What changed in this filing

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Item 1. Financial Statements

2021-05-07 compared with 2020-11-09 · 605 added, 1116 removed, 517 unchanged (77% of the section changed)

Financial Statements

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Three Months Ended March 31,

Revenue $ 171.8 $ 186.6

Life, accident and health earned premiums, net 28.6 28.9 86.8 88.7

Net investment income 46.7 51.2 147.1 152.6

Net realized and unrealized gains (losses) on investments 0.8 ( 1.9 ) ( 18.8 ) 2.1

Net revenue 393.3 427.5 1,215.1 1,355.7

Operating expenses

Cost of revenue 141.3 156.8

Policy benefits, changes in reserves, and commissions 59.6 66.1 195.0 166.8

Gross Profit 30.5 29.8

Operating expenses:

Selling, general and administrative 37.1 38.9

Depreciation and amortization 3.9 4.3

Other operating income (expense) 9.5 ( 0.3 ) 7.5 ( 1.7 )

Total operating expenses 395.4 420.0 1,239.1 1,289.0

(Loss) income from operations ( 2.1 ) 7.5 ( 24.0 ) 66.7

Other operating loss 0.4 0.2

Loss from operations ( 10.9 ) ( 13.6 )

Other (expense) income:

Interest expense ( 21.4 ) ( 19.2 )

1 unchanged sentence

Loss from equity investees ( 2.1 ) ( 2.5 )

Gain on bargain purchase — — — 1.1

Other income (loss) 7.3 6.1 74.1 4.7

(Loss) income from continuing operations before income taxes ( 20.0 ) ( 7.8 ) ( 29.7 ) 14.5

Income tax expense ( 1.6 ) ( 1.1 ) ( 4.4 ) ( 6.2 )

(Loss) income from continuing operations ( 21.6 ) ( 8.9 ) ( 34.1 ) 8.3

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

— 0.6 ( 60.0 ) ( 13.7 )

Net loss ( 21.6 ) ( 8.3 ) ( 94.1 ) ( 5.4 )

Net loss attributable to noncontrolling interest and redeemable noncontrolling interest 4.3 1.2 6.8 4.9

Net loss attributable to HC2 Holdings, Inc.

( 17.3 ) ( 7.1 ) ( 87.3 ) ( 0.5 )

Preferred dividends, deemed dividends and repurchase gains 0.4 0.4 1.2 ( 0.4 )

Net loss attributable to common stock and participating preferred stockholders $ ( 17.7 ) $ ( 7.5 ) $ ( 88.5 ) $ ( 0.1 )

(Loss) income per share - continuing operations

$ ( 0.38 ) $ ( 0.16 ) $ ( 0.94 ) $ 0.28

$ ( 0.38 ) $ ( 0.16 ) $ ( 0.94 ) $ 0.23

Loss per share - discontinued operations

$ — $ — $ ( 0.95 ) $ ( 0.28 )

$ — $ — $ ( 0.95 ) $ ( 0.21 )

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

Other income 3.4 1.5

Loss from continuing operations before income taxes ( 41.8 ) ( 39.6 )

Income tax (expense) benefit ( 1.1 ) 9.7

Loss from continuing operations ( 42.9 ) ( 29.9 )

Income (loss) from discontinued operations (including gain on disposal of $ 40.4 million and loss on disposal of $ 39.3 million for the three months ended March 31, 2021 and 2020, respectively)

51.9 ( 71.1 )

Net income (loss) 9.0 ( 101.0 )

Net income (loss) attributable to noncontrolling interest and redeemable noncontrolling interest 3.6 17.9

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

12.6 ( 83.1 )

Preferred dividends and deemed dividends from conversions 0.4 0.4

Net income (loss) attributable to common stock and participating preferred stockholders $ 12.2 $ ( 83.5 )

Loss per common share - continuing operations

Basic $ ( 0.51 ) $ ( 0.60 )

Diluted $ ( 0.51 ) $ ( 0.60 )

Income (loss) per common share - discontinued operations

Basic $ 0.66 $ ( 1.22 )

Diluted $ 0.66 $ ( 1.22 )

Income (loss) per share - Net income (loss) attributable to common stock and participating preferred stockholders

Basic $ 0.15 $ ( 1.82 )

Diluted $ 0.15 $ ( 1.82 )

Weighted average common shares outstanding:

46.9 45.7 46.7 45.4

46.9 45.7 46.7 60.1

Basic 76.9 45.9

Diluted 76.9 45.9

See notes to Condensed Consolidated Financial Statements

HC2 HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited, in millions)

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Net loss $ ( 21.6 ) $ ( 8.3 ) $ ( 94.1 ) $ ( 5.4 )

Three Months Ended March 31,

Net income (loss) $ 9.0 $ ( 101.0 )

Other comprehensive income

Foreign currency translation adjustment ( 0.8 ) 0.2

Unrealized gains (losses) on available-for-sale securities 65.0 82.4 72.8 312.0

Unrealized losses on available-for-sale securities ( 181.2 ) ( 276.0 )

Dispositions — 22.8

Other comprehensive income 64.5 79.7 98.4 309.5

Comprehensive income 42.9 71.4 4.3 304.1

Comprehensive (loss) income attributable to noncontrolling interests and redeemable noncontrolling interests ( 4.6 ) 1.9 2.7 5.5

Comprehensive income attributable to HC2 Holdings, Inc.

Other comprehensive loss ( 182.0 ) ( 253.0 )

Comprehensive loss ( 173.0 ) ( 354.0 )

Comprehensive income attributable to noncontrolling interests and redeemable noncontrolling interests ( 3.7 ) ( 8.9 )

Comprehensive loss attributable to HC2 Holdings, Inc.

$ ( 176.7 ) $ ( 362.9 )

3 unchanged sentences

(Unaudited, in millions, except share amounts)

September 30, December 31,

Fixed maturity securities, available-for-sale at fair value $ 4,295.2 $ 4,028.9

Equity securities 74.2 92.5

Mortgage loans 121.1 183.5

Policy loans 18.2 19.1

Other invested assets 60.7 68.1

Total investments 4,569.4 4,392.1

2021 December 31,

Current assets

Cash and cash equivalents $ 54.2 $ 43.8

Accounts receivable, net 186.4 184.7

Recoverable from reinsurers 961.4 953.7

Costs and recognized earnings in excess of billings on uncompleted contracts 65.7 55.6

Assets held for sale 5,592.8 5,942.1

Other current assets 21.3 20.1

Total current assets 5,920.4 6,246.3

Investments 52.7 55.4

Deferred tax asset 2.7 3.0

2 unchanged sentences

Intangibles, net 167.1 172.1

Assets held for sale 5.6 323.3

Other assets 41.5 42.2

1 unchanged sentence

Liabilities, temporary equity and stockholders’ equity

Life, accident and health reserves $ 4,622.9 $ 4,567.1

Annuity reserves 230.9 236.4

Value of business acquired 205.0 221.1

Accounts payable and other current liabilities 298.6 306.2

Current liabilities

Accounts payable $ 70.2 $ 69.7

Accrued liabilities 78.6 77.1

Current portion of debt obligations 82.8 433.6

Billings in excess of costs and recognized earnings on uncompleted contracts 58.5 52.2

Liabilities held for sale 5,166.0 5,306.7

Other current liabilities 14.2 12.9

Total current liabilities 5,470.3 5,952.2

Deferred tax liability 6.9 7.0

Debt obligations 463.3 127.9

Liabilities held for sale 0.1 153.9

Other liabilities 34.0 39.8

8 unchanged sentences

Shares authorized:

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

160,000,000 at March 31, 2021 and December 31, 2020, respectively

Shares issued:

48,413,438 and 46,810,676 at September 30, 2020 and December 31, 2019;

78,949,329 and 77,836,586 at March 31, 2021 and December 31, 2020, respectively

Shares outstanding:

47,303,687 and 46,067,852 at September 30, 2020 and December 31, 2019, respectively

77,564,273 and 76,726,835 at March 31, 2021 and December 31, 2020, respectively

Additional paid-in capital 355.7 355.7

Treasury stock, at cost:

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

1,385,056 and 1,109,751 shares at March 31, 2021 and December 31, 2020, respectively

( 5.2 ) ( 4.2 )

10 unchanged sentences

(Unaudited, in millions)

Three Months Ended September 30, 2020

Common Stock Additional

3 unchanged sentences

Shares Amount

Balance as of June 30, 2020 46.6 $ — $ 288.5 $ ( 4.2 ) $ ( 166.7 ) $ 201.7 $ 319.3 $ 45.9 $ 365.2 $ 18.7

Share-based compensation — — 3.0 — — — 3.0 — 3.0 —

Fair value adjustment of redeemable noncontrolling interest — — ( 0.2 ) — — — ( 0.2 ) — ( 0.2 ) 0.2

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

Issuance of common stock 0.7 — — — — — — — — —

Issuance of preferred stock — — — — — — — — — 5.6

Transactions with noncontrolling interests — — 0.8 — — — 0.8 ( 2.0 ) ( 1.2 ) —

Other — — 1.7 — — — 1.7 — 1.7 —

Net loss — — — — ( 17.3 ) — ( 17.3 ) ( 2.8 ) ( 20.1 ) ( 1.5 )

Other comprehensive income (loss) — — — — — 64.7 64.7 ( 0.2 ) 64.5 ( 0.1 )

Balance as of September 30, 2020

47.3 $ — $ 293.6 $ ( 4.2 ) $ ( 184.0 ) $ 266.4 $ 371.8 $ 40.9 $ 412.7 $ 22.9

Nine Months Ended September 30, 2020

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

Shares Amount

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

4 unchanged sentences

Issuance of common stock 0.9 — 0.2 — — — 0.2 — 0.2 —

Issuance of preferred stock — — — — — — — — — 5.6

Transactions with noncontrolling interests — — 2.4 — — — 2.4 ( 14.5 ) ( 12.1 ) 3.8

Other — — ( 2.9 ) — — — ( 2.9 ) — ( 2.9 ) —

Net loss — — — — ( 87.3 ) — ( 87.3 ) ( 3.8 ) ( 91.1 ) ( 3.0 )

Other comprehensive income — — — — — 97.7 97.7 8.2 105.9 1.3

Balance as of September 30, 2020

47.3 $ — $ 293.6 $ ( 4.2 ) $ ( 184.0 ) $ 266.4 $ 371.8 $ 40.9 $ 412.7 $ 22.9

See notes to Condensed Consolidated Financial Statements

HC2 HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited, in millions)

Three Months Ended September 30, 2019

Net income — — — — 12.6 — 12.6 ( 1.9 ) 10.7 ( 1.7 )

Other comprehensive loss — — — — — ( 181.8 ) ( 181.8 ) ( 0.1 ) ( 181.9 ) —

Balance as of March 31, 2021 77.6 $ 0.1 $ 355.7 $ ( 5.2 ) $ ( 176.1 ) $ 215.1 $ 389.6 $ 23.9 $ 413.5 $ 18.0

Common Stock Additional

3 unchanged sentences

Shares Amount

Balance as of June 30, 2019 45.8 $ — $ 270.9 $ ( 3.2 ) $ ( 54.9 ) $ 117.1 $ 329.9 $ 100.9 $ 430.8 $ 20.6

Share-based compensation — — 2.0 — — — 2.0 — 2.0 —

Fair value adjustment of redeemable noncontrolling interest — — ( 1.1 ) — — — ( 1.1 ) — ( 1.1 ) 1.1

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

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

Transactions with noncontrolling interests — — 1.3 — — — 1.3 ( 2.9 ) ( 1.6 ) 0.1

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

Net loss — — — — ( 7.1 ) — ( 7.1 ) ( 0.8 ) ( 7.9 ) ( 0.4 )

Other comprehensive income (loss) — — — — — 80.3 80.3 ( 0.6 ) 79.7 ( 0.1 )

Balance as of September 30, 2019

45.9 $ — $ 272.6 $ ( 3.2 ) $ ( 62.0 ) $ 197.4 $ 404.8 $ 96.6 $ 501.4 $ 21.3

Nine Months Ended September 30, 2019

Shares Amount

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

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

Share-based compensation — — 2.6 — — — 2.6 — 2.6 —

3 unchanged sentences

Issuance of common stock 0.8 — — — — — — — — —

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

Transactions with noncontrolling interests — — 3.3 — — — 3.3 ( 40.1 ) ( 36.8 ) ( 5.5 )

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

Net loss — — — — ( 83.1 ) — ( 83.1 ) ( 15.0 ) ( 98.1 ) ( 2.9 )

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

Balance as of September 30, 2019

45.9 $ — $ 272.6 $ ( 3.2 ) $ ( 62.0 ) $ 197.4 $ 404.8 $ 96.6 $ 501.4 $ 21.3

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

See notes to Condensed Consolidated Financial Statements

2 unchanged sentences

(Unaudited, in millions)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities

Net loss $ ( 94.1 ) $ ( 5.4 )

Loss from discontinued operations, net of tax ( 60.0 ) ( 13.7 )

(Loss) income from continuing operations ( 34.1 ) 8.3

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

Net income (loss) $ 9.0 $ ( 101.0 )

Income (loss) from discontinued operations, net of tax 51.9 ( 71.1 )

( 42.9 ) ( 29.9 )

Adjustments to reconcile net loss to cash provided by operating activities

Share-based compensation expense 0.5 1.4

Depreciation and amortization 6.2 6.7

Amortization of deferred financing costs and debt discount 7.4 3.4

Amortization of (discount) premium on investments 6.1 6.2

Loss on early extinguishment or restructuring of debt 13.4 —

Loss on extinguishment of debt 10.8 5.8

Loss from equity investees 2.1 2.5

Asset impairment expense 2.1 0.1

Deferred income taxes 0.6 ( 9.0 )

Net realized and unrealized gains on investments ( 58.7 ) ( 8.7 )

Other operating activities ( 2.6 ) 1.3

Changes in assets and liabilities, net of acquisitions and disposition:

Changes in assets and liabilities, net of acquisitions:

Accounts receivable ( 1.5 ) ( 7.6 )

Recoverable from reinsurers ( 7.8 ) 7.1

Costs and recognized earnings in excess of billings on uncompleted contracts ( 10.1 ) ( 11.0 )

Other current assets ( 1.3 ) ( 8.2 )

Other assets ( 0.9 ) 2.2

Life, accident and health reserves 56.0 24.5

Accounts payable and other current liabilities 12.5 ( 34.8 )

Accounts payable ( 1.3 ) 16.0

Accrued liabilities 1.9 8.9

Billings in excess of costs and recognized earnings on uncompleted contracts 6.3 18.9

Other current liabilities ( 1.2 ) ( 10.6 )

Other liabilities 0.7 4.8

Cash provided by continuing operating activities 78.2 82.5

Cash (used in) provided by discontinued operating activities ( 0.8 ) 13.2

Cash provided by operating activities 77.4 95.7

Cash used in operating activities ( 23.2 ) ( 4.3 )

Cash provided by discontinued operating activities 20.7 39.6

Cash (used in) provided by operating activities ( 2.5 ) 35.3

Cash flows from investing activities

Purchase of property, plant and equipment ( 3.2 ) ( 5.0 )

Disposal of property, plant and equipment 0.6 1.3

Purchase of investments ( 759.2 ) ( 806.4 )

Sale of investments 539.2 565.0

Maturities and redemptions of investments 78.1 100.1

Sale of equity method investments 85.5 —

Proceeds from disposal of property, plant and equipment — 0.5

Cash received from dispositions, net 71.2 144.0

Cash paid for acquisitions, net — ( 56.9 )

Other investing activities ( 1.6 ) 1.3

Cash provided by (used in) continuing investing activities 77.4 ( 193.2 )

Cash used in discontinued investing activities ( 7.0 ) ( 8.3 )

Cash provided by (used in) investing activities 70.4 ( 201.5 )

Cash provided by investing activities 66.4 140.8

Cash provided by (used in) discontinued investing activities 1.5 ( 80.7 )

Cash provided by investing activities 67.9 60.1

Cash flows from financing activities

1 unchanged sentence

Principal payments on debt obligations ( 356.5 ) ( 99.9 )

Proceeds from sale of preferred stock 5.6 —

Redemption of preferred stock of affiliate ( 9.6 ) —

Cash received by subsidiary to issue preferred stock 10.0 —

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

Annuity receipts 1.2 1.6

Annuity surrenders ( 11.6 ) ( 13.6 )

Transactions with noncontrolling interests ( 1.1 ) ( 42.5 )

Other financing activities ( 1.4 ) ( 2.9 )

Cash (used in) provided by continuing financing activities ( 221.4 ) 53.6

Cash (used in) provided by discontinued financing activities ( 2.4 ) ( 0.2 )

Cash (used in) provided by financing activities ( 223.8 ) 53.4

Cash used in financing activities ( 31.6 ) ( 142.1 )

Cash used in discontinued financing activities ( 4.3 ) ( 6.1 )

Cash used in financing activities ( 35.9 ) ( 148.2 )

Effects of exchange rate changes on cash, cash equivalents and restricted cash ( 0.3 ) 0.4

Net increase in cash and cash equivalents, including cash classified within assets held for sale 29.2 ( 52.4 )

Net increase (decrease) in cash and cash equivalents classified within current assets held for sale 18.3 ( 44.0 )

Net change in cash, cash equivalents and restricted cash 10.9 ( 8.4 )

6 unchanged sentences

HC2 Holdings, Inc.

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

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

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

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

The Company’s shares of common stock trade on the New York Stock Exchange ("NYSE") under the symbol "HCHC".

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

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

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

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

Our Infrastructure segment is comprised of DBM Global Inc.

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

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

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

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

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

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

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

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

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

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

Our Clean Energy segment (f/k/a Energy segment) is comprised of Beyond6, Inc.

(f/k/a American Natural Energy Corp.

and American Natural Gas, Inc.) ("Beyond6").

Beyond6 is a premier distributor of natural gas motor fuel.

Beyond6 designs, builds, owns, acquires, operates and maintains compressed natural gas fueling stations for transportation vehicles.

The Company maintains an approximately 69 % controlling interest in Beyond6.

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

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

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

The Company maintains a 100 % interest in ICS.

Our Insurance segment is comprised of Continental Insurance Group Ltd.

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

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

The Company maintains a 100 % interest in CIG.

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

3 unchanged sentences

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

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

Our Spectrum segment is comprised of HC2 Broadcasting Holdings Inc.

("HC2 Broadcasting") and its subsidiaries.

3 unchanged sentences

The Company maintains an approximately 98 % controlling interest in HC2 Broadcasting and an approximately 57 % controlling interest in DTV America Corporation ("DTV") as well as approximately 19 % proxy and voting rights from minority holders.

Our Insurance segment is comprised of the discontinued operations of Continental Insurance Group Ltd.

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

The Company maintains a 100 % interest in CIG.

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

1 unchanged sentence

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

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

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

and its subsidiaries ("ICS").

HC2 HOLDINGS, INC.

4 unchanged sentences

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

As of September 30, 2020, the results of DBMG, Beyond6, ICS, CIG, Genovel, R2, HC2 Broadcasting, and GMH have been consolidated into the Company’s results based on guidance from the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC" 810, Consolidation) .

As of March 31, 2021, the results of DBMG, Genovel, R2, HC2 Broadcasting, CIG, GMH and Beyond6 have been consolidated into the Company’s results based on guidance from the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC" 810, Consolidation) .

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

6 unchanged sentences

Certain prior amounts have been reclassified or combined to conform to the current year presentation.

These interim financial statements should be read in conjunction with the Company’s annual Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on March 16, 2020 and Form 8-K filed with the SEC on October 7, 2020.

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

The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results for any subsequent periods or the entire fiscal year ending December 31, 2021.

Use of Estimates and Assumptions

2 unchanged sentences

Actual results could differ from those estimates and assumptions used.

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 from the issuance of the Condensed Consolidated Financial Statements through a combination of distributions from our subsidiaries and from raising of additional debt or equity, refinancing of certain of our indebtedness or preferred stock, other financing arrangements and/or the sale of assets and certain investments.

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

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

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

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.

3 unchanged sentences

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

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

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

We are unable to predict the impact that COVID-19 will have on its financial position and operating results due to numerous uncertainties, however as the pandemic continues, it may have an adverse effect on the Company’s results of operations, financial condition, or liquidity for fiscal year 2021.

2 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Other Income (Loss)

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Gain (loss) on embedded derivatives $ 6.5 $ ( 1.6 ) $ 0.8 $ 4.0

Gain on sale of equity method investments 0.1 7.9 71.2 7.9

Other income (expense), net 0.7 ( 0.2 ) 2.1 ( 7.2 )

Total $ 7.3 $ 6.1 $ 74.1 $ 4.7

Statement of Cash Flows

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

September 30,

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

Cash and cash equivalents, beginning of period $ 43.8 $ 23.3

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Total cash and cash equivalents and restricted cash $ 56.2 $ 16.3

Cash and cash equivalents classified in Assets held for sale, beginning of period $ 195.2 $ 216.0

Restricted cash classified in Assets held for sale 0.2 0.2

Total cash and cash equivalents and restricted cash classified in Assets held for sale $ 195.4 $ 216.2

Cash and cash equivalents classified in Assets held for sale, end of period $ 213.7 $ 172.1

Restricted cash classified in Assets held for sale — 0.1

Total cash and cash equivalents and restricted cash classified in Assets held for sale $ 213.7 $ 172.2

Supplemental cash flow information:

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Property, plant and equipment included in accounts payable $ 0.2 $ 6.6

Investments included in accounts payable $ 10.1 $ 14.6

Extinguishment of convertible note in exchange $ 51.8 $ —

Issuance of convertible note in exchange $ ( 51.8 ) $ —

Reclassification

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

• The recasting of GMSL's results to discontinued operations.

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

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

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

Discontinued Operations for further information;

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

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

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

Formerly the Telecommunications segment, these entities have been reclassified to the Other segment.

Operating Segment and Related Information for further information;

• The recasting of prior year Earnings per share as a result of the discontinued operations noted above.

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

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

Operating Segment and Related Information for further information;

• The recast of prior year earnings per share as a result of the discontinued operations noted above.

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

Basic and Diluted (Loss) Income Per Common Share for further details.

Accounting Pronouncements Adopted in the Current Year

The Company has implemented all new accounting pronouncements that are in effect and that may impact its Condensed Consolidated Financial Statements.

The Company does not believe that there are any new accounting pronouncements issued since the filing of its 2019 Form 10-K that will have a material impact on its financial condition, results of operations or liquidity.

Basic and Diluted Income (Loss) Per Common Share for further details.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Accounting Pronouncements Adopted in the Current Year

Accounting for Debt with Conversion Options

ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity , was issued by the FASB in August 2020.

This ASU (1) simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt:

Debt with Conversion and Other Options , that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock;

(2) revises the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification;

and (3) revises the guidance in ASC 260, Earnings Per Share , to require entities to calculate diluted earnings per share (EPS) for convertible instruments by using the if-converted method.

In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares.

The standard is effective on January 1, 2024, but early adoption was elected as of January 1, 2021.

A modified retrospective method of transition was applied, which resulted in no impact to the Company.

Accounting Pronouncements to be Adopted Subsequent to December 31, 2021

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

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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

5 unchanged sentences

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

Long-Duration Contracts

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

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

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

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

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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

• Cash flow assumptions must be reviewed at least annually and updated if necessary.

The impact of these updates will be reported through net income.

Current accounting policy requires the liability assumptions for long-duration contracts and limited payment contracts be locked in at contract inception, unless the contracts project a loss position which would allow the liability assumptions to be unlocked so that the loss could be recognized.

• The rate used to discount the liability projections is to be based on an A-rated asset with observable market inputs and duration consistent with the duration of the liabilities.

The discount rate is to be updated quarterly with the impact of the change in the discount rate recognized through other comprehensive income.

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

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

Current accounting policy would amortize deferred acquisition costs based on revenue and profits.

The Company does not have any deferred acquisition costs but VOBA amortization will follow this new guidance.

• Market risk benefits are to be measured at fair value and presented separately in the statement of financial position.

Under current accounting policy benefit features that will meet the definition of market risk benefits are accounted for as embedded derivatives or insurance liabilities via the benefit ratio model.

The Company does not have any benefit features that will be categorized as market risk benefits.

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

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

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

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

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

On September 30, 2020, the FASB approved a one year deferral of the effective date.

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

The Company may choose one of two adoption methods for the liability for future policy benefits:

(i) a modified retrospective transition method whereby the entity will apply the amendments to contracts inforce as of the beginning of the earliest period presented on the basis of their existing carrying amounts adjusted for the removal of any related amounts in AOCI or (ii) a full retrospective transition method.

Focus areas will include, but not be limited to:

(i) determining an appropriate upper-medium grade fixed income instrument yield source from the market;

(ii) establishing appropriate aggregation of liabilities;

(iii) establishing liability models for each contract grouping identified that may be quickly updated to reflect current inforce listing and new discount rates on a quarterly basis;

(iv) establishing appropriate best estimate assumptions with no provision for adverse deviation;

(v) establishing procedures for annual review of assumptions including tracking of actual experience for enhanced reporting requirements;

(vi) establishing new VOBA amortization that will align with new guidance for DAC amortization;

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

Subsequent Events

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Subsequent Events for the summary of the subsequent events.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUE

Discontinued Operations

The sale of GMSL closed on February 28, 2020.

As a result of the sale, the results of GMSL and transaction related expenses directly attributable to the sale were reported as discontinued operations.

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

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Net revenue $ — $ 48.2 $ 17.3 $ 130.0

Three Months Ended March 31,

Revenue $ 1.7 $ 214.1

Life, accident and health earned premiums, net 28.4 28.6

Net investment income 43.9 51.9

Realized/unrealized gains (losses) on investments 9.5 ( 19.0 )

Total revenue 83.5 275.6

Cost of revenue 0.8 207.4

Policy benefits, changes in reserves, and commissions 56.1 72.4

Selling, general and administrative 12.4 27.3

Depreciation and amortization ( 5.9 ) —

Other operating expenses — 0.3 — 0.1

Loss from operations — 2.1 ( 18.4 ) ( 4.6 )

Income (loss) from operations 20.1 ( 31.5 )

Interest expense ( 0.4 ) ( 5.6 )

Loss on sale of subsidiary — — ( 39.3 ) —

(Loss) income from equity investees — 1.6 0.5 1.5

Other income — 0.7 0.9 0.7

Pre-tax loss from discontinued operations — 0.5 ( 59.9 ) ( 13.7 )

Income tax benefit (expense) — 0.1 ( 0.1 ) —

Gain (loss) on sale and liquidation of subsidiaries 40.4 ( 39.3 )

Income from equity investees — 0.5

Other (loss) income ( 3.1 ) 2.0

Pre-tax income (loss) from discontinued operations 57.0 ( 73.9 )

Income tax (expense) benefit ( 5.1 ) 2.8

Income (loss) from discontinued operations $ 51.9 $ ( 71.1 )

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

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

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

On March 29, 2021, the Company announced the definitive agreement to sell its Insurance segment to Continental General Holdings LLC, an entity controlled by Michael Gorzynski, a director of the Company and a beneficial owner of approximately 6.6 % of the Company's outstanding common stock who has also served as executive chairman of Continental since October 2020.

The transaction value is approximately $ 90 million, inclusive of $ 65 million in cash plus certain assets at CGI.

The sale is pending regulatory approval.

As of the first quarter of 2021, the Insurance segment met the held-for-sale criteria under ASC 205-20 and has been presented in discontinued operations.

The sale of GMSL closed on February 28, 2020.

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

During the fourth quarter of 2020, the Company recognized a gain on sale of $ 2.4 million as a result of the cash collateralized bonding facility release.

During the first quarter of 2021, the Company recognized a gain of $ 1.2 million as a result of indemnity release.

The net proceeds from the sale of GMSL were used to repay $ 15.0 million under the Revolving Credit Agreement and redeem $ 76.9 million aggregate principal amount of the Company's 11.5 % senior secured notes due 2021 (the "2021 Senior Secured Notes"), plus accrued and unpaid interest since December 1, 2019 (the last regularly scheduled interest payment date).

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

As a result of the repayment of $ 15.0 million Revolving Credit Agreement, the Company allocated the following interest and the amortization of deferred financing costs for the three months ended March 31, 2021 and 2020 associated with the principal prepayment from continuing operations to discontinued operations on the Company’s Condensed Consolidated Statement of Operations:

Three Months Ended March 31,

Interest expense $ — $ 0.2

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

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

As a result of the mandatory redemption of $ 76.9 million of 2021 Senior Secured Notes, the Company allocated the following pro-rata interest and amortization of deferred financing costs and original issuance discount for the three months ended March 31, 2021 and 2020, from continuing operations to discontinued operations on the Company’s Condensed Consolidated Statements of Operations:

Three Months Ended March 31,

Interest expense $ — $ 2.2

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

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

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

The 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 Parent, and an affiliate of HC2 as the Stockholder Representative for the Beyond6 stockholders.

The sale closed on January 15, 2021.

The Company recognized a $ 39.2 million gain on the sale.

A portion of the proceeds from the sale of Beyond6 were used to repay $ 15.0 million under the Revolving Credit Agreement and repay $ 27.9 million of the Company's 2021 Senior Secured Notes.

As a result of the repayment of $ 15.0 million Revolving Credit Agreement, the Company allocated the following interest for the three months ended March 31, 2021 and 2020 associated with the principal prepayment from continuing operations to discontinued operations on the Company’s Condensed Consolidated Statements of Operations:

Three Months Ended March 31,

Interest expense $ 0.1 $ —

As a result of the repayment of $ 27.9 million of the 2021 Senior Secured Notes, the Company allocated the following pro-rata interest and amortization of deferred financing costs and original issuance discount for the three months ended March 31, 2021 and 2020, from continuing operations to discontinued operations on the Company’s Condensed Consolidated Statements of Operations:

Three Months Ended March 31,

Interest expense $ 0.3 $ 0.8

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

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUE

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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

Other invested assets $ 16.9

2021 December 31,

Current assets

Cash and cash equivalents $ 213.7 $ 195.2

Accounts receivable, net — 13.6

Other current assets 8.1 8.7

Total current assets 221.8 217.5

Investments 4,361.3 4,610.2

Recoverable from reinsurers 953.4 957.5

Deferred tax asset — 1.4

Property, plant and equipment, net 1.1 90.5

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Total assets held for sale $ 5,588.3 $ 5,942.1

Accounts payable and other current liabilities $ 33.4

Current liabilities

Accounts payable $ — $ 2.6

Accrued liabilities 15.4 35.8

Current portion of debt obligations — 5.7

Other current liabilities 3.9 7.4

Total current liabilities 19.3 51.5

Life, accident and health reserves 4,632.2 4,627.5

Annuity reserves 227.2 228.8

Value of business acquired 193.6 199.8

Deferred tax liability 83.2 136.5

Debt obligations — 50.6

Pension Liability 18.8

Other liabilities 10.5 12.0

Total liabilities held for sale $ 5,166.0 $ 5,306.7

For further details related to the sale of GMSL, see note 5.

Acquisitions, Dispositions, and Deconsolidations.

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Three Months Ended March 31,

Infrastructure

Clean Energy 10.3 8.7 31.0 19.3

Telecommunications 136.4 162.2 430.1 507.0

$ 161.3 $ 176.5

Spectrum 10.5 10.1

Total revenue $ 171.8 $ 186.6

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

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

September 30, December 31,

2021 December 31,

Accounts receivables with customers

Infrastructure

Clean Energy 15.0 31.1

Telecommunications 50.7 51.9

$ 165.3 $ 168.5

Spectrum 6.9 7.3

1 unchanged sentence

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUE

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Infrastructure Segment

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Three Months Ended March 31,

Commercial $ 49.4 $ 62.8

Convention 1.2 9.7 5.0 66.8

Healthcare 7.9 12.1 20.6 34.5

Industrial 40.3 58.9

Transportation 13.9 16.3

Government 21.3 8.6

Leisure 7.5 16.0

Healthcare 8.9 8.0

Convention 9.4 2.4

Other 10.6 3.5

3 unchanged sentences

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

September 30, December 31,

2021 December 31,

Contract assets $ 65.7 $ 55.6

9 unchanged sentences

Transportation 16.0 — 16.0

Government 39.6 — 39.6

Leisure 3.5 — 3.5

3 unchanged sentences

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

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUE

Clean Energy Segment

The following table disaggregates Beyond6's revenue by type (in millions):

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Volume-related $ 8.7 $ 8.5 $ 25.7 $ 18.5

Maintenance services — — — 0.1

Total revenue from contracts with customers 8.7 8.5 25.7 18.6

Clean Energy incentives 0.4 0.1 0.6 0.5

Alternative fuel tax credit 1.2 — 3.9 —

Other revenue — 0.1 0.8 0.2

Total Clean Energy segment revenue $ 10.3 $ 8.7 $ 31.0 $ 19.3

Telecommunications Segment

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Termination of long distance minutes $ 136.4 $ 162.2 $ 430.1 $ 507.0

Total revenue from contracts with customers 136.4 162.2 430.1 507.0

Other revenue — — — —

Total Telecommunications segment revenue $ 136.4 $ 162.2 $ 430.1 $ 507.0

Spectrum Segment

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Three Months Ended March 31,

Network advertising $ 4.7 $ 5.0

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Total Spectrum segment revenue $ 10.5 $ 10.1

The transaction price allocated to remaining unsatisfied performance obligations consisted of $ 3.2 million, $ 7.0 million, and $ 0.2 million of network advertising, broadcasting station revenues, and other revenues, respectively, of which $ 5.4 million is expected to be recognized within one year and an additional $ 5.0 million is expected to be recognized within five years.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUE

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

The transaction price allocated to remaining unsatisfied performance obligations consisted of $ 2.3 million, $ 7.8 million, and $ 0.2 million of network advertising, broadcasting station revenues, and other revenues respectively of which $ 6.2 million is expected to be recognized within one year and $ 4.1 million is expected to be recognized within five years.

Acquisitions, Dispositions, and Deconsolidations

Infrastructure Segment

Banker Steel Acquisition

On March 15, 2021, the Company announced that DBMG entered into an agreement to acquire 100 % of Banker Steel Holdco LLC ("Banker Steel") for approximately $ 145.0 million, which is expected to close in the second quarter of 2021.

Banker Steel provides fabricated structural steel and erection services primarily for the East Coast and Southeast commercial and industrial construction industries.

Insurance Segment

The transaction value is approximately $ 90 million, inclusive of $ 65 million in cash plus certain assets at CGI.

The sale is pending regulatory approval.

Other Segment

5 unchanged sentences

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

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

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

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

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

The transaction closed on February 28, 2020.

1 unchanged sentence

HC2 received net proceeds of approximately $ 100.8 million.

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

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

Discontinued Operations for further details.

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

In the first quarter of 2020, the Company recorded a $ 39.3 million loss, inclusive of recognizing a $ 31.3 million loss from the realization of AOCI.

During the fourth quarter of 2020, the Company recognized a gain on sale of $ 2.4 million as a result of the cash collateralized bonding facility release.

During the first quarter of 2021, the Company recognized a gain of $ 1.2 million as a result of indemnity release.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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.

3 unchanged sentences

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.

For the three months ended June 30, 2020, 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.

On the close date, 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.

Clean Energy Segment

On June 14, 2019, Beyond6 acquired ampCNG's 20 natural gas fueling stations, located primarily in the Southeastern U.S.

and Texas, for cash consideration of $ 41.2 million.

Beyond6’s network reach expanded to over 60 stations, making it one of the largest owners and operators of compressed natural gas stations in the country.

Transaction was accounted for as asset acquisition.

To finance the acquisition, Beyond6 entered into a term loan with M&T bank for $ 28.0 million and issued preferred stock and ten year warrants for common stock for $ 14.0 million.

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

The warrants are exercisable at $ 0.001 per share of common stock and will represent 6 % of Beyond6 when exercised.

Beyond6 received $ 5.0 million of proceeds from CGI.

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

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

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUE

Spectrum Segment

During the year ended December 31, 2019, HC2 Broadcasting acquired a series of licenses for a total consideration of $ 71.4 million.

All transactions were accounted for as asset acquisitions.

Fixed Maturity Securities

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

September 30, 2020 Amortized

Gains Unrealized

Government and government agencies $ 7.3 $ 1.2 $ — $ 8.5

States, municipalities and political subdivisions 375.2 54.5 — 429.7

Residential mortgage-backed securities 53.4 4.7 ( 1.1 ) 57.0

Commercial mortgage-backed securities 109.2 1.4 ( 16.6 ) 94.0

Asset-backed securities 528.2 3.0 ( 33.9 ) 497.3

Corporate and other 2,847.6 415.6 ( 54.5 ) 3,208.7

Total fixed maturity securities $ 3,920.9 $ 480.4 $ ( 106.1 ) $ 4,295.2

December 31, 2019 Amortized

Cost Unrealized

Gains Unrealized

Government and government agencies $ 7.0 $ 0.7 $ — $ 7.7

States, municipalities and political subdivisions 405.4 34.7 — 440.1

Residential mortgage-backed securities 63.0 4.5 ( 0.6 ) 66.9

Commercial mortgage-backed securities 108.2 1.8 ( 0.6 ) 109.4

Asset-backed securities 592.6 2.2 ( 17.0 ) 577.8

Corporate and other 2,569.1 273.1 ( 15.2 ) 2,827.0

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

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

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

Asset and mortgage-backed securities are shown separately in the table below, as they are not due at a single maturity date:

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUE

Corporate, Municipal, U.S.

Government and Other securities

Due in one year or less $ 44.8 $ 45.3

Due after one year through five years 266.6 276.4

Due after five years through ten years 439.6 466.3

Due after ten years 2,479.1 2,858.9

Subtotal 3,230.1 3,646.9

Mortgage-backed securities 162.6 151.0

Asset-backed securities 528.2 497.3

Total $ 3,920.9 $ 4,295.2

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

September 30, 2020 December 31, 2019

Total Amortized

Finance, insurance, and real estate $ 1,013.5 $ 1,060.4 33.1 % $ 632.2 $ 674.9 23.8 %

Transportation, communication and other services 677.4 757.8 23.6 % 785.7 855.2 30.3 %

Manufacturing 700.6 854.9 26.6 % 728.7 825.9 29.2 %

Other 456.1 535.6 16.7 % 422.5 471.0 16.7 %

Total $ 2,847.6 $ 3,208.7 100.0 % $ 2,569.1 $ 2,827.0 100.0 %

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

For these securities the net amount represents the difference between the amortized cost of the security and the net present value of its projected future cash flows discounted at the effective interest rate implicit in the debt security prior to impairment.

Any remaining difference between the fair value and amortized cost is recognized in AOCI.

The Company recognized the following (in millions):

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Net realized and unrealized gains on investments $ 4.9 $ — $ 5.8 $ —

Other income (expenses), net — — 0.1 —

Total other-than-temporary impairments $ 4.9 $ — $ 5.9 $ —

The following table presents the total unrealized losses for the 185 and 139 fixed maturity securities held by the Company as of September 30, 2020 and December 31, 2019, respectively, where the estimated fair value had declined and remained below amortized cost by the indicated amount (in millions):

September 30, 2020 December 31, 2019

Fixed maturity securities Unrealized Losses % of

Total Unrealized Losses % of

Less than 20% $ ( 65.7 ) 62.0 % $ ( 32.6 ) 97.6 %

20% or more for less than six months ( 21.8 ) 20.5 % — — %

20% or more for six months or greater ( 18.6 ) 17.5 % ( 0.8 ) 2.4 %

Total $ ( 106.1 ) 100.0 % $ ( 33.4 ) 100.0 %

The determination of whether unrealized losses are "other-than-temporary" requires judgment based on subjective as well as objective factors.

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

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

Management estimates expected future cash flows based upon its knowledge of the MBS market, cash flow projections (which reflect loan-to-collateral values, subordination, vintage and geographic concentration) received from independent sources, implied cash flows inherent in security ratings and analysis of historical payment data.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUE

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

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

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

The following tables present the estimated fair values and gross unrealized losses for the 185 and 139 fixed maturity securities held by the Company that have estimated fair values below amortized cost as of each of September 30, 2020 and December 31, 2019, respectively.

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

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

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

Value Unrealized

States, municipalities and political subdivisions $ 3.6 $ — $ — $ — $ 3.6 $ —

Residential mortgage-backed securities 5.3 ( 0.5 ) 5.4 ( 0.6 ) 10.7 ( 1.1 )

Commercial mortgage-backed securities 57.0 ( 16.6 ) 0.2 — 57.2 ( 16.6 )

Asset-backed securities 197.2 ( 10.2 ) 162.0 ( 23.7 ) 359.2 ( 33.9 )

Corporate and other 468.2 ( 29.4 ) 105.1 ( 25.1 ) 573.3 ( 54.5 )

Total fixed maturity securities $ 731.3 $ ( 56.7 ) $ 272.7 $ ( 49.4 ) $ 1,004.0 $ ( 106.1 )

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

Value Unrealized

Government and government agencies $ 0.3 $ — $ — $ — $ 0.3 $ —

States, municipalities and political subdivisions 2.0 — — — 2.0 —

Residential mortgage-backed securities 2.3 — 8.2 ( 0.6 ) 10.5 ( 0.6 )

Commercial mortgage-backed securities 58.1 ( 0.6 ) 0.2 — 58.3 ( 0.6 )

Asset-backed securities 126.5 ( 1.5 ) 255.8 ( 15.5 ) 382.3 ( 17.0 )

Corporate and other 169.6 ( 3.7 ) 177.4 ( 11.5 ) 347.0 ( 15.2 )

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

As of September 30, 2020, investment grade fixed maturity securities (as determined by nationally recognized rating agencies) represented approximately 68.6 % of the gross unrealized loss and 86.7 % of the fair value.

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

Certain risks are inherent in connection with fixed maturity securities, including loss upon default, price volatility in reaction to changes in interest rates, and general market factors and risks associated with reinvestment of proceeds due to prepayments or redemptions in a period of declining interest rates.

Equity securities

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

September 30, December 31,

Equity securities 2020 2019

Common stock $ 4.4 $ 10.5

Perpetual preferred stock 69.8 82.0

Total equity securities $ 74.2 $ 92.5

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUE

Net investment income

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Fixed maturity securities, available-for-sale at fair value $ 43.5 $ 45.2 $ 134.1 $ 132.5

Equity securities 0.5 1.9 2.4 6.5

Mortgage loans 2.7 3.4 11.2 10.2

Policy loans 0.3 0.3 0.9 0.9

Other invested assets ( 0.1 ) 0.8 ( 0.6 ) 3.4

Gross investment income 46.9 51.6 148.0 153.5

External investment expense ( 0.2 ) ( 0.4 ) ( 0.9 ) ( 0.9 )

Net investment income $ 46.7 $ 51.2 $ 147.1 $ 152.6

Net realized and unrealized gains (losses) on investments

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Realized gains on fixed maturity securities $ 3.3 $ 1.4 $ 15.3 $ 6.4

Realized losses on fixed maturity securities ( 2.3 ) ( 2.9 ) ( 15.4 ) ( 8.0 )

Realized gains on equity securities — 1.4 0.2 1.8

Realized losses on equity securities ( 2.2 ) ( 0.1 ) ( 2.3 ) ( 1.2 )

Realized gains on mortgage loans 1.9 1.0 2.1 1.0

Net unrealized gains (losses) on equity securities 4.6 ( 1.6 ) ( 13.9 ) 4.2

Net unrealized gains (losses) on derivative instruments 0.4 ( 1.1 ) 1.0 ( 2.1 )

Impairment loss ( 4.9 ) — ( 5.8 ) —

Net realized and unrealized gains (losses) $ 0.8 $ ( 1.9 ) $ ( 18.8 ) $ 2.1

Fair Value of Financial Instruments

Assets by Hierarchy Level

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

September 30, 2020 Fair Value Measurement Using:

Total Level 1 Level 2 Level 3

Fixed maturity securities

Government and government agencies $ 8.5 $ 5.4 $ 3.1 $ —

States, municipalities and political subdivisions 429.7 — 427.7 2.0

Residential mortgage-backed securities 57.0 — 47.5 9.5

Commercial mortgage-backed securities 94.0 — 39.8 54.2

Asset-backed securities 497.3 — 29.5 467.8

Corporate and other 3,208.7 43.1 2,973.8 191.8

Total fixed maturity securities 4,295.2 48.5 3,521.4 725.3

Equity securities

Common stocks 4.4 4.0 — 0.4

Perpetual preferred stocks 69.8 4.9 20.1 44.8

Total equity securities 74.2 8.9 20.1 45.2

Total assets accounted for at fair value $ 4,369.4 $ 57.4 $ 3,541.5 $ 770.5

Embedded derivative $ 2.2 $ — $ — $ 2.2

Other 4.7 — — 4.7

Total liabilities accounted for at fair value $ 6.9 $ — $ — $ 6.9

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUE

December 31, 2019 Fair Value Measurement Using:

Total Level 1 Level 2 Level 3

Fixed maturity securities

Government and government agencies $ 7.7 $ 4.8 $ 2.9 $ —

States, municipalities and political subdivisions 440.1 — 440.1 —

Residential mortgage-backed securities 66.9 — 57.7 9.2

Commercial mortgage-backed securities 109.4 — 74.8 34.6

Asset-backed securities 577.8 — 27.2 550.6

Corporate and other 2,827.0 46.5 2,669.5 111.0

Total fixed maturity securities 4,028.9 51.3 3,272.2 705.4

Equity securities

Common stocks 10.5 7.1 — 3.4

Perpetual preferred stocks 82.0 5.0 22.8 54.2

Total equity securities 92.5 12.1 22.8 57.6

Total assets accounted for at fair value $ 4,121.4 $ 63.4 $ 3,295.0 $ 763.0

Embedded Derivatives $ 3.0 $ — $ — $ 3.0

Other 4.8 — — 4.8

Total liabilities accounted for at fair value $ 7.8 $ — $ — $ 7.8

The Company reviews the fair value hierarchy classifications each reporting period.

Changes in the observability of the valuation attributes may result in a reclassification of certain financial assets or liabilities.

Such reclassifications are reported as transfers in and out of Level 3 at the beginning fair value for the reporting period in which the changes occur.

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

The Company’s assessment resulted in a net transfer into Level 3 of $ 76.7 million during the nine months ended September 30, 2020.

The Company’s assessment resulted in a net transfer out of Level 3 of $ 41.6 million during the nine months ended September 30, 2019.

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

Fixed Maturity Securities.

The fair values of the Company’s publicly-traded fixed maturity securities are generally based on prices obtained from independent pricing services.

Prices from pricing services are sourced from multiple vendors, and a vendor hierarchy is maintained by asset type based on historical pricing experience and vendor expertise.

In some cases, the Company receives prices from multiple pricing services for each security, but ultimately uses the price from the pricing service highest in the vendor hierarchy based on the respective asset type.

Consistent with the fair value hierarchy described above, securities with validated quotes from pricing services are generally reflected within Level 2, as they are primarily based on observable pricing for similar assets and/or other market observable inputs.

If the Company ultimately concludes that pricing information received from the independent pricing service is not reflective of market activity, non-binding broker quotes are used, if available.

If the Company concludes the values from both pricing services and brokers are not reflective of market activity, it may override the information from the pricing service or broker with an internally developed valuation, however, this occurs infrequently.

Internally developed valuations or non-binding broker quotes are also used to determine fair value in circumstances where vendor pricing is not available.

These estimates may use significant unobservable inputs, which reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset.

Pricing service overrides, internally developed valuations and non-binding broker quotes are generally based on significant unobservable inputs and are reflected as Level 3 in the valuation hierarchy.

The inputs used in the valuation of corporate and government securities include, but are not limited to, standard market observable inputs which are derived from, or corroborated by, market observable data including market yield curve, duration, call provisions, observable prices and spreads for similar publicly traded or privately traded issues that incorporate the credit quality and industry sector of the issuer.

For structured securities, valuation is based primarily on matrix pricing or other similar techniques using standard market inputs including spreads for actively traded securities, spreads off benchmark yields, expected prepayment speeds and volumes, current and forecasted loss severity, rating, weighted average coupon, weighted average maturity, average delinquency rates, geographic region, debt-service coverage ratios and issuance-specific information including, but not limited to:

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

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUE

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

These unobservable inputs are sometimes based in large part on management judgment or estimation, and cannot be supported by reference to market activity.

Even though unobservable, these inputs are based on assumptions deemed appropriate given the circumstances and are believed to be consistent with what other market participants would use when pricing such securities.

The fair values of private placement securities are primarily determined using a discounted cash flow model.

In certain cases, these models primarily use observable inputs with a discount rate based upon the average of spread surveys collected from private market intermediaries who are active in both primary and secondary transactions, taking into account, among other factors, the credit quality and industry sector of the issuer and the reduced liquidity associated with private placements.

Generally, these securities have been reflected within Level 3.

For certain private fixed maturities, the discounted cash flow model may also incorporate significant unobservable inputs, which reflect the Company’s own assumptions about the inputs market participants would use in pricing the security.

To the extent management determines that such unobservable inputs are not significant to the price of a security, a Level 2 classification is made.

Otherwise, a Level 3 classification is used.

Equity Securities.

The balance consists principally of common and preferred stock of publicly and privately traded companies.

The fair values of publicly traded equity securities are primarily based on quoted market prices in active markets and are classified within Level 1 in the fair value hierarchy.

The fair values of preferred equity securities, for which quoted market prices are not readily available, are based on prices obtained from independent pricing services and these securities are generally classified within Level 2 in the fair value hierarchy.

The fair value of common stock of privately held companies was determined using unobservable market inputs, including volatility and underlying security values and was classified as Level 3.

Cash Equivalents.

The balance consists of money market instruments, which are generally valued using unadjusted quoted prices in active markets that are accessible for identical assets and are primarily classified as Level 1.

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

Level 3 Measurements and Transfers

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

Total realized/unrealized gains (losses) included in

Balance at June 30, 2020 Net earnings (loss) Other comp.

income (loss) Purchases and issuances Sales and

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

Fixed maturity securities

States, municipalities and political subdivisions $ 3.0 $ — $ ( 0.3 ) $ — $ ( 3.0 ) $ 2.3 $ — $ 2.0

Residential mortgage-backed securities 9.6 — 0.4 — ( 0.5 ) — — 9.5

Commercial mortgage-backed securities 51.1 ( 2.1 ) 5.4 — ( 0.2 ) — — 54.2

Asset-backed securities 502.8 ( 1.2 ) 12.9 0.1 ( 46.8 ) — — 467.8

Corporate and other 142.6 ( 2.8 ) 4.8 29.3 ( 2.4 ) 25.9 ( 5.6 ) 191.8

Total fixed maturity securities 709.1 ( 6.1 ) 23.2 29.4 ( 52.9 ) 28.2 ( 5.6 ) 725.3

Equity securities

Common stocks 1.5 ( 1.1 ) — — — — — 0.4

Perpetual preferred stocks 43.9 — 0.9 — — — — 44.8

Total equity securities 45.4 ( 1.1 ) 0.9 — — — — 45.2

Total financial assets $ 754.5 $ ( 7.2 ) $ 24.1 $ 29.4 $ ( 52.9 ) $ 28.2 $ ( 5.6 ) $ 770.5

Total realized/unrealized (gains) losses included in

Balance at June 30, 2020 Net earnings (loss) Other comp.

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

Embedded derivative $ 8.7 $ ( 6.5 ) $ — $ — $ — $ — $ — $ 2.2

Other 3.9 0.8 — — — — — 4.7

Total financial liabilities $ 12.6 $ ( 5.7 ) $ — $ — $ — $ — $ — $ 6.9

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUE

Total realized/unrealized gains (losses) included in

December 31, 2019 Net earnings

(loss) Other comp.

income (loss) Purchases and

issuances Sales and

settlements Transfer to

Level 3 Transfer out of

Level 3 Balance at

September 30, 2020

Fixed maturity securities

States, municipalities and political subdivisions $ — $ 0.2 $ 0.6 $ — $ ( 3.0 ) $ 15.2 $ ( 11.0 ) $ 2.0

Residential mortgage-backed securities 9.2 — ( 1.2 ) — ( 2.0 ) 6.8 ( 3.3 ) 9.5

Commercial mortgage-backed securities 34.6 ( 2.0 ) ( 8.0 ) — ( 0.4 ) 30.0 — 54.2

Asset-backed securities 550.6 ( 7.1 ) ( 14.8 ) 60.1 ( 132.5 ) 191.8 ( 180.3 ) 467.8

Corporate and other 111.0 ( 3.0 ) ( 0.7 ) 65.2 ( 6.5 ) 71.4 ( 45.6 ) 191.8

Total fixed maturity securities 705.4 ( 11.9 ) ( 24.1 ) 125.3 ( 144.4 ) 315.2 ( 240.2 ) 725.3

Equity securities

Common stocks 3.4 ( 3.0 ) — — — — — 0.4

Perpetual preferred stocks 54.2 2.3 ( 13.4 ) — — 1.7 — 44.8

Total equity securities 57.6 ( 0.7 ) ( 13.4 ) — — 1.7 — 45.2

Total financial assets $ 763.0 $ ( 12.6 ) $ ( 37.5 ) $ 125.3 $ ( 144.4 ) $ 316.9 $ ( 240.2 ) $ 770.5

Total realized/unrealized (gains) losses included in

December 31, 2019 Net earnings

(loss) Other comp.

income (loss) Purchases and

issuances Sales and

settlements Transfer to

Level 3 Transfer out of

Level 3 Balance at

September 30, 2020

Embedded derivative $ 3.0 $ ( 0.8 ) $ — $ — $ — $ — $ — $ 2.2

Other 4.8 ( 0.1 ) — — — — — 4.7

Total financial liabilities $ 7.8 $ ( 0.9 ) $ — $ — $ — $ — $ — $ 6.9

Total realized/unrealized gains (losses) included in

Balance at June 30, 2019 Net earnings (loss) Other comp.

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

Fixed maturity securities

States, municipalities and political subdivisions $ 3.7 $ — $ 0.1 $ — $ — $ — $ ( 3.8 ) $ —

Residential mortgage-backed securities 12.5 — ( 0.1 ) — ( 0.7 ) — ( 3.5 ) 8.2

Commercial mortgage-backed securities 66.4 0.2 1.3 — ( 7.4 ) — — 60.5

Asset-backed securities 412.6 ( 0.5 ) ( 6.3 ) 13.6 ( 38.3 ) 14.2 ( 76.4 ) 318.9

Corporate and other 158.1 ( 0.4 ) 2.2 3.1 ( 10.3 ) — ( 45.8 ) 106.9

Total fixed maturity securities 653.3 ( 0.7 ) ( 2.8 ) 16.7 ( 56.7 ) 14.2 ( 129.5 ) 494.5

Equity securities

Common stocks 4.9 ( 0.5 ) 0.1 — ( 0.2 ) — — 4.3

Perpetual preferred stocks 57.1 ( 0.2 ) ( 1.5 ) — ( 2.6 ) — — 52.8

Total equity securities 62.0 ( 0.7 ) ( 1.4 ) — ( 2.8 ) — — 57.1

Total financial assets $ 715.3 $ ( 1.4 ) $ ( 4.2 ) $ 16.7 $ ( 59.5 ) $ 14.2 $ ( 129.5 ) $ 551.6

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUE

Total realized/unrealized (gains) losses included in

Balance at June 30, 2019 Net earnings (loss) Other comp.

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

Embedded derivatives $ 2.9 $ 1.6 $ — $ — $ — $ — $ — $ 4.5

Other 5.4 — — — — — — 5.4

Total financial liabilities $ 8.3 $ 1.6 $ — $ — $ — $ — $ — $ 9.9

Total realized/unrealized gains (losses) included in

December 31, 2018 Net earnings

(loss) Other comp.

income (loss) Purchases and

issuances Sales and

settlements Transfer to

Level 3 Transfer out of

Level 3 Balance at

September 30, 2019

Fixed maturity securities

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

Residential mortgage-backed securities 19.0 — 0.2 — ( 1.5 ) — ( 9.5 ) 8.2

Commercial mortgage-backed securities 58.2 0.2 3.4 7.5 ( 7.9 ) — ( 0.9 ) 60.5

Asset-backed securities 478.2 ( 2.1 ) 11.7 102.1 ( 214.4 ) 19.8 ( 76.4 ) 318.9

Corporate and other 85.0 ( 0.5 ) 4.5 23.5 ( 27.8 ) 105.0 ( 82.8 ) 106.9

Total fixed maturity securities 640.4 ( 2.4 ) 19.9 133.1 ( 252.1 ) 129.0 ( 173.4 ) 494.5

Equity securities

Common stocks 5.9 ( 0.3 ) 0.1 — ( 1.2 ) — ( 0.2 ) 4.3

Perpetual preferred stocks 55.3 ( 3.9 ) ( 1.5 ) 2.5 ( 2.6 ) 3.0 — 52.8

Total equity securities 61.2 ( 4.2 ) ( 1.4 ) 2.5 ( 3.8 ) 3.0 ( 0.2 ) 57.1

Total financial assets $ 701.6 $ ( 6.6 ) $ 18.5 $ 135.6 $ ( 255.9 ) $ 132.0 $ ( 173.6 ) $ 551.6

Total realized/unrealized (gains) losses included in

December 31, 2018 Net earnings

(loss) Other comp.

income (loss) Purchases and

issuances Sales and

settlements Transfer to

Level 3 Transfer out of

Level 3 Balance at

September 30, 2020

Embedded derivatives $ 8.4 $ ( 3.9 ) $ — $ — $ — $ — $ — $ 4.5

Other 3.5 ( 1.1 ) — 3.0 — — — 5.4

Total financial liabilities $ 11.9 $ ( 5.0 ) $ — $ 3.0 $ — $ — $ — $ 9.9

Internally developed fair values of Level 3 assets represent less than 1 % of the Company’s total assets.

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

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUE

Fair Value of Financial Instruments Not Measured at Fair Value

The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments, which were not measured at fair value on a recurring basis.

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

September 30, 2020 Fair Value Measurement Using:

Carrying Value Estimated Fair Value Level 1 Level 2 Level 3

Mortgage loans $ 121.1 $ 121.1 $ — $ — $ 121.1

Policy loans 18.2 18.2 — 18.2 —

Other invested assets 11.3 11.3 — — 11.3

Total assets not accounted for at fair value $ 150.6 $ 150.6 $ — $ 18.2 $ 132.4

Annuity benefits accumulated (1)

$ 228.1 $ 228.4 $ — $ — $ 228.4

Long-term obligations (2)

647.5 643.7 — 643.7 —

Total liabilities not accounted for at fair value $ 875.6 $ 872.1 $ — $ 643.7 $ 228.4

December 31, 2019 Fair Value Measurement Using:

Carrying Value Estimated Fair Value Level 1 Level 2 Level 3

Mortgage loans $ 183.5 $ 183.5 $ — $ — $ 183.5

Policy loans 19.1 19.1 — 19.1 —

Total assets not accounted for at fair value $ 202.6 $ 202.6 $ — $ 19.1 $ 183.5

Annuity benefits accumulated (1)

$ 233.9 $ 231.0 $ — $ — $ 231.0

Long-term obligations (2)

772.0 768.9 — 768.9 —

Total liabilities not accounted for at fair value $ 1,005.9 $ 999.9 $ — $ 768.9 $ 231.0

(1) Excludes life contingent annuities in the payout phase.

(2) Excludes certain lease obligations accounted for under ASC 842, Leases .

Mortgage Loans on Real Estate.

The fair value of mortgage loans on real estate is estimated by discounting cash flows, both principal and interest, using current interest rates for mortgage loans with similar credit ratings and similar remaining maturities.

As such, inputs include current treasury yields and spreads, which are based on the credit rating and average life of the loan, corresponding to the market spreads.

The valuation of mortgage loans on real estate is considered Level 3 in the fair value hierarchy.

Annuity Benefits Accumulated.

The fair value of annuity benefits was determined using the surrender values of the annuities and classified as Level 3.

Long-term Obligations.

The fair value of the Company’s long-term obligations was determined using Bloomberg Valuation Service BVAL.

The methodology combines direct market observations from contributed sources with quantitative pricing models to generate evaluated prices and classified as Level 2.

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

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

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

The 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, for a total purchase price, net of Beyond6's debt and transaction expenses, customary purchase price adjustments and escrow arrangements, of approximately $ 106.5 million.

Net proceeds received by HC2 at closing was cash consideration of approximately $ 70.0 million.

The sale closed on January 15, 2021.

The Company recognized a $ 39.2 million gain on the sale.

Discontinued Operations for further details.

Accounts Receivable, net

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

September 30, December 31,

2021 December 31,

Contracts in progress $ 114.6 $ 118.6

Trade receivables 57.9 60.6

Unbilled retentions 50.9 50.3

Trade receivables 7.2 7.5

Other receivables 14.3 8.9

Allowance for doubtful accounts ( 0.6 ) ( 0.6 )

Total accounts receivable, net $ 252.3 $ 311.8

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUE

Recoverable from Reinsurers

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

September 30, 2020 December 31, 2019

Reinsurer A.M.

Best Rating Amount % of Total Amount % of Total

Munich American Reassurance Company A+ $ 362.2 37.6 % $ 347.6 36.4 %

Hannover Life Reassurance Company of America A+ 314.7 32.7 % 323.3 33.9 %

Loyal American Life Insurance Company A 150.0 15.6 % 147.5 15.5 %

Great American Life Insurance Company A 56.7 5.9 % 56.2 5.9 %

ManhattanLife Assurance Company of America B+ 46.7 4.9 % 47.0 4.9 %

Other 31.1 3.3 % 32.1 3.4 %

Total $ 186.4 $ 184.7

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Property, Plant and Equipment, net

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

September 30, December 31,

2021 December 31,

Equipment, furniture and fixtures, and software $ 114.6 $ 113.7

1 unchanged sentence

Land 24.1 24.1

Construction in progress 3.9 4.8

Plant and transportation equipment 4.6 4.4

Construction in progress 4.4 3.1

Accumulated depreciation 78.2 73.5

Total $ 110.7 $ 112.8

Depreciation expense was $ 7.2 million and $ 7.3 million for the three months ended September 30, 2020 and 2019, respectively.

These amounts included $ 2.3 million and $ 2.2 million of depreciation expense recognized within cost of revenue for the three months ended September 30, 2020 and 2019, respectively.

Depreciation expense was $ 21.0 million and $ 19.9 million for the nine months ended September 30, 2020 and 2019, respectively.

These amounts included $ 6.9 million and $ 6.7 million of depreciation expense recognized within cost of revenue for the nine months ended September 30, 2020 and 2019, respectively.

Depreciation expense was $ 4.7 million and $ 5.1 million for the three months ended March 31, 2021 and 2020, respectively.

These amounts included $ 2.3 million and $ 2.3 million of depreciation expense recognized within cost of revenue for each of the three months ended March 31, 2021 and 2020.

Goodwill and Intangibles, net

HC2 is required to assess goodwill and indefinite-intangible assets for impairment annually, or more frequently if circumstances indicate impairment may have occurred.

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

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

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

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

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

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

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

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

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

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUE

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

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

Infrastructure Clean Energy Spectrum Total

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

Infrastructure

Spectrum Total

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

Translation ( 0.1 ) — ( 0.1 )

Balance at September 30, 2020 $ 89.2 $ 2.1 $ 21.4 $ 112.7

Balance at March 31, 2021 $ 89.5 $ 21.4 $ 110.9

Indefinite-lived Intangible Assets

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

September 30, December 31,

March 31, 2021 December 31, 2020

FCC licenses $ 108.6 $ 113.0

State licenses 2.5 2.5

Total $ 108.6 $ 113.0

During the nine months ended September 30, 2020, FCC licenses decreased $ 6.9 million primarily due to reclassifications to held-for-sale as a result of our Spectrum segment's execution of an Asset Purchase Agreement of an FCC license.

For the three months ended March 31, 2021, FCC licenses decreased $ 4.4 million due to reclassifications to held-for-sale as a result of our Spectrum segment entering into certain agreements to sell non-core FCC licenses.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Definite Lived Intangible Assets

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

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

Weighted-Average Original Useful Life March 31, 2021 December 31, 2020

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

4 unchanged sentences

Total $ 81.1 $ ( 22.6 ) $ 58.5 $ 80.1 $ ( 21.0 ) $ 59.1

Amortization expense for definite lived intangible assets was $ 2.0 million and $ 2.9 million for the three months ended September 30, 2020 and 2019, respectively, and $ 6.0 million and $ 8.9 million for the nine months ended September 30, 2020 and 2019, respectively.

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

During the three and nine months ended September 30, 2020, the Spectrum segment recorded an impairment of certain channel sharing arrangements of $ 6.9 million as a result of management's decision to sell certain non-core assets.

Amortization expense for definite lived intangible assets was $ 1.5 million and $ 1.5 million for the three months ended March 31, 2021 and 2020, respectively, and was included in Depreciation and amortization in our Condensed Consolidated Statements of Operations.

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

Estimated Amortization

Thereafter 32.2

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUE

Life, Accident and Health Reserves

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

September 30, December 31,

Long-term care insurance reserves $ 4,262.2 $ 4,201.6

Traditional life insurance reserves 167.1 173.4

Other accident and health insurance reserves 193.6 192.1

Total life, accident and health reserves $ 4,622.9 $ 4,567.1

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

Nine Months Ended September 30,

Beginning balance $ 761.3 $ 738.5

recoverable from reinsurers

( 131.0 ) ( 136.4 )

Beginning balance, net 630.3 602.1

Incurred related to insured events of:

Current year 166.3 159.2

Prior years ( 34.2 ) ( 46.9 )

Total incurred 132.1 112.3

Paid related to insured events of:

Current year ( 8.9 ) ( 8.4 )

Prior years ( 119.4 ) ( 106.9 )

Total paid ( 128.3 ) ( 115.3 )

Interest on liability for policy and contract claims 17.0 16.2

Ending balance, net 651.1 615.3

recoverable from reinsurers

Ending balance $ 788.3 $ 744.9

The Insurance segment experienced favorable claims reserve developments of $ 34.2 million and $ 46.9 million for the nine months ended September 30, 2020 and 2019, respectively.

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

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

Accounts Payable and Other Current Liabilities

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

September 30, December 31,

Accounts payable $ 97.7 $ 134.6

Accrued expenses and other current liabilities 67.7 75.2

Accrued interconnection costs 42.2 43.5

Accrued payroll and employee benefits 43.7 39.6

Accrued interest 26.5 11.3

Accrued income taxes 20.8 2.0

Total accounts payable and other current liabilities $ 298.6 $ 306.2

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUE

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Debt Obligations

Debt obligations consist of the following (in millions):

September 30, December 31,

2021 December 31,

Infrastructure

3 unchanged sentences

Obligations under finance leases 0.1 0.2

LIBOR plus 3.0 % Term Loan due in 2023

5.00 % Term Loan due in 2022

4.50 % Note due in 2022

5.00 % Term Loan due in 2024

Other, various maturity dates 0.4 2.4

8.50 % Note due 2021

4 unchanged sentences

11.50 % Senior Secured Notes, due 2021

8.50 % Senior Secured Notes, due 2026

7.50 % Convertible Senior Notes, due 2022

7.50 % Convertible Senior Notes, due 2026

LIBOR plus 5.75 % Line of Credit

Total 665.0 805.0

Issuance discount, net and deferred financing costs ( 18.6 ) ( 31.4 )

Total debt obligations $ 646.4 $ 773.6

Issuance discount, issuance premium, and deferred financing costs ( 3.3 ) ( 15.1 )

current portion of debt obligations ( 82.8 ) ( 433.6 )

Debt obligations $ 463.3 $ 127.9

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

6 unchanged sentences

Thereafter — 413.6 413.6

Total minimum principal & interest payments 1.0 765.5 766.5

Total minimum principal and interest payments 0.4 745.3 745.7

Amount representing interest — ( 196.3 ) ( 196.3 )

1 unchanged sentence

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

In August 2020, Clean Energy entered into a new credit facility with M&T bank.

Proceeds from the loan and cash on hand were used to pay down the existing credit facilities with M&T and Pioneer as well as redeem its outstanding $ 14.0 million mandatorily redeemable preferred stock, included within Other liabilities on the Balance Sheets.

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

Clean Energy recognized $ 2.4 million and $ 1.8 million in extinguishment losses related to the pay down of the existing credit facilities with M&T and the redemption of its mandatorily redeemable preferred stock, respectively, which is included in Loss on early extinguishment or restructuring of debt in our Condensed Consolidated Statement of Operations.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUE

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.

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

The Company used the proceeds for general corporate purposes.

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

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

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

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

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

Income Tax Expense

On February 1, 2021, HC2 repaid its 2021 Senior Secured Notes and issued $ 330.0 million aggregate principal amount of 8.5 % senior secured notes due 2026 (the "2026 Senior Secured Notes").

In addition, the Company entered into exchange agreements with certain holders of approximately $ 51.8 million aggregate principal amount of its existing $ 55.0 million 7.5 % convertible senior notes due 2022 (the "2022 Convertible Notes"), pursuant to which the Company exchanged such holders' 2022 Convertible Notes for newly issued 7.5 % convertible notes due 2026 (the "2026 Convertible Notes").

The 2026 Senior Secured Notes were issued in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended.

The Company accounted for the transactions under the debt extinguishment model as the present value of cash flows under the terms of the 2026 Senior Secured Notes and 2026 Convertible Notes was at least 10% different from the present value of the remaining cash flows under the 2021 Senior Secured Notes and the 2022 Convertible Notes.

The extinguishment of the 2021 Senior Secured Notes yielded a loss on extinguishment of $ 4.5 million.

The extinguishment of the $ 51.8 million of 2022 Convertible Notes yielded a loss on extinguishment of $ 5.4 million, an acceleration of the amortization of discount of $ 5.3 million, and extinguishment of the bifurcated conversion option classified as equity of $ 7.7 million.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Senior Secured Notes

The 2026 Senior Secured Notes were issued under an indenture dated February 1, 2021, by and among the Company, the guarantors party thereto and U.S.

Bank National Association, a national banking association ("U.S.

Bank"), as trustee (the "Secured Indenture").

The 2026 Senior Secured Notes were issued at 100 % of par.

Convertible Notes

The 2026 Convertible Notes were issued under a separate indenture dated February 1, 2021, between the Company and U.S.

Bank, as trustee (the "Convertible Indenture").

The 2026 Convertible Notes were issued at 100% of par.

Each $1,000 of principal of the 2026 Convertible Notes will initially be convertible into 234.2971 shares of our common stock, which is equivalent to an initial conversion price of approximately $ 4.27 per share, subject to adjustment upon the occurrence of specified events.

The fair value of the embedded conversion feature contained in the 2026 Convertible Notes had a fair value of $ 12.3 million, which was recorded as a premium on the 2026 Convertible Notes.

The 2026 Convertible Notes have an effective interest rate of 3.16 %, which reflects the $ 12.3 million premium and $ 1.0 million of deferred financing fees.

At March 31, 2021, the 2026 Convertible Notes had a carrying value of $ 62.8 million and an unamortized premium of $ 12.0 million.

Based on the closing price of our common stock of $ 3.94 on March 31, 2021, the if-converted value of the 2026 Convertible Notes did not exceed its principal value.

For the three months ended March 31, 2021, interest cost recognized for the period relating to both the contractual interest coupon and amortization of discount net of premium was $ 0.6 million and zero , respectively.

Line of Credit

On February 23, 2021, the Company entered into a third amendment (the "Amendment") of the 6.75 % line of credit with MSD PCOF Partners IX, LLC ("Revolving Credit Agreement").

Among other things, the Amendment (i) increases the aggregate principal amount of the Revolving Credit Agreement to $ 20.0 million, (ii) extends the maturity date of the Revolving Credit Amendment to February 23, 2024, (iii) updates the affirmative and negative covenants contained in the Amended Credit Agreement so that they are substantially consistent with the affirmative and negative covenants contained in the indenture that governs the 2026 Senior Secured Notes and (iv) reduces the interest rate margin applicable to loans borrowed under the Amended Credit Agreement to 5.75 % from the 6.75 % described above.

Except as modified by the Amendment, the terms of the Revolving Credit Agreement remain in effect.

There are no outstanding borrowings on the Revolving Credit Agreement as of March 31, 2021.

HC2 is in compliance with our debt covenants as of March 31, 2021.

Supplementary Financial Information

Contracts in Progress

Costs and recognized earnings in excess of billings on uncompleted contracts and billings in excess of costs and recognized earnings on uncompleted contracts consist of the following:

2021 December 31,

Costs incurred on contracts in progress $ 658.3 $ 752.9

Estimated earnings 132.8 139.0

Less progress billings 783.9 888.5

The above is included in the accompanying condensed consolidated balance sheet under the following line items:

Costs and recognized earnings in excess of billings on uncompleted contracts $ 65.7 $ 55.6

Billings in excess of costs and recognized earnings on uncompleted contracts ( 58.5 ) ( 52.2 )

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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

March 31, 2021 December 31, 2020

Alternative Equity

Method Total Measurement

Alternative Equity

Common stock $ — $ 2.5 $ 2.5 $ — $ 2.5 $ 2.5

Preferred stock — 13.8 13.8 — 15.4 15.4

Fixed Maturities 0.5 — 0.5 0.5 — 0.5

Other 11.3 24.6 35.9 11.3 25.7 37.0

Total $ 11.8 $ 40.9 $ 52.7 $ 11.8 $ 43.6 $ 55.4

Fair Value of Financial Instruments Not Measured at Fair Value

The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments, which were not measured at fair value on a recurring basis.

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

March 31, 2021 Fair Value Measurement Using:

Carrying Value Estimated Fair Value Level 1 Level 2 Level 3

Other invested assets $ 11.3 $ 11.3 $ — $ — $ 11.3

Total assets not accounted for at fair value $ 11.3 $ 11.3 $ — $ — $ 11.3

Debt obligations (1)

$ 545.7 $ 558.3 $ — $ 558.3 $ —

Total liabilities not accounted for at fair value $ 545.7 $ 558.3 $ — $ 558.3 $ —

December 31, 2020 Fair Value Measurement Using:

Carrying Value Estimated Fair Value Level 1 Level 2 Level 3

Other invested assets $ 11.3 $ 11.3 $ — $ — $ 11.3

Total assets not accounted for at fair value $ 11.3 $ 11.3 $ — $ — $ 11.3

Debt obligations (1)

$ 560.7 $ 579.2 $ — $ 579.2 $ —

Total liabilities not accounted for at fair value $ 560.7 $ 579.2 $ — $ 579.2 $ —

(1) Excludes certain lease obligations accounted for under ASC 842, Leases .

Debt Obligations.

The fair value of the Company’s long-term obligations was determined using Bloomberg Valuation Service BVAL.

The methodology combines direct market observations from contributed sources with quantitative pricing models to generate evaluated prices and classified as Level 2.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Other Non-Current Assets

The following tables provide information relating to Other non-current assets (in millions):

2021 December 31,

Right of use asset $ 38.6 $ 39.8

Other 2.9 2.4

Total other non-current assets $ 41.5 $ 42.2

Accrued Liabilities

Accrued liabilities consist of the following (in millions):

2021 December 31,

Accrued expenses and other current liabilities $ 34.0 $ 27.9

Accrued payroll and employee benefits 26.2 34.7

Accrued interest 17.8 13.9

Accrued income taxes 0.6 0.6

Total accrued liabilities $ 78.6 $ 77.1

Other Non-Current Liabilities

The following tables provide information relating to Other non-current liabilities (in millions):

2021 December 31,

Lease liability $ 31.6 $ 31.6

Other 2.4 8.2

Total other non-current liabilities $ 34.0 $ 39.8

Operating lease right-of-use-assets and finance leases are recognized in the Consolidated Balance Sheets within Other assets and Property, plant and equipment, net, respectively.

Operating lease liability and finance lease liability are recognized in the Consolidated Balance Sheets within Other liabilities and Debt obligations, respectively.

As of March 31, 2021 and December 31, 2020, lease right-of-use assets and lease liabilities consists of the following (in millions):

2021 December 31,

Right-of-use assets:

Operating lease (Other non-current assets) $ 38.6 $ 39.8

Finance lease (Property, plant and equipment, net) 0.6 0.9

Total right-of-use assets $ 39.2 $ 40.7

Lease liabilities:

Current portion of operating lease (Other current liabilities) $ 11.5 $ 11.2

Non-current portion of operating lease (Other non-current liabilities) 31.6 31.6

Finance lease (Debt obligations) 0.4 0.8

Total lease liabilities $ 43.5 $ 43.6

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

This information is presented as of, and for the three months ended March 31, 2021 and 2020.

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

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

The following table summarizes the components of lease expense for the three months ended March 31, 2021 and 2020 (in millions):

Three Months Ended March 31,

Finance lease cost:

Amortization of right-of-use assets $ 0.3 $ 0.3

Net finance lease cost 0.3 0.3

Operating lease cost 3.5 3.5

Variable lease cost 0.1 0.1

Total lease cost $ 3.9 $ 3.9

Cash flow information related to leases for the three months ended March 31, 2021and 2020 are as follows (in millions):

Three Months Ended March 31,

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

Financing cash flows from finance leases $ 0.3 $ 0.2

Operating cash flows from operating leases $ 3.7 $ 3.5

Right-of-use assets obtained in exchange for new lease liabilities

Operating leases $ 3.9 $ 8.5

As of March 31, 2021 and December 31, 2020, the weighted-average remaining lease term and the weighted-average discount rate for finance leases and operating leases are as follows:

2021 December 31,

Weighted-average remaining lease term (years) - operating lease 5.1 4.4

Weighted-average remaining lease term (years) - finance lease 0.7 0.9

Weighted-average discount rate - operating lease 7.3 % 6.2 %

Weighted-average discount rate - finance lease 8.6 % 8.9 %

As of March 31, 2021, undiscounted cash flows for finance and operating leases are as follows (in millions):

Leases Finance

2021 $ 13.6 $ 0.4

Thereafter 5.1 —

Total future lease payments 50.2 0.4

Present values ( 7.1 ) —

Total lease liability balance $ 43.1 $ 0.4

The Company used the Annual Effective Tax Rate ("ETR") approach of ASC 740-270, Interim Reporting, to calculate its 2021 interim tax provision.

Income tax expense was $ 1.6 million and $ 1.1 million for the three months ended September 30, 2020 and 2019, respectively.

The income tax expense recorded for the three months ended September 30, 2020 relates to the projected expense as calculated under ASC 740 for taxpaying entities, primarily the Insurance segment, which is no longer in a valuation allowance.

Income tax expense was $ 1.1 million and an income tax benefit of $ 9.7 million for the three months ended March 31, 2021 and 2020, respectively.

The income tax expense recorded for the three months ended March 31, 2021 relates to the projected expense as calculated under ASC 740 for taxpaying entities.

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

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

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

Income tax expense was $ 4.4 million and $ 6.2 million for the nine months ended September 30, 2020 and 2019, respectively.

The income tax expense recorded for the nine months ended September 30, 2020 primarily relates to tax expense incurred in China from the partial sale of HMN and projected expense as calculated under ASC 740 for taxpaying entities, primarily the Insurance segment, offset by a discrete tax benefit from the carryback of net operating losses at the Insurance segment as a result of the enactment of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) in the first quarter of 2020.

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

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

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

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUE

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Net Operating Losses

1 unchanged sentence

net operating loss carryforwards available to reduce future taxable income in the amount of $ 170.3 million, of which a portion is subject to annual limitation under IRC Sec.

Based on estimates as of September 30, 2020, the Company expects that approximately $ 115.8 million of the gross U.S.

Based on estimates as of March 31, 2021, the Company expects that approximately $ 96.0 million of the gross U.S.

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

This estimate may change based on changes to the quarterly forecasts and actual results reported on the 2021 U.S.

Additionally, at December 31, 2020, the Company had $ 112.6 million of gross U.S.

net operating loss carryforwards from its subsidiaries that do not qualify to be included in the HC2 Holdings, Inc.

consolidated income tax return.

This balance includes $ 29.3 million from ANG which was sold during the first quarter of 2021.

Unrecognized Tax Benefits

1 unchanged sentence

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

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

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

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

3 unchanged sentences

Tax years 2002 - 2020 remain open for examination.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUE

Commitments and Contingencies

Future minimum purchase obligations as of December 31, 2019 were as follows (in millions):

Total obligations $ 90.2

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

Operating Leases Finance

2020 $ 15.1 $ 1.0

2021 13.4 0.7

2022 10.9 0.1

Thereafter 8.2 —

Total future lease payments 63.0 1.8

Present values ( 9.3 ) ( 0.1 )

Total lease liability balance $ 53.7 $ 1.7

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

4 unchanged sentences

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

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

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

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

1 unchanged sentence

VAT assessment

On February 20, 2017, and on August 15, 2017, the Company's subsidiary, ICS, received notices from Her Majesty’s Revenue and Customs office in the U.K.

On February 20, 2017, and on August 15, 2017, the Company's subsidiary, PTGi International Carrier Services Ltd., received notices from Her Majesty’s Revenue and Customs office in the U.K.

(the "HMRC") indicating that it was required to pay certain Value-Added Taxes ("VAT") for the 2015 and 2016 tax years.

PTGI-ICS, LTd.

disagrees with HMRC’s assessments on technical and factual grounds and intends to dispute the assessed liabilities and vigorously defend its interests.

The Company disagrees with HMRC’s assessments on technical and factual grounds and intends to dispute the assessed liabilities and vigorously defend its interests.

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

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUE

DBMG Class Action

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

Falcone, Keith M.

Hladek, Paul Voigt, Michael R.

Hill, Rustin Roach, D.

Ronald Yagoda, Phillip O.

Elbert, HC2 Holdings, Inc., and Schuff International, Inc., Civil Action No.

10323 (the “Complaint”).

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

Schuff International, Inc.

Falcone, Keith M.

Hladek, Paul Voigt, Michael R.

Hill, Rustin Roach, D.

Ronald Yagoda, Phillip O.

Elbert, HC2 Holdings, Inc., Civil Action No.

On February 19, 2015, the Court consolidated the actions (now designated as Schuff International, Inc.

Stockholders Litigation) and appointed lead plaintiff and counsel.

The initially operative complaint filed by Mark Jacobs alleged, among other things, that in connection with the tender offer, the individual members of the DBMG Board of Directors and HC2, the now-controlling stockholder of DBMG, breached their fiduciary duties to members of the plaintiff class.

The Complaint also challenged a potential short-form merger based upon plaintiff’s expectation that the Company would cash out the remaining public stockholders of DBMG following the completion of the tender offer.

The Complaint sought rescission of the tender offer and/or compensatory damages, as well as attorney’s fees and other relief.

The defendants filed answers to the Complaint on July 30, 2015.

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

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

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

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

The Court expressed concerns about certain terms of the proposed settlement and the parties requested additional time to evaluate potential modifications to the proposed settlement.

On May 8, 2020, the parties filed with the Court a revised settlement agreement for all claims relating to the Amended Complaint (the “Revised Settlement Framework”).

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

In total, the proposed settlement payment to the Tendered Stockholders applied to approximately 568,850 shares and totaled approximately $ 20.45 million.The Revised Settlement Framework provided that the amount received by the Tendered Stockholders would be reduced by the per share amount of any fee award to lead plaintiff’s counsel.

HC2’s D&O insurers agreed to contribute approximately $ 12.38 million of this approximately $ 20.45 million settlement payment, and DBMG has agreed to fund the remaining approximately $ 8.07 million either through cash on hand or borrowing from a third-party lender.

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

The first payment of $ 2.51 per share, or approximately $ 0.7 million total, was intended to offset the indirect burden that the public DBMG stockholders arguably would bear (by virtue of their approximately 7.52 % ownership of DBMG) from DBMG’s funding of the approximately $ 8.07 million portion of the settlement payment to the Tendered Stockholders.

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

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

On August 14, 2020, the Court entered a Final Order approving the Revised Settlement Framework, awarding plaintiff’s counsel fees and expenses totaling $ 5,795,886 out of the funds payable to the Tendered Stockholders, and awarding one of the objector’s counsel fees and expenses totaling $ 50,000 out of the fee and expense award to plaintiff’s counsel.

The settlement of the action became final, and the settlement releases became effective, upon the expiration of the appeal period for the Final Order on September 14, 2020.

As of October 12, 2020, the settlement distribution agents had distributed the settlement funds to the eligible former and present record holders of DBMG stock.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Fair Value Investments Litigation

On October 1, 2020, Fair Value Investments Incorporated (“FVI”) filed a putative stockholder class action and derivative complaint in the Delaware Court of Chancery against HC2 and certain of DMBG’s current and former officers and directors, including current and former HC2 officers and directors AJ Stahl, Kenneth S.

On October 1, 2020, Fair Value Investments Incorporated (“FVI”) filed a putative stockholder class action and derivative complaint in the Delaware Court of Chancery against HC2 and certain of DBMG’s current and former officers and directors, including current and former HC2 officers and directors AJ Stahl, Kenneth S.

Courtis, Robert V.

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and (v) HC2’s appointment of directors to DBMG’s board of directors by written consent in lieu of holding an annual stockholder meeting.

HC2 believes the allegations in the FVI complaint are without merit, and HC2 intends to vigorously defend this litigation.

On February 23, 2021, FVI filed an Amended Verified Stockholder Class Action Complaint (the "Amended Complaint").

In the Amended Complaint, FVI named two additional defendants:

HC2’s Chief Executive Officer, Wayne Barr, and DBMG’s General Counsel, Scott D.

The Amended Complaint includes additional fact allegations in support of the largely similar claims raised in the original complaint.

Defendants moved to dismiss the Amended Complaint on April 23, 2021.

HC2 believes the allegations in the FVI Amended Complaint are without merit and the HC2-related defendants have filed a motion to dismiss the complaint, which continues to be pending.

HC2 intends to vigorously defend this litigation.

DTV Derivative Litigation

On March 15, 2021, twenty-two DTV America Corporation (“DTV”) stockholders and eight holders of DTV stock options filed a stockholder class action and derivative complaint in the Delaware Court of Chancery in an action styled Bocock, et al., v.

HC2 Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUE

Non-Operating Corporate

Stockholder Litigation

On April 10, 2020, a purported stockholder of the Company filed a class action complaint in the Delaware Court of Chancery captioned Tera v.

HC2 Holdings Inc., et al., C.A.

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

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

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

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

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

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

(iii) an injunction requiring the defendants to issue corrective disclosures;

and (iv) an order enjoining the Board from relying upon consent revocations received to date.

On April 20, 2020, the Court of Chancery granted the plaintiff’s motion for expedited proceedings.

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

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

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

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

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

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

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

On August 12, 2020, the parties informed the court that they had reached a resolution.

That same day, the court entered an order closing the case.

2021-0224 (Del.

Plaintiffs named as defendants HC2 Holdings, Inc., HC2 Broadcasting Holdings, Inc., HC2 Broadcasting Inc., and Continental General Insurance Corporation (the “HC2 Entities”) and certain current and former officers and directors of the HC2 Entities and DTV, including Phillip Falcone, Michael Sena, Wayne Barr, Jr., Les Levi, Paul Voigt, Ivan Minkov, and Paul Robinson (the “Individual Defendants”).

Plaintiffs principally allege that the defendants breached their fiduciary duties and/or aided and abetted breaches of fiduciary duty by participating in a “scheme” in which the HC2 Entities (i) acquired majority voting and operating control over DTV;

(ii) exploited that control to misappropriate DTV’s assets and business opportunities for the benefit of the HC2 Entities;

and (iii) purchased DTV stock at a discount to fair value and diminished the value of DTV stock options.

Plaintiffs allege that the Individual Defendants (i) “prompted” the HC2 Entities to purchase more than 100 low-power television (“LPTV”) broadcast stations originally identified for potential acquisition by DTV, (ii) allowed the HC2 Entities to misappropriate DTV technology, known as “DTV Cast,” (iii) caused DTV to transfer unspecified LPTV broadcasting station licenses to HC2 affiliates “without paying any value,” and (iv) transferred to the HC2 Entities unspecified DTV broadcasting stations that had been “repacked” by the FCC.

HC2 believes the allegations in the Bocock Complaint are without merit and the HC2-related defendants intend to move to dismiss the complaint.

HC2 intends to vigorously defend this litigation.

OSHA Complaint

2 unchanged sentences

alleging retaliatory employment practices in violation of the whistleblower provisions of the Sarbanes-Oxley Act.

The Company has yet to submit a statement of position to the DOL but denies the material allegations in the complaint.

The DOL has not issued a determination.

The Company submitted a position statement to the DOL denying the material allegations in the complaint.

On April 27, 2021, the matter was resolved pursuant to a confidential settlement agreement that did not have a material impact on the Company's financial statements.

Separation from Philip A.

The Company has engaged in ongoing negotiations with Philip A.

Falcone, the former Chairman, President and Chief Executive Officer of the Company, regarding his separation.

Falcone rejected the Company’s most recent severance offer, and on December 18, 2020, Mr.

Falcone filed a demand for arbitration against the Company with the American Arbitration Association.

The Company filed its Answering Statement and Counterclaims with the AAA on March 5, 2021.

The Company contends that the claims in Mr.

Falcone’s demand are without merit and that the Company has both factual and legal defenses.

Falcone filed his Answer to the Company’s Counterclaims on March 19, 2021.

In addition, Mr.

Falcone made two books and records demands of the Company, which the Company has denied, including in light of the fact that Mr.

Falcone is no longer a director of the Company.

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

2 unchanged sentences

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUE

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Share-based Compensation

The Company granted 143,096 options during the three and nine ended September 30, 2020.

The weighted average fair value at date of grant for options granted during the nine months ended September 30, 2020 was $ 1.47 per option.

The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions shown as a weighted average for the year:

Nine Months Ended September 30,

Expected option life 4.27 years

Risk-free interest rate 23.96 %

Expected volatility 62.23 %

Dividend yield — %

Total share-based compensation expense recognized by HC2 and its subsidiaries under all equity compensation arrangements was $ 0.8 million and $ 1.6 million for the three months ended September 30, 2020 and 2019, respectively.

Total share-based compensation expense recognized by HC2 and its subsidiaries under all equity compensation arrangements was $ 2.5 million and $ 4.6 million for the nine months ended September 30, 2020 and 2019, respectively.

Total share-based compensation expense recognized by the Company and its subsidiaries under all equity compensation arrangements was $ 0.5 million and $ 1.5 million for the three months ended March 31, 2021 and 2020, respectively.

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

7 unchanged sentences

Forfeited ( 478,639 ) $ 5.87

Unvested - September 30, 2020 741,016 $ 4.24

At September 30, 2020, the total unrecognized stock-based compensation expense related to unvested restricted stock was $ 1.2 million.

Unvested - December 31, 2020 628,433 $ 3.93

Granted 462,864 $ 3.75

Vested ( 234,710 ) $ 4.47

Forfeited ( 31,171 ) $ 2.62

Unvested - March 31, 2021 825,416 $ 3.73

At March 31, 2021, the total unrecognized stock-based compensation expense related to unvested restricted stock was $ 2.1 million.

The unrecognized compensation cost is expected to be recognized over the remaining weighted average period of 2.4 years.

7 unchanged sentences

Expired ( 2,328,327 ) $ 9.18

Outstanding - September 30, 2020 7,016,440 $ 6.47

Outstanding - December 31, 2020 4,739,858 $ 5.13

Granted — $ —

Exercised — $ —

Forfeited — $ —

Expired — $ —

Outstanding - March 31, 2021 4,739,858 $ 5.13

Eligible for exercise 4,738,508 $ 5.13

At September 30, 2020, the intrinsic value and average remaining life of the Company's outstanding options were zero and approximately 2.6 years, and intrinsic value and average remaining life of the Company's exercisable options were zero and approximately 2.6 years.

At September 30, 2020, total unrecognized stock-based compensation expense related to unvested stock options was $ 0.03 million.

At March 31, 2021, the intrinsic value and average remaining life of the Company's outstanding options were $ 0.2 million and approximately 3.4 years, and intrinsic value and average remaining life of the Company's exercisable options were $ 0.2 million and approximately 3.4 years.

At March 31, 2021, the total unrecognized stock-based compensation expense related to unvested stock options was $ 0.1 million.

The unrecognized compensation cost is expected to be recognized over the remaining weighted average period of 0.96 years.

There are 42,205

There are 1,350 unvested stock options expected to vest, with a weighted average remaining life of 8.0 years, a weighted average exercise price of $ 2.62 , and an intrinsic value of $ 0.1 million.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUE

unvested stock options expected to vest, with a weighted average remaining life of 4.1 years, a weighted average exercise price of $ 5.27 , and an intrinsic value of zero .

Rights Offering

On September 9, 2020, HC2 announced its intention to commence a rights offering (the “Rights Offering”), pursuant to which each holder of its outstanding common stock and participating preferred stock would receive transferable subscription rights entitling such stockholder to purchase shares of HC2’s common stock at a subscription price equal to $ 2.27 per share based on last sale price for our common stock on the trading day prior to September 9, 2020.

On the same date, HC2 entered into an investment agreement (the "Investment Agreement") with Lancer Capital LLC ("Lancer Capital"), an investment fund led by Avram Glazer, the Chairman of our Board of Directors, pursuant to which Lancer Capital agreed to purchase up to $ 35.0 million of Series B Preferred Stock (as defined below) in connection with the Rights Offering based on subscription participation of common shareholders (the "Backstop Commitment").

The Investment Agreement provides for an advance of up to $ 10.0 million of the Backstop Commitment at the option of the Company.

The Investment Agreement provides that, to the extent that Lancer Capital is precluded by applicable rules and regulations (including those of the NYSE, the Texas Department of Insurance and any other applicable regulators) from purchasing common stock by exercising rights received in the Rights Offering, Lancer Capital will purchase additional shares of Series B Preferred Stock (in excess of any Initial Funding amount) equivalent to its allocable participation right.

The Investment Agreement also restricts Lancer Capital from purchasing or otherwise acquiring any other rights we issue in the Rights Offering.

Lancer Capital did not receive any compensation or other consideration for entering into or consummating the Investment Agreement.

The Backstop Commitment is defined as a financial instrument and measurable at fair value on each reporting period.

HC2 used both market observable inputs and unobservable data to derive the fair value as of the reporting date.

The Backstop Commitment is classified as Level 3.

Fair value for the Backstop Commitment as of September 30, 2020, was zero .

The Backstop Commitment will cease upon the consummation of the Rights Offering.

Series A Preferred Stock, Series A-2 Preferred Stock, and Series B Preferred Stock

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Preferred Shares

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

September 30, December 31,

2021 December 31,

Preferred shares authorized, $ 0.001 par value

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Series A-2 shares issued and outstanding 4,000 4,000

Series B shares issued and outstanding 5,560 —

Issuance of Series B Shares

On September 9, 2020, HC2 issued a Certificate of Designation for 35,000 Series B Non-Voting participating Convertible Preferred Shares (the "Series B Preferred Stock") of HC2.

The certificate of designation authorized the existing 20,000,000 shares of preferred stock, par value $ 0.001 to apply to this series.

The Series B Preferred Stock is intended to be the economic equivalent of common stock, participating on an as-converted basis in all dividends, distributions, merger consideration and all other consideration receivable by holders of common stock, and a means through which the Backstop Arrangement can be effected prior to the completion of the stockholder vote and the satisfaction of any other regulatory requirements.

The issued Series B Prefered Stock was classified as temporary equity as it is not mandatorily redeemable due to the presence of substantive conversion features, and will become mandatorily redeemable on the sixth anniversary of initial issuance if not previously converted.

The Series B Prefered Stock issued was recognized at fair value upon issuance.

As the Series B was contingently redeemable, subsequent accretion to redemption value will occur once the contingency is resolved and the redemption becomes probable (i.e., Rights Offering and Stockholder Approval is no longer reasonably possible).

On September 17, 2020 Lancer Capital funded $ 5.56 million of the Backstop Commitment, and the Company issued Lancer Capital 5,560 shares of Series B Preferred Stock (the "Initial Funding").

Series A Shares

In connection with the issuance of the Series A Convertible Preferred Stock, the Company adopted a Certificate of Designation of Series A Convertible Participating Preferred Stock on May 29, 2014 (the "Series A Certificate").

In connection with the issuance of the Series A-1 Preferred Stock on September 22, 2014, the Company adopted the Certificate of Designation of Series A-1 Convertible Participating Preferred Stock (the "Series A-1 Certificate") and also amended and restated the Series A Certificate.

In connection with the issuance of the Series A-2 Preferred Stock on January 5, 2015, the Company adopted the Certificate of Designation of Series A-2 Convertible Participating Preferred Stock (the "Series A-2 Certificate") and also amended and restated the Series A Certificate and the Series A-1 Certificate.

On August 10, 2015, the Company adopted certain Certificates of Correction of the Certificates of Amendment to the Certificates of Designation of the Series A Certificate, the Series A-1 Certificate and the Series A-2 Certificate, and on June 24, 2016 the Company adopted certain amendments to the Series A-1 Certificate of Designation.

The Series A Certificate, the Series A-1 Certificate and the Series A-2 Certificate together, as amended, are referred to as the "Certificates of Designation."

The following summary of the terms of the Preferred Stock and the Certificates of Designation is qualified in its entirety by the complete terms of the Certificates of Designation.

The Preferred Stock accrues a cumulative quarterly cash dividend at an annualized rate of 7.50 %.

The accrued value of the Preferred Stock will accrete quarterly at an annualized rate of 4.00 % that is reduced to 2.00 % or 0.00 % if the Company achieves specified rates of growth measured by increases in its net asset value;

provided, that the accreting dividend rate will be 7.25 % in the event that (i) the daily volume weighted average price ("VWAP") of the common stock is less than a certain threshold amount, (ii) the common stock is not registered under Section 12(b) of the Securities Exchange Act of 1934, as amended, (iii) following May 29, 2015, the common stock is not listed on certain national securities exchanges or (iv) the Company is delinquent in the payment of any cash dividends.

The Preferred Stock is also entitled to participate in cash and in-kind distributions to holders of shares of common stock on an as-converted basis.

Optional Conversion.

Each share of Preferred Stock may be converted by the holder into common stock at any time based on the then applicable conversion price.

Pursuant to the Series A Certificate, each share of Series A Preferred Stock is currently convertible at a conversion price of $ 3.52 .

Pursuant to the Series A-2 Certificate, each share of Series A-2 Preferred Stock is currently convertible at a conversion price of $ 5.34 .

Such conversion prices are subject to adjustment for dividends, certain distributions, stock splits, combinations, reclassifications, reorganizations, mergers, recapitalizations and similar events, as well as in connection with issuances of equity or equity-linked or other comparable securities by the Company at a price per share (or with a conversion or exercise price or effective issue price) that is below the applicable conversion price (which adjustment shall be made on a weighted average basis).

Redemption by the Holders / Automatic Conversion.

On May 29, 2021, holders of the Preferred Stock are entitled to cause the Company to redeem the Preferred Stock at the accrued value per share plus accrued but unpaid dividends (to the extent not included in the accrued value of Preferred Stock).

Each share of Preferred Stock that is not so redeemed will be automatically converted into shares of common stock at the conversion price then in effect.

Upon a change of control (as defined in the Certificates of Designation) holders of the Preferred Stock are entitled to cause the Company to redeem their Preferred Stock at a price per share of Preferred Stock equal to the greater of (i) the accrued value of the Preferred Stock, which amount would be multiplied by 150 % in the event of a change of control occurring on or prior to May 29, 2017, plus any accrued and unpaid dividends (to the extent not included in the accrued value of Preferred Stock), and (ii) the value that would be received if the share of Preferred Stock were converted into common stock immediately prior to the change of control.

Redemption by the Company.

At any time after May 29, 2017, the Company may redeem the Preferred Stock, in whole but not in part, at a price per share generally equal to 150 % of the original accrued value or on that date, plus accrued but unpaid dividends (to the extent not included in the accrued value of Preferred Stock), subject to the holder’s right to convert prior to such redemption.

Forced Conversion.

After May 29, 2017, the Company may force conversion of the Preferred Stock into common stock if the common stock’s thirty-day VWAP exceeds 150 % of the then-applicable Conversion Price and the common stock’s daily VWAP exceeds 150 % of the then applicable Conversion Price for at least twenty trading days out of the thirty trading day period used to calculate the thirty-day VWAP.

In the event of a forced conversion, the holders of Preferred Stock will have the ability to elect cash settlement in lieu of conversion if certain market liquidity thresholds for the common stock are not achieved.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUE

On January 11, 2019, CGI purchased 10,000 shares of Series A-2 Preferred Stock, which are convertible into a total of 1,426,534 shares of the Company's common stock, for a total consideration of $ 8.3 million.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Liquidation Preference.

The Series A Preferred Stock ranks at parity with the Series A-2 Preferred Stock.

In the event of any liquidation, dissolution or winding up of the Company (any such event, a "Liquidation Event"), the holders of Preferred Stock are entitled to receive per share the greater of (i) the accrued value of the Preferred Stock, which amount would be multiplied by 150 % in the event of a Liquidation Event occurring on or prior to May 29, 2017, plus any accrued and unpaid dividends (to the extent not included in the accrued value of Preferred Stock), and (ii) the value that would be received if the share of Preferred Stock were converted into common stock immediately prior to such occurrence.

The Preferred Stock will rank junior to any existing or future indebtedness but senior to the common stock and any future equity securities other than any future senior or pari-passu preferred stock issued in compliance with the Certificates of Designation.

Voting Rights.

Except as required by applicable law, the holders of the shares of each series of Preferred Stock are entitled to vote on an as-converted basis with the holders of the other series of Preferred Stock (on an as-converted basis) and holders of the Company’s common stock on all matters submitted to a vote of the holders of common stock.

Certain series of Preferred Stock are entitled to vote with the holders of certain other series of Preferred Stock on certain matters, and separately as a class on certain limited matters.

Subject to maintenance of certain ownership thresholds by the initial purchasers of the Series A Preferred Stock also have the right to vote shares of Preferred Stock as a separate class for at least one director, as discussed below under "Board Rights."

Consent Rights.

For so long as any of the Preferred Stock is outstanding, consent of the holders of shares representing at least 75 % of certain of the Preferred Stock then outstanding is required for certain material actions.

Participation Rights.

Pursuant to the securities purchase agreements entered into with the initial purchasers of the Series A Preferred Stock and the Series A-2 Preferred Stock, subject to meeting certain ownership thresholds, certain purchasers of the Series A Preferred Stock and the Series A-2 Preferred Stock are entitled to participate, on a pro-rata basis in accordance with their ownership percentage, determined on an as-converted basis, in issuances of equity and equity linked securities by the Company.

In addition, subject to meeting certain ownership thresholds, certain initial purchasers of the Series A Preferred Stock and the Series A-2 Preferred Stock will be entitled to participate in issuances of preferred securities and in debt transactions of the Company.

As of March 31, 2021, Preferred A shares and Preferred A-2 shares were convertible into 1,835,695 and 751,880 shares, respectively, of HC2 common stock, excluding CGI shares eliminated in consolidation, as discussed below.

Preferred Share Activity

Series A Shares

On December 18, 2018, and December 20, 2018, CGI, a wholly owned subsidiary of the Company closed on the purchase of 6,125 shares of Series A Preferred Stock, which, as of March 31, 2021, is convertible into a total of 1,763,706 shares of the Company's common stock.

The shares and dividends accrued related to the Series A Preferred shares owned by CGI are eliminated in consolidation.

On January 11, 2019, CGI purchased 10,000 shares of Series A-2 Preferred Stock, which, as of March 31, 2021, is convertible into a total of 1,879,699 shares of the Company's common stock.

The shares and dividends accrued related to the Series A-2 Preferred Stock owned by CGI are eliminated in consolidation.

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

Luxor and Corrib Conversions

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("Corrib"), then a holder of 1,000 shares of Series A Preferred Stock, and certain investment entities managed by Luxor Capital Group, LP ("Luxor"), that together then held 9,000 shares of Series A-1 Preferred Stock.

In conjunction with the conversions, the Company agreed to provide the following two forms of additional consideration for as long as the Series A Preferred Stock and Series A-2 Preferred Stock remained entitled to receive dividend payments (the "Additional Share Consideration"):

• The Company agreed that in the event that Corrib and Luxor would have been entitled to any Participating Dividends payable, had they not converted the Preferred Stock (as defined in the respective Series A and Series A-1 Certificate of Designation), after the date of their Preferred Share conversion, then the Company will issue to Corrib and Luxor, on the date such Participating Dividends become payable by the Company, in a transaction exempt from the registration requirements of the Securities Act the number of shares of common stock equal to (a) the value of the Participating Dividends Corrib or Luxor would have received pursuant to Sections (2)(c) and (2)(d) of the respective Series A and Series A-1 Certificate of Designation, divided by (b) the Thirty Day VWAP (as defined in the respective Series A and Series A-1 Certificate of Designation) for the period ending two business days prior to the underlying event or transaction that would have entitled Corrib or Luxor to such Participating Dividend had Corrib’s or Luxor’s Preferred Stock remain unconverted.

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

For the nine months ended September 30, 2020, 209,467 and 23,566 shares of the Company's common stock have been issued to Luxor and Corrib, respectively, in conjunction with the Conversion agreement.

The fair value of the Additional Share Consideration was valued by the Company at $ 0.6 million on the date of issuance and was recorded within Preferred stock and deemed dividends from conversion line item of the Condensed Consolidated Statements of Operations as a deemed dividend.

In conjunction with the conversions, the Company agreed to provide the following two forms of additional consideration for as long as the Preferred Stock remained entitled to receive dividend payments (the "Additional Share Consideration"):

• The Company agreed that in the event that Corrib and Luxor would have been entitled to any Participating Dividends payable, had they not converted the Preferred Stock (as defined in the respective Series A and Series A-1 Certificate of Designation), after the date of their Preferred Share conversion, then the Company will issue to Corrib and Luxor, on the date such Participating Dividends become payable by the Company, in a transaction exempt from the registration requirements of the Securities Act the number of shares of common stock equal to (a) the value of the Participating Dividends Corrib or Luxor would have received pursuant to Sections (2)(c) and (2)(d) of the respective Series A and Series A-1 Certificates of Designation, divided by (b) the Thirty Day VWAP (as defined in the respective Series A and Series A-1 Certificates of Designation) for the period ending two business days prior to the underlying event or transaction that would have entitled Corrib or Luxor to such Participating Dividend had Corrib’s or Luxor’s Preferred Stock remain unconverted.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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

For the three months ended March 31, 2021, 49,075 and 5,521 shares of the Company's common stock have been issued to Luxor and Corrib, respectively, in conjunction with the conversion agreements.

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

The fair value of the Additional Share Consideration for the three months ended March 31, 2021 and 2020 was valued by the Company at $ 0.2 million on the date of issuance and was recorded within Preferred stock and deemed dividends from conversion line item of the Consolidated Statements of Operations as a deemed dividend.

Preferred Share Dividends

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

Declaration Date March 31, 2020 June 30, 2020 September 30, 2020

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

Payment Date April 15, 2020 July 15, 2020 October 15, 2020

During the three months ended March 31, 2021 and 2020, HC2's Board of Directors declared cash dividends with respect to HC2’s issued and outstanding Preferred Stock, excluding Preferred Stock owned by CGI which is eliminated in consolidation, as presented in the following table (in millions):

Declaration Date March 31, 2021

Holders of Record Date March 31, 2021

Payment Date April 15, 2021

Total Dividend $ 0.2

Declaration Date March 31, 2019 June 30, 2019 September 30, 2019

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

Payment Date April 15, 2019 July 15, 2019 October 15, 2019

Declaration Date March 31, 2020

Holders of Record Date March 31, 2020

Payment Date April 15, 2020

Total Dividend $ 0.2

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUE

Related Parties

Series B Preferred Stock

As detailed in Note 18.

Equity , HC2 entered into the Investment Agreement with Lancer Capital, an investment fund led by Avram Glazer, the Chairman of our Board of Directors, pursuant to which Lancer Capital agreed to the Backstop Commitment to purchase up to $ 35.0 million of Series B Preferred Stock in connection with the Rights Offering, based on subscription participation of common shareholders, of which $ 10.0 million may be funded in advance.

On September 17, 2020, Lancer Capital funded $ 5.56 million, receiving 5,560 shares of Series B Preferred stock.

Please see Note 18.

Equity for further details.

HCP Services Agreement

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

The Company recognized expenses of $ 0.2 million and $ 0.6 million, and income of $ 0.0 million and $ 0.1 million for the three months ended September 30, 2020 and 2019, respectively.

The Company recognized expenses of $ 1.7 million and $ 2.5 million and income of $ 0.1 million and $ 0.2 million for the nine months ended September 30, 2020 and 2019, respectively.

Three Months Ended September 30,

Corporate Other (1)

Total Corporate Other (1)

Allocated to HC2 by HCP

Office space $ 0.2 $ — $ 0.2 $ 0.4 $ 0.2 $ 0.6

Administrative salaries and benefits — — — — — —

Other shared overhead — — — — — —

Total Expenses 0.2 — 0.2 0.4 0.2 0.6

Charged back to HCP by HC2

Administrative salaries and benefits — — — — — —

Other shared overhead — — — 0.1 — 0.1

Total Income — — — 0.1 — 0.1

Net related party activity $ 0.2 $ — $ 0.2 $ 0.3 $ 0.2 $ 0.5

Nine Months Ended September 30,

Corporate Other (1)

Total Corporate Other (1)

Allocated to HC2 by HCP

Office space $ 1.2 $ 0.5 $ 1.7 $ 1.6 $ 0.8 $ 2.4

Administrative salaries and benefits — — — 0.1 — 0.1

Other shared overhead — — — — — —

Total Expenses 1.2 0.5 1.7 1.7 0.8 2.5

Charged back to HCP by HC2

Administrative salaries and benefits — — — — — —

Other shared overhead 0.1 — 0.1 0.2 — 0.2

Total Income 0.1 — 0.1 0.2 — 0.2

Net related party activity $ 1.1 $ 0.5 $ 1.6 $ 1.5 $ 0.8 $ 2.3

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

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUE

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

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

GMH's subsidiary, GMSL, prior to its sale in February 2020, had transactions with several of its equity method investees.

A summary of transactions with such equity method investees and balances outstanding are as follows (in millions).

Such activity is reclassified to discontinued operations as a result of the sale of GMSL.

Discontinued Operations for further information:

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Net revenue $ — $ 2.6 $ 0.7 $ 5.6

Operating expenses $ — $ 0.1 $ — $ 0.8

Interest expense $ — $ 0.3 $ 0.1 $ 0.8

Dividend $ — $ 1.9 $ — $ 3.0

September 30, December 31,

Accounts receivable $ — $ 1.2

Debt obligations $ — $ 22.5

Accounts payable $ — $ 0.1

Dividends $ — $ 4.5

Life Sciences

Pansend has an investment in Triple Ring Technologies, Inc.

("Triple Ring").

Various subsidiaries of HC2 utilize the services of Triple Ring, incurring zero and $ 0.5 million in services for the three months ended September 30, 2020 and 2019, and $ 1.0 million and $ 1.3 million in services for the nine months ended September 30, 2020 and 2019.

Various subsidiaries of HC2 utilize the services of Triple Ring, incurring zero and $ 0.7 million in services for the three months ended March 31, 2021 and 2020, respectively.

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 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, formerly a related party.

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.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUE

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Operating Segment and Related Information

The Company currently has one primary reportable geographic segment - United States.

The Company has seven reportable operating segments based on management’s organization of the enterprise - Infrastructure, Clean Energy, Telecommunications, Insurance, Life Sciences, Spectrum, Other, and a Non-operating Corporate segment.

The Company has four reportable operating segments, plus our Other segment, based on management’s organization of the enterprise - Infrastructure, Life Sciences, Spectrum, Insurance, and Other.

We also have included a Non-operating Corporate segment.

All inter-segment revenues are eliminated.

While the names of certain segments have changed as detailed in Note 1.

Organization and Business, other than noted below, the Company's organizational structure has not changed during the nine months ended September 30, 2020.

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

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

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

As a result of the sale of GMSL, ICS, and Beyond6, and in accordance with ASC 280, the Company no longer considers the results of operations and balance sheets of these entities and related subsidiaries as separate segments.

Formerly part of the Marine Services, Telecommunications, and Clean Energy segments, these entities and the investment in HMN have been reclassified to the Other segment.

In addition, as GMSL, ICS, Beyond6, and CIG are discontinued operations, all operating results of these entities have been reclassified to discontinued operations.

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

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

Three Months Ended September 30, Nine Months Ended September 30,

Segment 2020 2019 2020 2019

Customer A Telecommunications * * * 10.7 %

* Less than 10% revenue concentration

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Three Months Ended March 31,

Infrastructure

Clean Energy 10.3 8.7 31.0 19.3

Telecommunications 136.4 162.2 430.1 507.0

Insurance 78.9 80.4 223.2 251.3

Spectrum 9.7 10.0 29.3 29.8

Eliminations (*)

$ 161.3 $ 176.5

Total net revenue $ 393.3 $ 427.5 $ 1,215.1 $ 1,355.7

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Income (loss) from operations

Spectrum 10.5 10.1

Total revenue $ 171.8 $ 186.6

Three Months Ended March 31,

Loss (income) from operations

Infrastructure

Clean Energy 1.5 0.4 5.4 ( 0.3 )

Telecommunications 0.3 ( 0.4 ) 0.6 0.4

Insurance 15.1 10.6 16.7 75.9

Life Sciences ( 4.8 ) ( 3.2 )

2 unchanged sentences

Non-operating Corporate ( 6.7 ) ( 9.1 )

Eliminations (*)

( 2.8 ) ( 2.2 ) ( 8.1 ) ( 7.9 )

Total income (loss) from operations $ ( 2.1 ) $ 7.5 $ ( 24.0 ) $ 66.7

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUE

Total loss from operations $ ( 10.9 ) $ ( 13.6 )

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

(Loss) income from operations $ ( 2.1 ) $ 7.5 $ ( 24.0 ) $ 66.7

Three Months Ended March 31,

Loss from operations $ ( 10.9 ) $ ( 13.6 )

Interest expense ( 21.4 ) ( 19.2 )

1 unchanged sentence

Loss from equity investees ( 2.1 ) ( 2.5 )

Gain on bargain purchase — — — 1.1

Other income (loss) 7.3 6.1 74.1 4.7

(Loss) income from continuing operations ( 20.0 ) ( 7.8 ) ( 29.7 ) 14.5

Income tax expense ( 1.6 ) ( 1.1 ) ( 4.4 ) ( 6.2 )

(Loss) income from continuing operations ( 21.6 ) ( 8.9 ) ( 34.1 ) 8.3

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

— 0.6 ( 60.0 ) ( 13.7 )

Net loss ( 21.6 ) ( 8.3 ) ( 94.1 ) ( 5.4 )

Net loss attributable to noncontrolling interest and redeemable noncontrolling interest 4.3 1.2 6.8 4.9

Net loss attributable to HC2 Holdings, Inc.

Other income 3.4 1.5

Loss from continuing operations before income taxes ( 41.8 ) ( 39.6 )

Income tax (expense) benefit ( 1.1 ) 9.7

Loss from continuing operations ( 42.9 ) ( 29.9 )

Income (loss) from discontinued operations (including gain on disposal of $ 40.4 million and loss on disposal of $ 39.3 million for the three months ended March 31, 2021 and 2020, respectively)

51.9 ( 71.1 )

Preferred dividends, deemed dividends and repurchase gains 0.4 0.4 1.2 ( 0.4 )

Net loss attributable to common stock and participating preferred stockholders $ ( 17.7 ) $ ( 7.5 ) $ ( 88.5 ) $ ( 0.1 )

Three Months Ended September 30, Nine Months Ended September 30,

Net income (loss) 9.0 ( 101.0 )

Net income (loss) attributable to noncontrolling interest and redeemable noncontrolling interest 3.6 17.9

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

12.6 ( 83.1 )

Preferred dividends and deemed dividends from conversions 0.4 0.4

Net income (loss) attributable to common stock and participating preferred stockholders $ 12.2 $ ( 83.5 )

Three Months Ended March 31,

Depreciation and Amortization

Infrastructure

Clean Energy 2.2 2.0 6.3 4.9

Telecommunications 0.1 0.1 0.3 0.3

Insurance (*)

( 4.4 ) ( 5.7 ) ( 15.8 ) ( 18.2 )

Life Sciences — — 0.1 0.1

Spectrum 1.5 1.7

Other — — — —

Non-operating Corporate 0.1 0.1 0.1 0.1

Total $ 3.9 $ 4.3

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Three Months Ended March 31,

Capital Expenditures (*)

Infrastructure

Clean Energy 0.4 0.1 2.0 0.4

Insurance — 0.4 0.1 0.6

Life Sciences 0.2 —

Spectrum 1.4 2.7

Other — — 0.1 —

Non-operating Corporate — —

Total $ 3.2 $ 5.0

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

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUE

September 30, December 31,

2021 December 31,

Infrastructure

Insurance 4,616.0 4,423.0

Life Sciences 16.9 18.4

Other 34.9 36.1

Eliminations ( 98.3 ) ( 96.9 )

Total $ 52.7 $ 55.4

September 30, December 31,

2021 December 31,

Infrastructure

Clean Energy 130.5 142.8

Telecommunications 75.5 89.3

Insurance 5,752.7 5,611.9

$ 503.1 $ 494.8

Life Sciences 26.0 21.4

Spectrum 209.7 213.6

Insurance 5,627.0 5,854.0

Other 38.8 167.3

2 unchanged sentences

Total $ 6,406.0 $ 6,742.8

Basic and Diluted (Loss) Income Per Common Share

Basic and Diluted Income (Loss) Per Common Share

Earnings per share ("EPS") is calculated using the two-class method, which allocates earnings among common stock and participating securities to calculate EPS when an entity's capital structure includes either two or more classes of common stock or common stock and participating securities.

2 unchanged sentences

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

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

2,168,454 for outstanding warrants to purchase the Company's stock, 2,088,568 for Series A Peferred Stock and Series A-2 Prefered Stock.

The Company had zero dilutive common share equivalents during the three and nine months ended September 30, 2020, and three and nine months ended September 30, 2019 due to the results being a loss from continuing operations and discontinued operations, net of tax.

The Company had no dilutive common shares equivalents during the three and nine months ended September 30, 2019 and the three and nine months ended September 30, 2019 due to the results of operations being a loss from continuing operations.

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

The Company had no dilutive common share equivalents during the three months ended March 31, 2021 and 2020 due to results from continuing operations being a loss, net of tax.

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

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUE

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

(Loss) income from continuing operations $ ( 21.6 ) $ ( 8.9 ) $ ( 34.1 ) $ 8.3

Income (loss) attributable to noncontrolling interest and redeemable noncontrolling interest 4.3 1.6 ( 8.5 ) 3.8

(Loss) income from continuing operations attributable to the Company ( 17.3 ) ( 7.3 ) ( 42.6 ) 12.1

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Three Months Ended March 31,

Loss from continuing operations $ ( 42.9 ) $ ( 29.9 )

Loss attributable to noncontrolling interest and redeemable noncontrolling interest 2.8 2.8

Loss from continuing operations attributable to the Company ( 40.1 ) ( 27.1 )

Preferred dividends, deemed dividends and repurchase gains 0.4 0.4

(Loss) income from continuing operations attributable to HC2 common stockholders ( 17.7 ) ( 7.7 ) ( 43.8 ) 12.5

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

— 0.6 ( 60.0 ) ( 13.7 )

(Loss) income attributable to noncontrolling interest and redeemable noncontrolling interest — ( 0.4 ) 15.3 1.1

Loss from continuing operations attributable to HC2 common stockholders ( 40.5 ) ( 27.5 )

Income (loss) from discontinued operations 51.9 ( 71.1 )

Income (loss) attributable to noncontrolling interest and redeemable noncontrolling interest 0.8 15.1

Income (loss) from discontinued operations, net of tax and noncontrolling interest 52.7 ( 56.0 )

Net (loss) income attributable to common stock and participating preferred stockholders $ ( 17.7 ) $ ( 7.5 ) $ ( 88.5 ) $ ( 0.1 )

Net income (loss) attributable to common stock and participating preferred stockholders $ 12.2 $ ( 83.5 )

Earnings allocable to common shares:

4 unchanged sentences

Total 79.9 45.9

Percentage of income (loss) allocated to:

Percentage of loss allocated to:

Common stock 96.2 % 100.0 %

2 unchanged sentences

Numerator for earnings per share, basic:

Net income (loss) from continuing operations attributable to common stock, basic $ ( 17.6 ) $ ( 7.7 ) $ ( 43.7 ) $ 12.5

Net income (loss) from discontinued operations attributable to common stock, basic and diluted $ — $ 0.2 $ ( 44.7 ) $ ( 12.6 )

Net income (loss) attributable to common stock and participating preferred stockholders, basic and diluted $ ( 17.6 ) $ ( 7.5 ) $ ( 88.3 ) $ ( 0.1 )

Net loss from continuing operations attributable to common stock, basic $ ( 39.0 ) $ ( 27.5 )

Net income (loss) from discontinued operations attributable to common stock, basic $ 50.7 $ ( 56.0 )

Net income (loss) attributable to common stock, basic $ 11.7 $ ( 83.5 )

Earnings allocable to common shares, diluted:

Numerator for earnings per share, diluted

Effect of assumed shares for stock options, restricted shares and convertible instruments $ — $ — $ — $ 1.6

Net income (loss) from continuing operations attributable to common stock, diluted $ ( 17.6 ) $ ( 7.7 ) $ ( 43.7 ) $ 14.1

Net income (loss) from discontinued operations attributable to common stock, diluted $ — $ 0.2 $ ( 44.7 ) $ ( 12.6 )

Net income (loss) attributable to common stock and participating preferred stockholders, diluted $ ( 17.6 ) $ ( 7.5 ) $ ( 88.3 ) $ 1.5

Effect of assumed shares under the if-converted method for convertible instruments $ — $ —

Net loss from continuing operations attributable to common stock, basic $ ( 39.0 ) $ ( 27.5 )

Net income (loss) from discontinued operations attributable to common stock, basic $ 50.7 $ ( 56.0 )

Net income (loss) attributable to common stock, basic $ 11.7 $ ( 83.5 )

Denominator for basic and dilutive earnings per share

2 unchanged sentences

Weighted average common shares outstanding - diluted 76.9 45.9

(Loss) income per share - continuing operations

$ ( 0.38 ) $ ( 0.16 ) $ ( 0.94 ) $ 0.28

$ ( 0.38 ) $ ( 0.16 ) $ ( 0.94 ) $ 0.23

Loss per share - Discontinued operations

$ — $ — $ ( 0.95 ) $ ( 0.28 )

$ — $ — $ ( 0.95 ) $ ( 0.21 )

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

$ ( 0.38 ) $ ( 0.16 ) $ ( 1.89 ) $ —

$ ( 0.38 ) $ ( 0.16 ) $ ( 1.89 ) $ 0.02

Loss per share - continuing operations

Basic $ ( 0.51 ) $ ( 0.60 )

Diluted $ ( 0.51 ) $ ( 0.60 )

Income (loss) per share - discontinued operations

Basic $ 0.66 $ ( 1.22 )

Diluted $ 0.66 $ ( 1.22 )

Income (loss) per share - Net income (loss) attributable to common stock and participating preferred stockholders

Basic $ 0.15 $ ( 1.82 )

Diluted $ 0.15 $ ( 1.82 )

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUE

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Subsequent Events

On October 2, 2020 a subsidiary of the Company entered into a stock purchase agreement with TransWorld Holdings Inc, formerly GoIP Global Inc, to sell 100 % of ICS and its subsidiary.

As of September 30, 2020, the ICS entity did not meet the criteria for held-for-sale under ASC 360, as approval from the Board of Directors was sought by management, and obtained subsequent to September 30, 2020.

The transaction closed on October 31, 2020.

On October 7, 2020, the Company publicly filed a prospectus supplement to the prospectus dated September 9, 2020 in connection with the Rights Offering, detailing the rights for voting shareholders to purchase up to 28,634,361 shares of common stock.

In preparing the unaudited Condensed Consolidated Financial Statements, the Company has evaluated events and transactions occurring after March 31, 2021 for recognition and/or disclosure purposes.

Based on this evaluation, there were no subsequent events from March 31, 2021 through the date the financial statements were issued.

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

What changed 10-Q

Item 1. Financial Statements