investment performance, and other factors related to its business and anticipated results; • availability, affordability and adequacy of reinsurance and credit risk associated with reinsurance; • extensive regulation and numerous legal restrictions on our Insurance segment; • our Insurance segment’s ability to defend itself against litigation, inherent in the insurance business (including class action litigation) and respond to enforcement investigations or regulatory scrutiny; • the performance of third parties, including distributors and technology service providers, and providers of outsourced services; • the impact of changes in accounting and reporting standards; • our Insurance segment’s ability to protect its intellectual property; • general economic conditions and other factors, including prevailing interest and unemployment rate levels and stock and credit market performance which may affect, among other things, our Insurance segment’s ability to access capital resources and the costs associated therewith, the fair value of our Insurance segment’s investments, which could result in impairments and other-than-temporary impairments, and certain liabilities; • our Insurance segment’s exposure to any particular sector of the economy or type of asset through concentrations in its investment portfolio; • the ability to increase sufficiently, and in a timely manner, premiums on in-force long-term care insurance policies and/or reduce in-force benefits, as may be required from time to time in the future (including as a result of our Insurance segment’s failure to obtain any necessary regulatory approvals or unwillingness or inability of policyholders to pay increased premiums); • other regulatory changes or actions, including those relating to regulation of financial services affecting, among other things, regulation of the sale, underwriting and pricing of products, and minimum capitalization, risk-based capital and statutory reserve requirements for our Insurance segment, and our Insurance segment’s ability to mitigate such requirements; • our Insurance segment’s ability to effectively implement its business strategy or be successful in the operation of its business; • our Insurance segment’s ability to retain, attract and motivate qualified employees; • interruption in telecommunication, information technology and other operational systems, or a failure to maintain the security, confidentiality or privacy of sensitive data residing on such systems; • medical advances, such as genetic research and diagnostic imaging, and related legislation; and • the occurrence of natural or man-made disasters or a pandemic. Other Our actual results or other outcomes of our Other segment may differ from those expressed or implied by forward-looking statements contained herein due to a variety of important factors, including, without limitation, the following: • risks associated with our equity method investment that operates in China (i.e., Huawei Marine Systems Co. Limited, a Hong Kong holding company with a Chinese operating subsidiary) We caution the reader that undue reliance should not be placed on any forward-looking statements, which speak only as of the date of this document. Neither we nor any of our subsidiaries undertake any duty or responsibility to update any of these forward-looking statements to reflect events or circumstances after the date of this document or to reflect actual outcomes, except as required by applicable law.