What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-11-04 compared with 2021-08-06 · 446 added, 324 removed, 938 unchanged (45% of the section changed)

Financial Statements

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

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

2021 2020 2021 2020

5 unchanged sentences

Depreciation and amortization 8.9 4.5 17.6 13.3

Other operating (income) loss ( 0.2 ) ( 2.3 ) 0.2 ( 2.1 )

Loss from operations ( 7.7 ) ( 8.9 ) ( 18.6 ) ( 22.5 )

Other operating loss 0.8 9.4 1.0 7.3

Income (loss) from operations 1.1 ( 16.1 ) ( 17.5 ) ( 38.6 )

Other (expense) income:

1 unchanged sentence

Loss on early extinguishment or restructuring of debt ( 0.1 ) — ( 12.5 ) ( 9.2 )

Income (loss) from equity investees 0.2 ( 0.2 ) ( 1.9 ) ( 2.7 )

Loss from equity investees ( 2.9 ) ( 1.3 ) ( 4.8 ) ( 4.0 )

Other income 0.6 6.9 4.4 73.0

(Loss) income from continuing operations before income taxes ( 21.1 ) 33.0 ( 62.9 ) ( 6.6 )

Loss from continuing operations before income taxes ( 14.1 ) ( 28.4 ) ( 77.0 ) ( 35.0 )

Income tax expense ( 0.1 ) ( 1.4 ) ( 3.8 ) ( 3.7 )

(Loss) income from continuing operations ( 23.7 ) 21.0 ( 66.6 ) ( 8.9 )

(Loss) income from discontinued operations (including gain on disposal of $ 40.4 million and loss on disposal of $ 39.3 million for the six months ended June 30, 2021 and 2020, respectively)

Loss from continuing operations ( 14.2 ) ( 29.8 ) ( 80.8 ) ( 38.7 )

(Loss) income from discontinued operations (including loss on sale of $ 200.3 million for the three months ended September 30, 2021 and net loss on sales of $ 159.9 million and $ 39.3 million for the nine months ended September 30, 2021 and 2020, respectively)

( 200.3 ) 8.2 ( 149.9 ) ( 55.4 )

Net (loss) income ( 25.2 ) 28.5 ( 16.2 ) ( 72.5 )

Net income (loss) attributable to noncontrolling interest and redeemable noncontrolling interest 1.7 ( 15.4 ) 5.3 2.5

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

Net loss ( 214.5 ) ( 21.6 ) ( 230.7 ) ( 94.1 )

Net loss attributable to noncontrolling interest and redeemable noncontrolling interest 2.6 4.3 7.9 6.8

Net loss attributable to INNOVATE Corp.

( 211.9 ) ( 17.3 ) ( 222.8 ) ( 87.3 )

Preferred dividends and deemed dividends from conversions 1.1 0.4 1.7 1.2

Net (loss) income attributable to common stock and participating preferred stockholders $ ( 23.7 ) $ 12.7 $ ( 11.5 ) $ ( 70.8 )

(Loss) income per common share - continuing operations

Net loss attributable to common stock and participating preferred stockholders $ ( 213.0 ) $ ( 17.7 ) $ ( 224.5 ) $ ( 88.5 )

Loss per common share - continuing operations

Basic $ ( 0.16 ) $ ( 0.57 ) $ ( 0.98 ) $ ( 1.06 )

Diluted $ ( 0.16 ) $ ( 0.57 ) $ ( 0.98 ) $ ( 1.06 )

(Loss) income per common share - discontinued operations

Loss per common share - discontinued operations

Basic $ ( 2.59 ) $ 0.20 $ ( 1.94 ) $ ( 0.83 )

Diluted $ ( 2.59 ) $ 0.20 $ ( 1.94 ) $ ( 0.83 )

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

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

Basic $ ( 2.75 ) $ ( 0.37 ) $ ( 2.92 ) $ ( 1.89 )

4 unchanged sentences

See notes to Condensed Consolidated Financial Statements

HC2 HOLDINGS, INC.

INNOVATE CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited, in millions)

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

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

2021 2020 2021 2020

Net (loss) income $ ( 25.2 ) $ 28.5 $ ( 16.2 ) $ ( 72.5 )

Other comprehensive income (loss)

Net loss $ ( 214.5 ) $ ( 21.6 ) $ ( 230.7 ) $ ( 94.1 )

Other comprehensive (loss) income

Foreign currency translation adjustment ( 1.2 ) ( 0.5 ) ( 2.4 ) 3.5

Unrealized income (loss) on available-for-sale securities 123.5 283.8 ( 57.7 ) 7.8

Unrealized (loss) income on available-for-sale securities — 65.0 ( 57.7 ) 72.8

Dispositions ( 334.0 ) — ( 334.0 ) 22.1

Other comprehensive income (loss) 123.1 286.9 ( 58.9 ) 33.9

Comprehensive income (loss) 97.9 315.4 ( 75.1 ) ( 38.6 )

Other comprehensive (loss) income ( 335.2 ) 64.5 ( 394.1 ) 98.4

Comprehensive (loss) income ( 549.7 ) 42.9 ( 624.8 ) 4.3

Comprehensive (loss) income attributable to noncontrolling interests and redeemable noncontrolling interests ( 2.6 ) ( 4.6 ) ( 8.0 ) 2.7

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

Comprehensive (loss) income attributable to INNOVATE Corp.

$ ( 552.3 ) $ 38.3 $ ( 632.8 ) $ 7.0

See notes to Condensed Consolidated Financial Statements

HC2 HOLDINGS, INC.

INNOVATE CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in millions, except share amounts)

September 30,

2021 December 31,

2 unchanged sentences

Accounts receivable, net 425.0 184.7

Costs and recognized earnings in excess of billings on uncompleted contracts 63.7 55.6

Contract assets 72.5 55.6

Inventory 17.4 9.9

Restricted cash 8.6 1.5

Assets held for sale 2.2 5,942.1

8 unchanged sentences

Total assets $ 1,221.5 $ 6,742.8

Liabilities, temporary equity and stockholders’ equity

Liabilities, temporary equity and stockholders’ (deficit) equity

Current liabilities

2 unchanged sentences

Current portion of debt obligations 71.1 433.6

Billings in excess of costs and recognized earnings on uncompleted contracts 146.8 52.2

Contract liabilities 161.4 52.2

Liabilities held for sale — 5,306.7

10 unchanged sentences

Total temporary equity 70.3 15.7

Stockholders’ equity

Stockholders’ (deficit) equity

Common stock, $ 0.001 par value

Shares authorized:

160,000,000 at June 30, 2021 and December 31, 2020, respectively

160,000,000 at September 30, 2021 and December 31, 2020, respectively

Shares issued:

79,208,998 and 77,836,586 at June 30, 2021 and December 31, 2020, respectively

79,157,332 and 77,836,586 at September 30, 2021 and December 31, 2020, respectively

Shares outstanding:

77,823,942 and 76,726,835 at June 30, 2021 and December 31, 2020, respectively

77,768,116 and 76,726,835 at September 30, 2021 and December 31, 2020, respectively

Additional paid-in capital 331.2 355.7

Treasury stock, at cost:

1,385,056 and 1,109,751 shares at June 30, 2021 and December 31, 2020, respectively

1,389,216 and 1,109,751 shares at September 30, 2021 and December 31, 2020, respectively

( 5.2 ) ( 4.2 )

1 unchanged sentence

Accumulated other comprehensive income 3.2 396.9

Total HC2 Holdings, Inc.

stockholders’ equity 488.3 559.8

Total INNOVATE Corp.

stockholders’ (deficit) equity ( 82.2 ) 559.8

Noncontrolling interest 27.5 40.4

Total stockholders’ equity 511.5 600.2

Total liabilities, temporary equity and stockholders’ equity $ 6,935.9 $ 6,742.8

Total stockholders’ (deficit) equity ( 54.7 ) 600.2

Total liabilities, temporary equity and stockholders’ (deficit) equity $ 1,221.5 $ 6,742.8

See notes to Condensed Consolidated Financial Statements

HC2 HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

INNOVATE CORP.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY

(Unaudited, in millions)

1 unchanged sentence

Capital Treasury

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

Interest Total Stockholders’ Equity Temporary Equity

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

Interest Total Stockholders’ Equity (Deficit) Temporary Equity

Shares Amount

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

Balance as of June 30, 2021 77.8 $ 0.1 $ 354.8 $ ( 5.2 ) $ ( 199.6 ) $ 338.2 $ 488.3 $ 23.2 $ 511.5 $ 6.2

Share-based compensation — — 0.4 — — — 0.4 — 0.4 —

1 unchanged sentence

Preferred stock dividend — — ( 1.1 ) — — — ( 1.1 ) — ( 1.1 ) —

Issuance of common stock 0.2 — 0.5 — — — 0.5 — 0.5 —

Issuance of preferred stock — — — — — — — — — 19.1

Issuance of redeemable noncontrolling interest — — — — — — — — — 40.9

Purchase of preferred stock by subsidiary — — ( 0.1 ) — — — ( 0.1 ) — ( 0.1 ) —

Redemption of Series A and A-2 Preferred Stock — — — — — — — — — ( 10.4 )

Transactions with noncontrolling interests — — ( 22.4 ) — — — ( 22.4 ) 5.3 ( 17.1 ) 5.6

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

Net loss — — — — ( 211.9 ) — ( 211.9 ) ( 1.0 ) ( 212.9 ) ( 1.6 )

Other comprehensive income — — — — — 123.1 123.1 — 123.1 —

Balance as of June 30, 2021 77.8 $ 0.1 $ 354.8 $ ( 5.2 ) $ ( 199.6 ) $ 338.2 $ 488.3 $ 23.2 $ 511.5 $ 6.2

Other comprehensive loss — — — — — ( 335.0 ) ( 335.0 ) — ( 335.0 ) —

Balance as of September 30, 2021 77.8 $ 0.1 $ 331.2 $ ( 5.2 ) $ ( 411.5 ) $ 3.2 $ ( 82.2 ) $ 27.5 $ ( 54.7 ) $ 70.3

Common Stock Additional

Capital Treasury

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

Interest Total Stockholders’ Equity Temporary Equity

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

Interest Total Stockholders’ Equity (Deficit) Temporary Equity

Shares Amount

5 unchanged sentences

Issuance of common stock 1.1 — 0.7 — — — 0.7 — 0.7 —

Issuance of preferred stock — — — — — — — — — 19.1

Issuance of redeemable noncontrolling interest — — — — — — — — — 40.9

Purchase of preferred stock by subsidiary — — ( 0.3 ) — — — ( 0.3 ) — ( 0.3 ) —

4 unchanged sentences

Other comprehensive loss — — — — — ( 393.7 ) ( 393.7 ) ( 0.1 ) ( 393.8 ) —

Balance as of June 30, 2021 77.8 $ 0.1 $ 354.8 $ ( 5.2 ) $ ( 199.6 ) $ 338.2 $ 488.3 $ 23.2 $ 511.5 $ 6.2

Balance as of September 30, 2021 77.8 $ 0.1 $ 331.2 $ ( 5.2 ) $ ( 411.5 ) $ 3.2 $ ( 82.2 ) $ 27.5 $ ( 54.7 ) $ 70.3

See notes to Condensed Consolidated Financial Statements

HC2 HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

INNOVATE CORP.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY

(Unaudited, in millions)

1 unchanged sentence

Capital Treasury

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

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

Interest Total Stockholders’ Equity Temporary Equity

Shares Amount

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

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 —

2 unchanged sentences

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

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

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

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

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

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

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

Common Stock Additional

Capital Treasury

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

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

Interest Total Stockholders’ Equity Temporary Equity

6 unchanged sentences

Issuance of common stock 1.6 — — — — — — — — —

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

Transactions with noncontrolling interests — — 6.9 — — — 6.9 ( 57.3 ) ( 50.4 ) ( 4.0 )

Other — — 1.7 — — — 1.7 — 1.7 —

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

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.

INNOVATE CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in millions)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities

Net loss $ ( 230.7 ) $ ( 94.1 )

Income (loss) from discontinued operations, net of tax 50.4 ( 63.6 )

Loss from discontinued operations, net of tax ( 149.9 ) ( 55.4 )

( 80.8 ) ( 38.7 )

3 unchanged sentences

Amortization of deferred financing costs and debt discount 9.4 10.6

Amortization of discount on investments, net — ( 0.1 )

Loss on extinguishment of debt 12.5 9.2

6 unchanged sentences

Accounts receivable ( 127.9 ) 41.4

Costs and recognized earnings in excess of billings on uncompleted contracts ( 6.1 ) ( 7.2 )

Contract assets on uncompleted contracts ( 15.0 ) 2.3

Other current assets ( 0.4 ) ( 10.7 )

2 unchanged sentences

Accrued liabilities 6.7 27.4

Billings in excess of costs and recognized earnings on uncompleted contracts 39.6 17.5

Contract liabilities on uncompleted contracts 54.2 9.7

Other current liabilities ( 2.8 ) ( 21.0 )

7 unchanged sentences

Sale of investments — 0.7

Sale of equity method investments — 85.5

Cash received from dispositions, net of cash disposed 74.0 144.0

Extraordinary dividend received in business disposition 62.5 —

Cash paid for acquisitions, net of cash acquired ( 128.5 ) —

Other investing activities 0.9 5.2

Cash (used in) provided by investing activities ( 62.8 ) 223.6

Cash (used in) provided by discontinued investing activities 31.6 ( 84.7 )

Cash provided by investing activities 6.4 221.4

Cash used in discontinued investing activities ( 221.3 ) ( 151.0 )

Cash (used in) provided by continuing investing activities ( 214.9 ) 70.4

6 unchanged sentences

Other financing activities ( 3.4 ) ( 4.8 )

Cash (used in) provided by financing activities 73.6 ( 211.2 )

Cash (used in) provided by discontinued financing activities ( 7.6 ) ( 11.4 )

Cash (used in) provided by continuing financing activities 66.0 ( 222.6 )

Cash provided by (used in) financing activities 62.2 ( 205.7 )

Cash used in discontinued financing activities ( 7.6 ) ( 18.1 )

Cash provided by (used in) continuing financing activities 54.6 ( 223.8 )

Effects of exchange rate changes on cash, cash equivalents and restricted cash ( 1.7 ) 0.7

Net increase (decrease) in cash and cash equivalents, including cash classified within assets held for sale 33.7 ( 35.3 )

Net increase (decrease) in cash and cash equivalents from discontinued operations 58.3 ( 35.7 )

Net decrease in cash and cash equivalents, including restricted cash and cash classified within assets held for sale ( 176.6 ) ( 75.3 )

Net decrease in cash and cash equivalents from discontinued operations ( 195.4 ) ( 80.4 )

Net change in cash, cash equivalents and restricted cash 18.8 5.1

2 unchanged sentences

See notes to Condensed Consolidated Financial Statements

HC2 HOLDINGS, INC.

INNOVATE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Organization and Business

HC2 Holdings, Inc.

("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.

INNOVATE Corp.

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

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

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

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

The Company currently has 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.

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

The Company currently has three reportable segments, plus our Other segment, based on management’s organization of the enterprise:

Infrastructure, Life Sciences, Spectrum, and Other which includes businesses that do not meet the separately reportable segment thresholds.

Our Infrastructure segment is comprised of DBM Global Inc.

17 unchanged sentences

("Network"), operates Azteca America, a Spanish-language broadcast network offering high quality Hispanic content to a diverse demographic across the United States.

The Company maintains an approximately 98 % controlling interest in HC2 Broadcasting and maintains a controlling interest of 76 %, inclusive of approximately 15 % proxy rights from minority holders of DTV America Corporation ("DTV").

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

("CIG") and its wholly-owned subsidiaries Continental General Insurance Company ("CGI") and Continental LTC, Inc.

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 which was sold subsequent to quarter end on July 1, 2021.

The Company maintains a 98 % controlling interest in HC2 Broadcasting and maintains a controlling interest of approximately 76 %, inclusive of approximately 10 % proxy rights from minority holders of DTV America Corporation ("DTV").

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

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

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

GMH results include the current and prior year equity investment in Huawei Marine Networks Co., Limited (“HMN”), its 19 % equity method investment, 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.

("Beyond6"), Continental Insurance Group ("CIG") and PTGi International Carrier Services, Inc.

and its subsidiaries ("ICS").

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Summary of Significant Accounting Policies

2 unchanged sentences

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

As of June 30, 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) .

For the nine months ended September 30, 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.

INNOVATE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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, 2020, filed with the SEC on March 10, 2021.

The results of operations for the three and six months ended June 30, 2021 are not necessarily indicative of the results for any subsequent periods or the entire fiscal year ending December 31, 2021.

The results of operations for the three and nine months ended September 30, 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 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.

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

The ability of INNOVATE’s subsidiaries to make distributions to INNOVATE 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.

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

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

2 unchanged sentences

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 and any potential prolonging or worsening of the pandemic due to COVID-19 variants.

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.

We are unable to predict the impact that COVID-19 will have on the Company's 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.

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

HC2 HOLDINGS, INC.

INNOVATE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

1 unchanged sentence

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

September 30,

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

17 unchanged sentences

Investments included in accounts payable $ — $ 10.0

Issuance of preferred stock $ 19.1 $ —

Issuance of redeemable noncontrolling interest $ 40.9 $ —

Extinguishment of convertible note in exchange $ 51.8 $ —

12 unchanged sentences

Operating Segment and Related Information for further information;

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

1 unchanged sentence

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

• Certain 2021 statement of cash flow items have been reclassified to conform to the current financial statement presentation.

These reclassifications have no effect on previously reported net income.

HC2 HOLDINGS, INC.

INNOVATE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

25 unchanged sentences

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

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

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

2021 2020 2021 2020

2 unchanged sentences

Net investment income — 46.7 92.4 147.1

Realized/unrealized (losses) gains on investments ( 4.4 ) ( 0.5 ) 5.1 ( 19.5 )

Realized/unrealized gains (losses) on investments — 0.7 5.1 ( 18.8 )

Total revenue — 222.8 154.9 693.5

3 unchanged sentences

Depreciation and amortization — ( 2.0 ) ( 11.0 ) ( 5.3 )

(Loss) income from operations ( 2.1 ) 13.3 18.0 ( 18.0 )

Income (loss) from operations — 14.0 18.0 ( 4.1 )

Interest expense — ( 1.9 ) ( 0.5 ) ( 9.8 )

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

Loss on sale and liquidation of subsidiaries ( 200.3 ) — ( 159.9 ) ( 39.3 )

Income from equity investees — — — 0.5

Other (loss) income — ( 0.2 ) ( 3.1 ) 1.7

Pre-tax income (loss) from discontinued operations ( 2.2 ) 10.8 54.8 ( 63.1 )

Income tax benefit (expense) 0.7 ( 3.3 ) ( 4.4 ) ( 0.5 )

Other loss — ( 3.8 ) ( 3.1 ) ( 2.0 )

Pre-tax (loss) income from discontinued operations ( 200.3 ) 8.3 ( 145.5 ) ( 54.7 )

Income tax expense — ( 0.1 ) ( 4.4 ) ( 0.7 )

(Loss) income from discontinued operations $ ( 200.3 ) $ 8.2 $ ( 149.9 ) $ ( 55.4 )

HC2 HOLDINGS, INC.

INNOVATE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

On March 29, 2021, the Company announced the entry into a definitive agreement (the "Stock Purchase Agreement") to sell its Insurance segment to Continental General Holdings LLC, an entity controlled by Michael Gorzynski, a director of the Company and, as of June 30, 2021, 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 $ 90.0 million, inclusive of $ 65.0 million in cash plus certain assets of CGI.

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 closed on July 1, 2021, subsequent to quarter end.

Subsequent Events for further information.

The sale of CIG closed on July 1, 2021 to Continental General Holdings LLC, an entity controlled by Michael Gorzynski, a director of the Company and, as of September 30, 2021, 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 Insurance segment, which primarily consisted of a closed block of long-term care insurance, had a book value, inclusive of intercompany eliminations, at the time of the sale of $ 544.0 million, inclusive of $ 344.0 million of Accumulated other comprehensive income ("AOCI").

The carrying value of the Insurance segment at the time of sale excluded cash of $ 62.5 million and investments of $ 26.7 million which were distributed to the Company through an extraordinary dividend immediately prior to the sale.

The extraordinary dividend was approved by our domestic regulator in connection with the approval of the sale.

The amount included in AOCI was reversed from equity at the time of the sale and offset the loss recognized.

While several factors impacted the fair value of the Insurance segment at the end of 2019, following discussions with our domestic regulator, changes in the asset management fee arrangement and expectations of future dividends primarily and ultimately resulted in the full impairment of the goodwill associated with the Insurance segment during the year ended December 31, 2019.

While these factors did not have a major impact on the operations of the stand-alone business, they did have a significant impact on the economic benefit that could be realized by the Company.

As a result of the factors described above, combined with the risks associated with the long-term care insurance industry, the Company exited the segment and sold the business resulting in a $ 200.8 million loss on the sale of CIG.

The sale of GMSL closed on February 28, 2020.

3 unchanged sentences

The net proceeds from the sale of GMSL were used to repay $ 15.0 million of the then outstanding balance 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).

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 and six months ended June 30, 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 June 30, Six Months Ended June 30,

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 and nine months ended September 30, 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 September 30, Nine Months Ended September 30,

2021 2020 2021 2020

1 unchanged sentence

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

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 and six months ended June 30, 2021 and 2020, from continuing operations to discontinued operations on the Company’s Condensed Consolidated Statements of Operations:

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

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 and nine months ended September 30, 2021 and 2020, 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,

2021 2020 2021 2020

5 unchanged sentences

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.

INNOVATE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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 INNOVATE 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.

During the first quarter of 2021, the Company recognized a $ 39.2 million gain on the sale.

During the third quarter of 2021, as a result of releases of related escrows and hold backs, the Company recognized an additional $ 0.5 million gain on the sale.

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

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 for the three and six months ended June 30, 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 June 30, Six Months Ended June 30,

As a result of the repayment of $ 15.0 million Revolving Credit Agreement, the Company allocated the following interest and amortization of deferred financing costs and original issue discount for the three and nine months ended September 30, 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 September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Interest expense $ — $ 0.3 $ 0.1 $ 0.5

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 and six months ended June 30, 2021 and 2020, from continuing operations to discontinued operations on the Company’s Condensed Consolidated Statements of Operations:

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

Amortization of deferred financing costs and original issuance discount $ — $ 0.1 $ — $ 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 and nine months ended September 30, 2021 and 2020, 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,

2021 2020 2021 2020

1 unchanged sentence

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

INNOVATE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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

September 30,

2021 December 31,

25 unchanged sentences

Total liabilities held for sale $ — $ 5,306.7

In addition, as of June 30, 2021, the Company had $ 5.2 million of assets from its Spectrum segment classified as Assets held for sale in continuing operations related to certain station licenses and assets.

In addition, as of September 30, 2021, the Company had $ 0.7 million of assets from its Infrastructure segment classified as Assets held for sale in continuing operations.

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

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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

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

2021 2020 2021 2020

5 unchanged sentences

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

September 30,

2021 December 31,

5 unchanged sentences

Total accounts receivables with customers $ 414.6 $ 175.8

INNOVATE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Infrastructure Segment

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

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

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

2021 2020 2021 2020

11 unchanged sentences

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

September 30,

2021 December 31,

Costs and recognized earnings in excess of billings on uncompleted contracts $ 63.7 $ 55.6

Billings in excess of costs and recognized earnings on uncompleted contracts $ ( 146.8 ) $ ( 52.2 )

The change in contract assets is a result of the recording of $ 35.6 million of costs in excess of billings on uncompleted contracts driven by new commercial projects and $ 1.9 million of costs in excess of billings on uncompleted contracts for projects acquired in the Banker Steel acquisition, offset by $ 29.4 million of costs in excess of billings on uncompleted contracts transferred to receivables from contract assets recognized at the beginning of the period.

The change in contract liabilities is a result of periodic billing in excess of costs on uncompleted contracts of $ 114.4 million driven largely by new commercial projects and $ 55.0 million of billings in excess of costs on uncompleted contracts for projects acquired as a result of the Banker Steel acquisition, offset by revenue recognized that was included in the contract liability balance at the beginning of the period in the amount of $ 74.8 million.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Contract assets $ 72.5 $ 55.6

Contract liabilities $ ( 161.4 ) $ ( 52.2 )

The change in contract assets is a result of the recording of $ 47.7 million of contract assets on uncompleted contracts driven by new commercial projects and $ 1.9 million of contract assets on uncompleted contracts for projects acquired in the Banker Steel acquisition, offset by $ 32.7 million of contract assets on uncompleted contracts transferred to receivables from contract assets recognized at the beginning of the period.

The change in contract liabilities is a result of periodic contract liabilities on uncompleted contracts of $ 145.3 million driven largely by new commercial projects and $ 55.0 million of contract liabilities on uncompleted contracts for projects acquired as a result of the Banker Steel acquisition, offset by revenue recognized that was included in the contract liability balance at the beginning of the period in the amount of $ 91.1 million.

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

11 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.

INNOVATE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Life Sciences Segment

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

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

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

2021 2020 2021 2020

Systems revenue $ 1.2 $ — $ 1.2 $ —

Systems and consumables revenue $ 1.6 $ — $ 2.8 $ —

Total Life Sciences segment revenue $ 1.6 $ — $ 2.8 $ —

1 unchanged sentence

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

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

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

2021 2020 2021 2020

Network advertising $ 4.8 $ 4.0 $ 9.5 $ 9.0

Broadcast station $ 4.7 $ 4.0 $ 13.6 $ 11.3

Network advertising 4.2 4.1 13.7 13.1

Network distribution 0.8 1.0 2.5 3.0

6 unchanged sentences

On March 15, 2021, the Company announced that DBMG entered into an agreement to acquire 100 % of Banker Steel Holdco LLC ("Banker Steel") for $ 145.0 million, which closed on May 27, 2021.

The acquisition was financed with $ 64.1 million from a partial draw on a new $ 110.0 million revolving credit facility, $ 49.6 million of sellers' notes, $ 6.3 million of assumed debt of Banker Steel, and $ 25.0 million in cash received from HC2 in the settlement of certain intercompany balances.

The acquisition was financed with $ 64.1 million from a partial draw on a new $ 110.0 million revolving credit facility, $ 49.6 million of sellers' notes, $ 6.3 million of assumed debt of Banker Steel, and $ 25.0 million in cash received from INNOVATE in the settlement of certain intercompany balances.

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

5 unchanged sentences

and Lynchburg Freight and Specialty LLC.

The transaction was accounted for as business acquisition.

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

HC2 HOLDINGS, INC.

The transaction was accounted for as a business acquisition.

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

INNOVATE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

4 unchanged sentences

Gross consideration 145.0

Transaction costs 0.4

Seller transaction costs - assumed 0.4

Bankers debt - assumed 6.3

3 unchanged sentences

Accounts receivable, net 111.3

Costs recognized in earnings in excess of billings on uncompleted contracts 1.9

Contract assets 1.9

Assets held for sale 0.7

Inventory 5.7

Other current assets 1.6

5 unchanged sentences

Accounts Payable 39.1

Billings in excess of costs and recognized earnings on uncompleted contracts 55.0

Contract liabilities 55.0

Other current liabilities 30.3

14 unchanged sentences

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

The following schedule presents the unaudited results of operations data for the three and six months ended June 30, 2021 for Banker Steel since the date of acquisition (in millions):

HC2 HOLDINGS, INC.

The following schedule presents the unaudited results of operations data for the three and nine months ended September 30, 2021 for Banker Steel since the date of acquisition (in millions):

INNOVATE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Three Months Ended June 30, 2021 Six Months Ended June 30, 2021

Three Months Ended September 30, 2021 Nine Months Ended September 30, 2021

Revenue $ 114.3 $ 153.8

Net income from operations $ 6.0 $ 7.3

Net income attributable to HC2 Holdings $ 0.6 $ 0.6

Net income attributable to INNOVATE $ 3.9 $ 4.5

Pro Forma Adjusted Summary

1 unchanged sentence

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

Three Months Ended June 30, 2021 Three Months Ended June 30, 2020 Six Months Ended June 30, 2021 Six Months Ended June 30, 2020

Three Months Ended September 30, 2020 Nine Months Ended September 30, 2021 Nine Months Ended September 30, 2020

Revenue $ 271.3 $ 1,007.9 $ 788.3

Income (loss) from operations $ ( 5.8 ) $ ( 6.0 ) $ ( 22.5 )

Net income (loss) attributable to HC2 Holdings $ ( 15.7 ) $ 10.5 $ ( 2.6 ) $ ( 70.3 )

Net loss attributable to INNOVATE $ ( 9.0 ) $ ( 214.5 ) $ ( 79.3 )

Spectrum Segment

During the six months ended June 30, 2021, the Company increased its controlling interest in DTV from 60 %, inclusive of approximately 10 % proxy and voting rights from minority holders, to approximately 76 %, inclusive of 15 % proxy and voting rights from minority holders, from private purchases and proxy voting rights.

Insurance Segment

On March 29, 2021, the Company announced the entry into the Stock Purchase Agreement to sell its Insurance segment to Continental General Holdings LLC, an entity controlled by Michael Gorzynski, a director of the Company and, as of June 30, 2021, 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 $ 90.0 million, inclusive of $ 65.0 million in cash plus certain assets of CGI.

The sale closed on July 1, 2021, subsequent to quarter end.

Subsequent Events for further information.

During the nine months ended September 30, 2021, the Company increased its controlling interest in DTV from approximately 60 %, inclusive of approximately 10 % proxy and voting rights from minority holders, to approximately 76 %, inclusive of approximately 10 % proxy and voting rights from minority holders, from private purchases and proxy voting rights.

Other Segment

8 unchanged sentences

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

HC2 received net proceeds of approximately $ 100.8 million.

INNOVATE received net proceeds of approximately $ 100.8 million.

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.

3 unchanged sentences

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.

The sale valued HMN at $ 285 million, and GMH's 49 % stake, through New Saxon, at approximately $ 140 million.

INNOVATE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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

1 unchanged sentence

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.

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.

In the second quarter of 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.

5 unchanged sentences

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.

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 INNOVATE 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 INNOVATE 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.

During the first quarter of 2021, the Company recognized a $ 39.2 million gain on the sale.

During the third quarter of 2021, as a result of releases of related escrows and hold backs, the Company recognized an additional $ 0.5 million gain on the sale.

The extraordinary dividend was approved by our domestic regulator in connection with the approval of the sale.

The amount included in AOCI was reversed from equity at the time of the sale and offset the loss recognized.

While these factors did not have a major impact on the operations of the stand-alone business, they did have a significant impact on the economic benefit that could be realized by the Company.

Discontinued Operations for further details.

INNOVATE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Accounts Receivable, net

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

September 30,

2021 December 31,

5 unchanged sentences

Total $ 425.0 $ 184.7

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Property, Plant and Equipment, net

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

September 30,

2021 December 31,

2 unchanged sentences

Land 24.1 24.1

Plant and transportation equipment 10.6 4.4

Construction in progress 13.4 3.1

Plant and transportation equipment 8.3 4.4

Accumulated depreciation 90.1 73.5

Total $ 168.2 $ 112.8

Depreciation expense was $ 5.3 million and $ 5.2 million for the three months ended June 30, 2021 and 2020, respectively.

These amounts included $ 2.8 million and $ 2.3 million of depreciation expense recognized within cost of revenue for each of the three months ended June 30, 2021 and 2020.

Depreciation expense was $ 10.0 million and $ 10.3 million for the six months ended June 30, 2021 and 2020, respectively.

These amounts included $ 5.0 million and $ 4.6 million of depreciation expense recognized within cost of revenue for each of the six months ended June 30, 2021 and 2020.

Depreciation expense was $ 7.8 million and $ 5.3 million for the three months ended September 30, 2021 and 2020, respectively.

These amounts included $ 3.4 million and $ 2.3 million of depreciation expense recognized within cost of revenue for each of the three months ended September 30, 2021 and 2020.

Depreciation expense was $ 17.7 million and $ 15.6 million for the nine months ended September 30, 2021 and 2020, respectively.

These amounts included $ 8.4 million and $ 6.9 million of depreciation expense recognized within cost of revenue for each of the nine months ended September 30, 2021 and 2020.

Goodwill and Intangibles, net

5 unchanged sentences

Translation ( 0.3 ) — ( 0.3 )

Balance at June 30, 2021 $ 99.7 $ 21.4 $ 121.1

Balance at September 30, 2021 $ 101.4 $ 21.4 $ 122.8

Indefinite-lived Intangible Assets

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

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

FCC licenses $ 106.5 $ 113.0

Total $ 106.5 $ 113.0

For the six months ended June 30, 2021, FCC licenses decreased $ 5.5 million predominately related to the reclassification to held-for-sale as a result of our Spectrum segment entering into certain agreements to sell non-core FCC licenses.

HC2 HOLDINGS, INC.

For the nine months ended September 30, 2021, FCC licenses decreased $ 6.5 million predominantly as a result of our Spectrum segment selling non-core FCC licenses.

INNOVATE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

1 unchanged sentence

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 June 30, 2021 December 31, 2020

Weighted-Average Original Useful Life September 30, 2021 December 31, 2020

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

4 unchanged sentences

Total $ 134.6 $ ( 28.0 ) $ 106.6 $ 80.1 $ ( 21.0 ) $ 59.1

Amortization expense for definite lived intangible assets was $ 2.3 million and $ 1.5 million for the three months ended June 30, 2021 and 2020, respectively, and was included in Depreciation and amortization in our Condensed Consolidated Statements of Operations.

Amortization expense for definite lived intangible assets was $ 3.8 million and $ 3.0 million for the six months ended June 30, 2021 and 2020, respectively, and was included in Depreciation and amortization in our Condensed Consolidated Statements of Operations.

Amortization expense for definite lived intangible assets was $ 4.5 million and $ 1.5 million for the three months ended September 30, 2021 and 2020, respectively, and was included in Depreciation and amortization in our Condensed Consolidated Statements of Operations.

Amortization expense for definite lived intangible assets was $ 8.3 million and $ 4.6 million for the nine months ended September 30, 2021 and 2020, respectively, and was included in Depreciation and amortization in our Condensed Consolidated Statements of Operations.

For the nine months ended September 30, 2021, FCC licenses decreased $ 7.6 million predominantly as a result of our Spectrum segment selling a non-core channel sharing arrangement.

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):

2 unchanged sentences

Total $ 106.6

HC2 HOLDINGS, INC.

INNOVATE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

1 unchanged sentence

Debt obligations consist of the following (in millions):

September 30,

2021 December 31,

2 unchanged sentences

LIBOR plus 1.50 % Line of Credit

LIBOR plus 3.25 % Note, due 2026

LIBOR plus 2.15 % Line of Credit

3.25 % Note due 2026

PRIME minus 1.10 % Line of Credit

4.00 % Note due 2024

8.00 % Note due 2024

Other, various maturity dates 6.3 —

13 unchanged sentences

Debt obligations $ 602.8 $ 127.9

approximately

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

18 unchanged sentences

The extinguishment of the Revolving Line and the TWC Loan yielded a loss on extinguishment of $ 1.5 million included in Loss on early extinguishment or restructuring of debt in the Condensed Consolidated Statement of Operations.

HC2 HOLDINGS, INC.

INNOVATE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

On August 30, 2021, HC2 Broadcasting repurchased $ 1.0 million of DTV's outstanding notes payable, inclusive of accrued interest, to certain institutional investors.

Also on August 30, 2021, DTV extended its remaining outstanding notes by 60 days, and subsequent to quarter end, HC2 Broadcasting repurchased the remaining DTV outstanding Secured Notes.

Subsequent Events for further information.

Non-Operating Corporate

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").

On February 1, 2021, INNOVATE 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").

15 unchanged sentences

The 2026 Convertible Notes have an effective interest rate of 3.21 %, which reflects the $ 12.3 million premium and $ 1.1 million of deferred financing fees.

At June 30, 2021, the 2026 Convertible Notes had a carrying value of $ 62.2 million and an unamortized premium of $ 11.4 million.

Based on the closing price of our common stock of $ 3.98 on June 30, 2021, the if-converted value of the 2026 Convertible Notes did not exceed its principal value.

For the six months ended June 30, 2021, interest cost recognized for the period relating to both the contractual interest coupon and amortization of discount net of premium was $ 1.6 million and $ 0.8 million, respectively.

At September 30, 2021, the 2026 Convertible Notes had a carrying value of $ 61.7 million and an unamortized premium of $ 10.9 million.

Based on the closing price of our common stock of $ 4.10 on September 30, 2021, the if-converted value of the 2026 Convertible Notes did not exceed its principal value.

For the nine months ended September 30, 2021, interest cost recognized for the period relating to both the contractual interest coupon and amortization of discount net of premium was $ 2.6 million and $ 1.3 million, respectively.

Line of Credit

2 unchanged sentences

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

In May 2021, HC2 drew $ 5.0 million of the Revolving Credit Agreement.

The Company used the proceeds to fund the redemption of the Company's Series A and A-2 Preferred Stock.

HC2 is in compliance with its debt covenants as of June 30, 2021.

In May 2021, INNOVATE drew $ 5.0 million under the Revolving Credit Agreement.

The Company used the proceeds to fund a portion of the redemption of the Company's Series A and A-2 Preferred Stock.

INNOVATE is in compliance with its debt covenants as of September 30, 2021.

INNOVATE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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:

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Contract assets on uncompleted contracts and contract liabilities and recognized earnings on uncompleted contracts consist of the following:

September 30,

2021 December 31,

2 unchanged sentences

2,118.6 891.9

Less progress billings 1,948.7 888.5

progress billings 2,207.5 888.5

$ ( 88.9 ) $ 3.4

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 $ 63.7 $ 55.6

Billings in excess of costs and recognized earnings on uncompleted contracts ( 146.8 ) ( 52.2 )

Contract assets on uncompleted contracts $ 72.5 $ 55.6

Contract liabilities on uncompleted contracts ( 161.4 ) ( 52.2 )

$ ( 88.9 ) $ 3.4

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

June 30, 2021 December 31, 2020

Alternative Equity

September 30, 2021 December 31, 2020

Alternative (1)

Method Total Measurement

Alternative Equity

Alternative (1)

Common stock $ — $ 2.4 $ 2.4 $ — $ 2.5 $ 2.5

1 unchanged sentence

Fixed maturities 0.5 — 0.5 0.5 — 0.5

Other 11.3 26.7 38.0 11.3 25.7 37.0

Put option 11.3 — 11.3 11.3 — 11.3

Equity method securities — 25.7 25.7 — 25.7 25.7

Total $ 11.8 $ 38.1 $ 49.9 $ 11.8 $ 43.6 $ 55.4

(1) The Company accounts for its equity securities without readily determinable fair values under the measurement alternative election of ASC 321, whereby the Company can elect to measure an equity security without a readily determinable fair value, that does not qualify for the practical expedient to estimate fair value (net asset value), at its cost minus impairment, if any .

Fair Value of Financial Instruments Not Measured at Fair Value

1 unchanged sentence

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

June 30, 2021 Fair Value Measurement Using:

September 30, 2021 Fair Value Measurement Using:

Carrying Value Estimated Fair Value Level 1 Level 2 Level 3

4 unchanged sentences

Total liabilities not accounted for at fair value $ 673.9 $ 689.4 $ — $ 689.4 $ —

INNOVATE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

December 31, 2020 Fair Value Measurement Using:

9 unchanged sentences

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):

September 30,

2021 December 31,

4 unchanged sentences

Accrued liabilities consist of the following (in millions):

September 30,

2021 December 31,

6 unchanged sentences

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

September 30,

2021 December 31,

2 unchanged sentences

Total other non-current liabilities $ 61.7 $ 39.8

INNOVATE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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

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

As of June 30, 2021 and December 31, 2020, lease right-of-use assets and lease liabilities consist of the following (in millions):

As of September 30, 2021 and December 31, 2020, lease right-of-use assets and lease liabilities consist of the following (in millions):

September 30,

2021 December 31,

9 unchanged sentences

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

This information is presented as of, and for the three and six months ended June 30, 2021 and 2020.

This information is presented as of, and for the three and nine months ended September 30, 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 and six months ended June 30, 2021 and 2020 (in millions):

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

The following table summarizes the components of lease expense for the three and nine months ended September 30, 2021 and 2020 (in millions):

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

2021 2020 2021 2020

6 unchanged sentences

Total lease cost $ 8.2 $ 7.1 $ 16.8 $ 15.2

Cash flow information related to leases for the three and six months ended June 30, 2021and 2020 is as follows (in millions):

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

Cash flow information related to leases for the three and nine months ended September 30, 2021and 2020 is as follows (in millions):

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

2021 2020 2021 2020

6 unchanged sentences

Operating leases $ 1.7 $ 3.5 $ 42.9 $ 15.6

As of June 30, 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:

INNOVATE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

As of September 30, 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:

September 30,

2021 December 31,

3 unchanged sentences

Weighted-average discount rate - finance lease 5.2 % 9.0 %

As of June 30, 2021, undiscounted cash flows for finance and operating leases are as follows (in millions):

As of September 30, 2021, undiscounted cash flows for finance and operating leases are as follows (in millions):

Leases Finance

5 unchanged sentences

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 was an expense of $ 2.6 million and $ 12.0 million for the three months ended June 30, 2021 and 2020, respectively.

The income tax expense recorded for the three months ended June 30, 2021 primarily relates to the projected expense as calculated under ASC 740 for tax paying entities.

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

Income tax was an expense of $ 0.1 million and $ 1.4 million for the three months ended September 30, 2021 and 2020, respectively.

The income tax expense recorded for the three months ended September 30, 2021 primarily relates to the projected expense as calculated under ASC 740 for tax paying entities.

Additionally, the tax benefits associated with losses generated by INNOVATE Corp.'s U.S.

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 June 30, 2020 primarily relates to tax expense incurred in China from the partial sale of HMN and projected expense as calculated under ASC 740 for tax paying entities.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Income tax was an expense of $ 3.7 million and $ 2.3 million for the six months ended June 30, 2021 and 2020, respectively.

The income tax expense recorded for the six months ended June 30, 2021 primarily relates to the projected expense as calculated under ASC 740 for tax paying entities.

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

The income tax expense recorded for the three months ended September 30, 2020 primarily relates to the projected expense as calculated under ASC 740 for tax paying entities.

Additionally, the tax benefits associated with losses generated by INNOVATE Corp.'s U.S.

The income tax expense recorded for the six months ended June 30, 2020 primarily relates to tax expense incurred in China from the partial sale of HMN and projected expense as calculated under ASC 740 for tax paying entities which was mostly offset by a tax benefit from the carryback of net operating losses at the Insurance segment as a result of the enactment of the CARES Act.

Income tax was an expense of $ 3.8 million and $ 3.7 million for the nine months ended September 30, 2021 and 2020, respectively.

The income tax expense recorded for the nine months ended September 30, 2021 primarily relates to the projected expense as calculated under ASC 740 for tax paying entities.

Additionally, the tax benefits associated with losses generated by INNOVATE Corp.'s U.S.

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 tax paying entities which was mostly offset by a tax benefit from the carryback of net operating losses at the Insurance segment as a result of the enactment of the CARES Act.

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 June 30, 2021, the Company expects that approximately $ 96.0 million of the gross U.S.

Based on estimates as of September 30, 2021, the Company expects that approximately $ 101.5 million of the gross U.S.

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

1 unchanged sentence

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.

net operating loss carryforwards from its subsidiaries that do not qualify to be included in INNOVATE Corp.'s U.S.

consolidated income tax return.

3 unchanged sentences

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.

INNOVATE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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.

7 unchanged sentences

Tax payment deferrals provided for under the CARES Act resulted in liabilities for deferred payroll tax payments.

The Company elected to defer approximately $ 10.9 million of its employer payroll tax obligation as of June 30, 2021.

The Company elected to defer approximately $ 11.0 million of its employer payroll tax obligation as of September 30, 2021.

The Company is required to remit 50 percent of the deferred tax balance on or before December 31, 2021 and the remaining 50 percent on or before December 31, 2022, resulting in $ 5.5 million included in Accrued liabilities and $ 5.5 million included in Other liabilities.

8 unchanged sentences

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

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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.

5 unchanged sentences

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

INNOVATE CORP.

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 DBMG’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 INNOVATE Corp.

(f/k/a HC2 Holdings, Inc.) and certain of DBMG’s current and former officers and directors, including current and former INNOVATE officers and directors AJ Stahl, Kenneth S.

Courtis, Robert V.

1 unchanged sentence

Falcone, Michael J.

Sena, and Paul Voigt (together with HC2, the “HC2 Defendants”) styled Fair Value Investments Incorporated v.

Sena, and Paul Voigt (together with INNOVATE, the “INNOVATE Defendants”) styled Fair Value Investments Incorporated v.

Roach, et al., C.A.

1 unchanged sentence

Ch.) (the “FVI Action”).

In the FVI Action, FVI alleges that HC2, in its capacity as DBMG’s controlling stockholder, and DBMG’s current and former officers and directors breached their fiduciary duties to DBMG and DBMG’s minority stockholders by approving certain transactions that allegedly provide disproportionate benefits to HC2.

In the FVI Action, FVI alleges that the Company, in its capacity as DBMG’s controlling stockholder, and DBMG’s current and former officers and directors breached their fiduciary duties to DBMG and DBMG’s minority stockholders by approving certain transactions that allegedly provide disproportionate benefits to the Company.

FVI challenges the following transactions:

(i) DBMG’s payments to HC2 from 2016–present pursuant to a Tax Sharing Agreement between DBMG and HC2;

(ii) DBMG acting as a guarantor or providing collateral for loans taken on by HC2;

(i) DBMG’s payments to the Company from 2016–present pursuant to a Tax Sharing Agreement between DBMG and the Company;

(ii) DBMG acting as a guarantor or providing collateral for loans taken on by the Company;

(iii) DBMG’s issuance of dividends to its common and preferred stockholders in 2017–2020;

(iv) DBMG’s issuance of preferred stock to HC2 to finance DBMG’s 2018 acquisition of GrayWolf Industrial;

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

(iv) DBMG’s issuance of preferred stock to the Company to finance DBMG’s 2018 acquisition of GrayWolf Industrial;

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

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

In the Amended Complaint, FVI named two additional defendants:

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

the Company’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.

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

The Company 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.

On March 15, 2021, twenty-two 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.

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;

Plaintiffs named as defendants INNOVATE Corp.

(f/k/a HC2 Holdings, Inc.), HC2 Broadcasting Holdings, Inc., HC2 Broadcasting Inc., and Continental General Insurance Corporation (the “INNOVATE Entities”) and certain current and former officers and directors of the INNOVATE 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 INNOVATE 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 INNOVATE 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.

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

Defendants moved to dismiss the Complaint on May 19, 2021.

1 unchanged sentence

In the amended complaint, plaintiffs assert the same claims they asserted in their initial complaint, added a claim for waste associated with DTV’s purported transfer of licenses and construction permits for less than fair value, and dropped Paul Robinson as a defendant.

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

HC2 intends to vigorously defend this litigation.

The Company believes the allegations in the amended complaint are without merit and the INNOVATE-related defendants intend to move to dismiss the amended complaint.

The Company intends to vigorously defend this litigation.

Separation from Philip A.

13 unchanged sentences

§ 220 to inspect books and records of the Company relating to, among other things, the Company's sale of its Insurance segment.

The Company is currently evaluating a response, and cannot determine at this time if the books and records demand will lead to litigation.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

The Company has responded to the demand and cannot determine at this time if the books and records demand will lead to litigation.

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

1 unchanged sentence

To date, CRA has not proposed any specific adjustments and the audit is ongoing.

INNOVATE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Share-based Compensation

Total share-based compensation expense recognized by the Company and its subsidiaries under all equity compensation arrangements was $ 1.1 million and $ 1.5 million for the six months ended June 30, 2021 and 2020, respectively.

Total share-based compensation expense recognized by the Company and its subsidiaries under all equity compensation arrangements was $ 1.7 million and $ 2.5 million for the nine months ended September 30, 2021 and 2020, respectively.

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

1 unchanged sentence

Restricted Stock

A summary of HC2’s restricted stock activity is as follows:

A summary of INNOVATE’s restricted stock activity is as follows:

Shares Weighted Average Grant Date Fair Value

7 unchanged sentences

Forfeited ( 151,469 ) $ 4.13

Unvested - June 30, 2021 765,498 $ 4.00

At June 30, 2021, the total unrecognized stock-based compensation expense related to unvested restricted stock was $ 2.0 million.

Unvested - September 30, 2021 624,511 $ 3.94

At September 30, 2021, the total unrecognized stock-based compensation expense related to unvested restricted stock was $ 1.5 million.

The unrecognized compensation cost is expected to be recognized over the remaining weighted average period of 2.0 years.

Stock Options

A summary of HC2’s stock option activity is as follows:

A summary of INNOVATE’s stock option activity is as follows:

Shares Weighted Average Exercise Price

9 unchanged sentences

Expired ( 23,999 ) $ 5.31

Outstanding - June 30, 2021 4,718,259 $ 5.13

Outstanding - September 30, 2021 4,715,859 $ 5.13

Eligible for exercise 4,714,509 $ 5.13

At June 30, 2021, the intrinsic value and average remaining life of the Company's outstanding options were $ 0.2 million and approximately 3.1 years, and intrinsic value and average remaining life of the Company's exercisable options were $ 0.2 million and approximately 3.1 years.

At June 30, 2021, the total unrecognized stock-based compensation expense related to unvested stock options was $ 0.1 million.

At September 30, 2021, the intrinsic value and average remaining life of the Company's outstanding options were $ 0.3 million and approximately 2.9 years, and intrinsic value and average remaining life of the Company's exercisable options were $ 0.3 million and approximately 2.9 years.

At September 30, 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 0.5 years.

There are 1,350 unvested stock options expected to vest, with a weighted average remaining life of 7.5 years, a weighted average exercise price of $ 2.62 , and an intrinsic value of $ 0.1 million.

HC2 HOLDINGS, INC.

INNOVATE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

1 unchanged sentence

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

September 30,

2021 December 31,

3 unchanged sentences

Series A-2 shares issued and outstanding (1)

(1) CGI, a wholly owned subsidiary of the Company, owns 6,125 shares of Series A Preferred Stock and 10,000 shares of Series A-2 Preferred Stock which are eliminated in consolidation.

Series A-3 shares issued and outstanding 6,125 —

Series A-4 shares issued and outstanding 10,000 —

(1) In 2020, CGI, formerly a wholly owned subsidiary of the Company, owned 6,125 shares of Series A Preferred Stock and 10,000 shares of Series A-2 Preferred Stock which were eliminated in consolidation.

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 June 30, 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 Stock 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 June 30, 2021, is convertible into a total of 1,872,659 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.

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, and on January 11, 2019, CGI purchased 10,000 shares of Series A-2 Preferred Stock.

The shares and dividends accrued related to the Series A-2 Preferred Stock owned by CGI were eliminated in consolidation prior to its sale on July 1, 2021.

Discontinued Operations for further information.

Luxor and Corrib Conversions

4 unchanged sentences

• The Company agreed that it will issue to Corrib and Luxor, on each quarterly anniversary commencing May 29, 2017 (or, if later, the date on which the corresponding dividend payment is made to the holders of the outstanding Preferred Stock), through and until the Maturity Date (as defined in the respective Series A and Series A-1 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 six months ended June 30, 2021, 119,784 and 13,477 shares of the Company's common stock have been issued to Luxor and Corrib, respectively, in conjunction with the conversion agreements.

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

The fair value of the Additional Share Consideration for the six months ended June 30, 2021 was valued by the Company at $ 0.3 million and for the six months ended June 30, 2020 was valued by the Company at $ 0.4 million on the date of issuance and was recorded within Preferred stock and deemed dividends from conversion line item of the Condensed Consolidated Statements of Operations as a deemed dividend.

For the nine months ended September 30, 2021, 119,784 and 13,477 shares of the Company's common stock have been issued to Luxor and Corrib, respectively, in conjunction with the conversion agreements.

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 agreements.

The fair value of the Additional Share Consideration for the nine months ended September 30, 2021 was valued by the Company at $ 1.4 million and for the nine months ended September 30, 2020 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.

On May 29, 2021, pursuant to the terms of the Additional Share Consideration, the final Participating Dividend payments were made to Luxor and Corrib.

HC2 HOLDINGS, INC.

INNOVATE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Redemption and Conversion of Series A and A-2 Shares

Q2 2021 Redemption and Conversion of Series A and A-2 Shares

On May 29, 2021, pursuant to the Certificate of Designation, holders of the Series A and A-2 Preferred Stock caused the Company to redeem the Series A and A-2 Preferred Stock at the accrued value per share plus accrued but unpaid dividends (to the extent not included in the accrued value of Series A and A-2 Preferred Stock), of which $ 10.4 million was paid in cash to holders of the Series A and A-2 Preferred Stock.

Each share of Series A and A-2 Preferred Stock that was not so redeemed was automatically converted into shares of common stock at the conversion price then in effect, of which 50,410 shares of the Company's common stock were issued in lieu of cash to holders of the Series A Preferred Stock.

In connection with the Stock Purchase Agreement, CGI, a wholly owned subsidiary of the Company, entered into a letter agreement with Continental General Holdings, LLC to not redeem at maturity or seek redemption of the $ 16.1 million Preferred Stock.

On July 1, 2021, subsequent to quarter end, CGI exchanged their Series A and Series A-2 Preferred Stock for new classes of Series A-3 and Series A-4 Preferred Stock with an extended maturity of July 1, 2026, with other terms substantially unchanged from the terms of the Series A and Series A-2 Preferred Stock.

In connection with the Stock Purchase Agreement, CGI, formerly a wholly owned subsidiary of the Company, entered into a letter agreement with the Company to not redeem at maturity or seek redemption of 6,125 shares of the Company's Series A and 10,000 shares of the Company's Series A-2 Preferred Stock with a combined redemption value of $ 16.1 million with a current fair value of $ 19.1 million.

Q3 2021 Series A-3 and A-4 Share Issuance and Conversion

On July 1, 2021 (the "Exchange Date") and as a part of the sale of CIG, INNOVATE entered into an exchange agreement (the "Exchange Agreement") with the now deconsolidated CGIC, who held the remaining shares of the Series A and Series A-2 Preferred Stock.

Per the Exchange Agreement, INNOVATE exchanged the Series A and Series A-2 shares that CGIC held for an equivalent number of Series A-3 Convertible Participating Preferred Stock ("Series A-3") and Series A-4 Convertible Participating Preferred Stock ("Series A-4"), respectively.

The terms remained substantially the same, except that the Series A-3 and Series A-4 will mature on July 1, 2026.

A cash payment of $ 0.3 million was made as a part of the exchange for accrued and unpaid dividends on the Series A and Series A-2 being exchanged.

Upon issuance of the Series A-3 and Series A-4 Preferred Stock on July 1, 2021, the Series A-3 and Series A-4 have been classified as temporary equity in the Company's Balance Sheet.

The Series A-3 and Series A-4 Preferred Stock accrues a cumulative quarterly cash dividend at an annualized rate of 7.50 %.

The accrued value of the Series A-3 and Series A-4 Preferred Stock will accrete quarterly at an annualized rate of 4.00 % that is reduced to 2.00 % or 0.0 % 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 (A) the daily volume weighted average price ("VWAP") of the Company's common stock is less than a certain threshold amount, (B) the Company's common stock is not registered under Section 12(b) of the Securities Exchange Act of 1934, as amended, (C) the Company's common stock is not listed on certain national securities exchanges or the Company is delinquent in the payment of any cash dividends.

The Series A-3 and Series A-4 Preferred Stock is also entitled to participate in cash and in-kind distributions to holders of shares of Company's common stock on an as-converted basis.

Optional Conversion.

Each share of Series A-3 and Series A-4 may be converted by the holder into shares of the Company's common stock at any time based on the then-applicable Conversion Price.

Each share of Series A-3 is initially convertible at a conversion price of $ 4.25 (as it may be adjusted from time to time, the "Series A-3 Conversion Price"), and each share of Series A-4 is initially convertible at a conversion price of $ 8.25 (as it may be adjusted from time to time, the "Series A-4 Conversion Price") (“collectively the “Conversion Prices”).

The 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 Conversion Prices’ (which adjustment shall be made on a weighted average basis).

Actual conversion prices at the time of the exchange were $ 3.52 for the Series A and $ 5.33 for the Series A-2.

Redemption by the Holder / Automatic Conversion.

On July 1, 2026, holders of the Series A-3 and Series A-4 shall be entitled to cause the Company to redeem the Series A-3 and Series A-4 at the accrued value per share plus accrued but unpaid dividends (to the extent not included in the accrued value of Series A-3 and Series A-4).

Each share of Series A-3 and Series A-4 that is not so redeemed will be automatically converted into shares of the Company's common stock at the Conversion Price then in effect.

Upon a change of control (as defined in each Certificate of Designation) holders of the Series A-3 and Series A-4 shall be entitled to cause the Company to redeem their shares of Series A-3 and Series A-4 at a price per share of Series A-3 and Series A-4 equal to the greater of (i) the accrued value of the Series A-3 and Series A-4, plus any accrued and unpaid dividends (to the extent not included in the accrued value of Series A-3 and Series A-4 Preferred Stock), and (ii) the value that would be received if the share of Series A-3 and Series A-4 were converted into shares of the Company's common stock immediately prior to the change of control.

Redemption by the Company / "Company Call Option".

At any time after the third anniversary of the Original Issue Date, the Company may redeem the Series A-3/Series A-4, in whole but not in part, at a price per share generally equal to 150 % of the accrued value per share, plus accrued but unpaid dividends (to the extent not included in the accrued value of the Series A-3/Series A-4), subject to the holder's right to convert prior to such redemption.

INNOVATE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Forced Conversion .

The Company may force conversion of the Series A-3 and Series A-4 into shares of the Company's 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 Series A-3 and Series A-4 will have the ability to elect cash settlement in lieu of conversion if certain market liquidity thresholds for the Company's common stock are not achieved.

Liquidation Preference .

In the event of any liquidation, dissolution or winding up of the Company (any such event, a “Liquidation Event”), the holders of Series A-3 and Series A-4 will be entitled to receive per share the greater of (i) the accrued value of the Series A-3 and Series A-4, plus any accrued and unpaid dividends (to the extent not included in the accrued value of Series A-3 and Series A-4), and (ii) the value that would be received if the share of Series A-4 and Series A-4 were converted into shares of the Company's common stock immediately prior to such occurrence.

The Series A-3 and Series A-4 will rank junior to any existing or future indebtedness but senior to the Company's common stock and any future equity securities other than any future senior or pari passu preferred stock issued in compliance with each Certificate of Designation.

The Series A-3 Preferred Stock and the Series A-4 Preferred Stock rank at parity.

Voting Rights.

Except as required by applicable law, the holders of the shares of the Series A-3 and Series A-4 will be entitled to vote on an as-converted basis with the holders of the Series A-3 Preferred Stock and the Series A-4 Preferred Stock (on an as-converted basis), as applicable, and the holders of the Company’s common stock on all matters submitted to a vote of the holders of the Company's common stock with the holders of New Preferred Stock on certain matters, and separately as a class on certain limited matters.

Consent Rights.

For so long as any of the Series A-3 and Series A-4 is outstanding, consent of the holders of shares representing at least 75 % of certain of the Series A-3 and Series A-4 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-3 Preferred Stock and the Series A-4 Preferred Stock, subject to meeting certain ownership thresholds, certain purchasers of the Series A-3 Preferred Stock and the Series A-4 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-3 Preferred Stock and the Series A-4 Preferred Stock will be entitled to participate in issuances of preferred securities and in debt transactions of the Company.

At September 31, 2021, Series A-3 Preferred Stock and Series A-4 Preferred Stock were convertible into 1,764,357 and 1,875,533 shares, respectively, of INNOVATE's common stock.

Preferred Share Dividends

During the six months ended June 30, 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 May 29, 2021

Holders of Record Date March 31, 2021 May 29, 2021

Payment Date April 15, 2021 June 4, 2021

During the nine months ended September 30, 2021 and 2020, INNOVATE's Board of Directors (the "Board") declared cash dividends with respect to INNOVATE’s issued and outstanding Preferred Stock, excluding the Series A and Series A-2 Preferred Stock which was owned by CGI and was eliminated in consolidation prior to the sale of the Insurance segment on July 1, 2021, as presented in the following table (in millions):

Declaration Date March 31, 2021 May 29, 2021 September 30, 2021

Holders of Record Date March 31, 2021 May 29, 2021 September 30, 2021

Payment Date April 15, 2021 June 4, 2021 October 15, 2021

Total Dividend $ 0.2 $ 0.1 $ 0.3

Declaration Date March 31, 2020 June 30, 2020

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

Payment Date April 15, 2020 July 15, 2020

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

Total Dividend $ 0.2 $ 0.2 $ 0.2

HC2 HOLDINGS, INC.

DBMGi Series A Preferred Stock Issuance

On November 30, 2018, CGIC purchased 40,000 shares of DBMGi's Series A Preferred Stock, which was eliminated in consolidation.

On July 1, 2021, as a part of the sale of CIG which results in the deconsolidation of the entity, INNOVATE was deemed to have issued $ 40.9 million of DBMGi Series A Preferred Stock to the now deconsolidated CGIC.

Upon issuance of the DBMGi Series A Preferred Stock on July 1, 2021, the DBMGi Series A Preferred Stock has been classified as temporary equity in the Company's Balance Sheet.

Redemption Option .

The DBMGi Preferred Stock is redeemable at any time, in whole or in part, at the option of the Company, or at any time or by the holder prior to July 2026.

INNOVATE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

The DBMGi Series A Preferred Stock will accrue a cumulative quarterly cash or payment in kind dividend at a rate of (a) for the first five years following the date of issuance, (i) 9.00 % per annum if dividends are paid in kind or (ii) 8.25 % per annum if dividends are paid in cash and (b) starting on the fifth anniversary of the date of issuance, a rate per annum equal to (i) LIBOR (as defined in the Certificate of Designation) plus a spread of 5.85 % (together, the “LIBOR Rate”) per annum, plus 0.75 % if dividends are paid in kind or (ii) the LIBOR Rate per annum in the case of dividends paid in cash.

During the three months ended September 30, 2021, DBMGi's Board of Directors declared cash dividends with respect to DBMGi’s issued and outstanding Preferred Stock, as presented in the following table (in millions):

Declaration Date September 30, 2021

Holders of Record Date September 30, 2021

Payment Date October 15, 2021

Total Dividend $ 0.8

Stockholders’ Rights Agreement

On August 30, 2021, the Company entered into a Tax Benefits Preservation Plan (the “Plan”) with Computershare Trust Company, N.A., as rights agent (the “Rights Agent”), and the Board of the Company declared a dividend distribution of one right (a “Right”) for each outstanding share of our common stock to stockholders of record at the close of business on September 9, 2021 (the “Record Date”).

Each Right is governed by the terms of the Plan and entitles the registered holder to purchase from the Company a unit consisting of one one-thousandth of a share (a “Unit”) of Series B Preferred Stock, par value $ 0.001 per share (the “Series B Preferred Stock”), at a purchase price of $ 20.00 per Unit, subject to adjustment (the “Purchase Price”).

The Plan is intended to help protect the Company’s ability to use its tax net operating losses and certain other tax assets (“Tax Benefits”) by deterring an “ownership change” as defined under Section 382 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations thereunder (the “Code”) .

Initially, the Rights will be attached to all common stock certificates representing shares of our common stock then outstanding, and no separate rights certificates (“Rights Certificates”) will be distributed.

Subject to certain exceptions specified in the Plan, the Rights will separate from our shares of common stock then outstanding and a distribution date (the “Distribution Date”) will occur upon the earlier of (i) 10 business days following a public announcement that a person or group of affiliated or associated persons (an “Acquiring Person”) has become the beneficial owner of 4.9 % or more of our common stock and (ii) 10 business days (or such later date as the Board shall determine) following the commencement of a tender offer or exchange offer that would result in a person or group becoming an Acquiring Person.

The Rights are not exercisable until the Distribution Date and will expire at the earliest of (i) 11:59 p.m.

(New York City time) on August 30, 2022 or such later date and time as may be determined by the Board and approved by the stockholders of the Company by a vote of the majority of the votes cast by the holders of shares entitled to vote thereon at a meeting of the stockholders of the Company prior to 11:59 p.m.

(New York City time) on August 30, 2022 (which later date and time shall be in no event later than 11:59 p.m.

(New York City time) on August 30, 2024), (ii) the time at which the Rights are redeemed or exchanged as provided in the Plan, (iii) the time at which the Board determines that the Plan is no longer necessary or desirable for the preservation of Tax Benefits, and (iv) the close of business on the first day of a taxable year of the Company to which the Board determines that no Tax Benefits may be carried forward.

Unless terminated early, the Tax Benefits Preservation Plan will terminate on August 30, 2022, unless at the Company’s 2022 annual meeting the Company’s stockholders approve an extension of the Tax Benefits Preservation Plan, in which case the Tax Benefits Preservation Plan would be extended and expire at the Company’s 2024 annual meeting.

INNOVATE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Related Parties

Non-Operating Corporate

Pansend has an investment in Triple Ring Technologies, Inc.

Pansend Life Sciences, LLC ("Pansend") has an investment in Triple Ring Technologies, Inc.

("Triple Ring").

Various subsidiaries of HC2 utilize the services of Triple Ring, incurring zero and $ 0.3 million in services for the three months ended June 30, 2021 and 2020, and zero and $ 1.0 million in services for the six months ended June 30, 2021 and 2020, respectively.

A subsidiary of INNOVATE utilized the services of Triple Ring, incurring zero in services for the three months ended September 30, 2021 and 2020, and zero and $ 1.0 million in services for the nine months ended September 30, 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, in the same building.

As part of the agreement, INNOVATE 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, in the same building.

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 Condensed Consolidated Balance Sheets.

1 unchanged sentence

Banker Steel, a subsidiary of DBMG, has leased two office spaces from 2940 Fulks St LLC, a related party that is owned by Donald Banker, CEO of Banker Steel and a related party, with monthly lease payments of $ 10 thousand and a total lease liability of $ 0.2 million.

For the three months ended June 30, 2021, and 2020, DBMG incurred lease expense of $ 10 thousand and zero , respectively, and for the six months ended June 30, 2021, and 2020, DBMG incurred lease expense of $ 10 thousand and zero , respectively.

For the three months ended September 30, 2021, and 2020, DBMG incurred lease expense of $ 23 thousand and zero , respectively, and for the nine months ended September 30, 2021, and 2020, DBMG incurred lease expense of $ 31 thousand and zero , respectively.

Banker Steel has leased two planes from Banker Aviation LLC, a related party that is owned by Donald Banker, a related party, with monthly lease payments of $ 0.2 million and a total lease liability of $ 4.1 million.

For the three months ended June 30, 2021, and 2020, DBMG incurred lease expense of $ 0.2 million and zero , respectively, and for the six months ended June 30, 2021, and 2020, DBMG incurred lease expense of $ 0.2 million and zero , respectively.

For the three months ended September 30, 2021, and 2020, DBMG incurred lease expense of $ 0.4 million and zero , respectively, and for the nine months ended September 30, 2021, and 2020, DBMG incurred lease expense of $ 0.6 million and zero , respectively.

Banker Steel also has a subordinated note payable of $ 6.3 million to Donald Banker, a related party, that has a maturity date of June 30, 2024 at a 11 % interest rate.

For the three months ended June 30, 2021, and 2020, DBMG incurred interest expense of $ 0.1 million and zero , respectively, and for the six months ended June 30, 2021, and 2020, DBMG incurred interest expense of $ 0.1 million and zero , respectively.

For the three months ended September 30, 2021, and 2020, DBMG incurred interest expense of $ 0.1 million and zero , respectively, and for the nine months ended September 30, 2021, and 2020, DBMG incurred interest expense of $ 0.2 million and zero , respectively.

Operating Segment and Related Information

The Company currently has one primary reportable geographic segment - United States.

The Company has four reportable operating segments, plus our Other segment, based on management’s organization of the enterprise - Infrastructure, Life Sciences, Spectrum, Insurance, and Other.

The Company has three reportable operating segments, plus our Other segment, based on management’s organization of the enterprise - Infrastructure, Life Sciences, Spectrum, and Other.

We also have included a Non-operating Corporate segment.

All inter-segment revenues are eliminated.

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

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

Segment 2021 2020 2021 2020

Customer A Infrastructure 18.9 % * 12.2 % *

Customer B Infrastructure 13.0 % * * *

*Less than 10% revenue concentration

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.

2 unchanged sentences

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

INNOVATE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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

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

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

2021 2020 2021 2020

4 unchanged sentences

Total revenue $ 394.8 $ 170.5 $ 810.4 $ 538.9

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

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

2021 2020 2021 2020

6 unchanged sentences

Non-operating Corporate ( 4.4 ) ( 5.3 ) ( 17.7 ) ( 22.4 )

Total loss from operations $ ( 7.7 ) $ ( 8.9 ) $ ( 18.6 ) $ ( 22.5 )

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Total income (loss) from operations $ 1.1 $ ( 16.1 ) $ ( 17.5 ) $ ( 38.6 )

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

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

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

2021 2020 2021 2020

Loss from operations $ ( 7.7 ) $ ( 8.9 ) $ ( 18.6 ) $ ( 22.5 )

Income (loss) from operations $ 1.1 $ ( 16.1 ) $ ( 17.5 ) $ ( 38.6 )

Interest expense ( 12.8 ) ( 17.9 ) ( 46.6 ) ( 56.2 )

Loss on early extinguishment or restructuring of debt ( 0.1 ) — ( 12.5 ) ( 9.2 )

Income (loss) from equity investees 0.2 ( 0.2 ) ( 1.9 ) ( 2.7 )

Loss from equity investees ( 2.9 ) ( 1.3 ) ( 4.8 ) ( 4.0 )

Other income 0.6 6.9 4.4 73.0

(Loss) income from continuing operations before income taxes ( 21.1 ) 33.0 ( 62.9 ) ( 6.6 )

Loss from continuing operations before income taxes ( 14.1 ) ( 28.4 ) ( 77.0 ) ( 35.0 )

Income tax expense ( 0.1 ) ( 1.4 ) ( 3.8 ) ( 3.7 )

(Loss) income from continuing operations ( 23.7 ) 21.0 ( 66.6 ) ( 8.9 )

(Loss) income from discontinued operations (including gain on disposal of $ 40.4 million and loss on disposal of $ 39.3 million for the six months ended June 30, 2021 and 2020, respectively)

Loss from continuing operations ( 14.2 ) ( 29.8 ) ( 80.8 ) ( 38.7 )

(Loss) income from discontinued operations (including loss on sale of $ 200.3 million for the three months ended September 30, 2021 and loss on sale, net of $ 159.9 million and $ 39.3 million for the nine months ended September 30, 2021 and 2020, respectively)

( 200.3 ) 8.2 ( 149.9 ) ( 55.4 )

Net (loss) income ( 25.2 ) 28.5 ( 16.2 ) ( 72.5 )

Net income (loss) attributable to noncontrolling interest and redeemable noncontrolling interest 1.7 ( 15.4 ) 5.3 2.5

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

Net loss ( 214.5 ) ( 21.6 ) ( 230.7 ) ( 94.1 )

Net loss attributable to noncontrolling interest and redeemable noncontrolling interest 2.6 4.3 7.9 6.8

Net loss attributable to INNOVATE Corp.

( 211.9 ) ( 17.3 ) ( 222.8 ) ( 87.3 )

Preferred dividends and deemed dividends from conversions 1.1 0.4 1.7 1.2

Net (loss) income attributable to common stock and participating preferred stockholders $ ( 23.7 ) $ 12.7 $ ( 11.5 ) $ ( 70.8 )

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

Net loss attributable to common stock and participating preferred stockholders $ ( 213.0 ) $ ( 17.7 ) $ ( 224.5 ) $ ( 88.5 )

INNOVATE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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

2021 2020 2021 2020

2 unchanged sentences

$ 7.4 $ 2.7 $ 13.1 $ 8.0

Infrastructure recognized within cost of revenue

3.4 2.3 8.4 6.9

Total Infrastructure 10.8 5.0 21.5 14.9

Life Sciences — — 0.1 0.1

Spectrum 1.4 1.7 4.3 5.1

Total 4.8 4.5 8.7 8.8

Depreciation expense recognized within cost of revenue

2.8 2.3 5.0 4.6

Non-operating Corporate 0.1 0.1 0.1 0.1

Total depreciation and amortization $ 12.3 $ 6.8 $ 26.0 $ 20.2

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

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

2021 2020 2021 2020

7 unchanged sentences

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

September 30,

2021 December 31,

3 unchanged sentences

Total $ 49.9 $ 55.4

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

September 30,

2021 December 31,

3 unchanged sentences

Spectrum 199.8 213.6

Insurance 5,849.0 5,854.0

Other 38.9 6,021.3

7 unchanged sentences

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

The Company had no dilutive common share equivalents during the six months ended June 30, 2021 and 2020 due to results from continuing operations being a loss, net of tax.

The Company had no dilutive common share equivalents during the nine months ended September 30, 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):

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

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

2021 2020 2021 2020

(Loss) income from continuing operations $ ( 23.7 ) $ 21.0 $ ( 66.6 ) $ ( 8.9 )

Loss from continuing operations $ ( 14.2 ) $ ( 29.8 ) $ ( 80.8 ) $ ( 38.7 )

INNOVATE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Income (loss) attributable to noncontrolling interest and redeemable noncontrolling interest 2.6 2.8 7.0 ( 9.7 )

(Loss) income from continuing operations attributable to the Company ( 22.1 ) 5.7 ( 62.2 ) ( 21.4 )

Loss from continuing operations attributable to the Company ( 11.6 ) ( 27.0 ) ( 73.8 ) ( 48.4 )

Preferred dividends, deemed dividends and repurchase gains 1.1 0.4 1.7 1.2

(Loss) income from continuing operations attributable to HC2 common stockholders ( 22.3 ) 5.3 ( 62.8 ) ( 22.2 )

Loss from continuing operations attributable to INNOVATE common stockholders ( 12.7 ) ( 27.4 ) ( 75.5 ) ( 49.6 )

(Loss) income from discontinued operations ( 200.3 ) 8.2 ( 149.9 ) ( 55.4 )

1 unchanged sentence

(Loss) income from discontinued operations, net of tax and noncontrolling interest ( 200.3 ) 9.7 ( 149.0 ) ( 38.9 )

Net (loss) income attributable to common stock and participating preferred stockholders $ ( 23.7 ) $ 12.7 $ ( 11.5 ) $ ( 70.8 )

Net loss attributable to common stock and participating preferred stockholders $ ( 213.0 ) $ ( 17.7 ) $ ( 224.5 ) $ ( 88.5 )

Earnings allocable to common shares:

9 unchanged sentences

Numerator for earnings per share, basic:

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Net (loss) income from continuing operations attributable to common stock, basic $ ( 22.3 ) $ 5.0 $ ( 62.8 ) $ ( 22.2 )

Net loss from continuing operations attributable to common stock, basic $ ( 12.7 ) $ ( 27.2 ) $ ( 75.5 ) $ ( 49.5 )

Net (loss) income from discontinued operations attributable to common stock, basic $ ( 200.3 ) $ 9.6 $ ( 149.0 ) $ ( 38.8 )

Net (loss) income attributable to common stock, basic $ ( 23.7 ) $ 12.1 $ ( 11.5 ) $ ( 70.8 )

Net loss attributable to common stock, basic $ ( 213.0 ) $ ( 17.6 ) $ ( 224.5 ) $ ( 88.3 )

Earnings allocable to common shares, diluted:

1 unchanged sentence

Effect of assumed shares under the if-converted method for convertible instruments $ — $ — $ — $ —

Net (loss) income from continuing operations attributable to common stock, basic $ ( 22.3 ) $ 5.0 $ ( 62.8 ) $ ( 22.2 )

Net loss from continuing operations attributable to common stock, basic $ ( 12.7 ) $ ( 27.2 ) $ ( 75.5 ) $ ( 49.5 )

Net (loss) income from discontinued operations attributable to common stock, basic $ ( 200.3 ) $ 9.6 $ ( 149.0 ) $ ( 38.8 )

Net (loss) income attributable to common stock, basic $ ( 23.7 ) $ 12.1 $ ( 11.5 ) $ ( 70.8 )

Net loss attributable to common stock, basic $ ( 213.0 ) $ ( 17.6 ) $ ( 224.5 ) $ ( 88.3 )

Denominator for basic and dilutive earnings per share

2 unchanged sentences

Weighted average common shares outstanding - diluted 77.2 47.4 77.0 46.7

(Loss) income per share - continuing operations

Loss per share - continuing operations

Basic $ ( 0.16 ) $ ( 0.57 ) $ ( 0.98 ) $ ( 1.06 )

Diluted $ ( 0.16 ) $ ( 0.57 ) $ ( 0.98 ) $ ( 1.06 )

INNOVATE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(Loss) income per share - discontinued operations

1 unchanged sentence

Diluted $ ( 2.59 ) $ 0.20 $ ( 1.94 ) $ ( 0.83 )

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

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

Basic $ ( 2.75 ) $ ( 0.37 ) $ ( 2.92 ) $ ( 1.89 )

1 unchanged sentence

Subsequent Events

On July 1, 2021, the Company completed the previously announced sale of its insurance segment, comprised of CIG and its wholly-owned subsidiaries, Continental General Insurance Company and Continental LTC Inc., to Continental General Holdings LLC, an entity controlled by Michael Gorzynski, a director of the Company and, as of June 30, 2021, 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 total transaction value of approximately $ 90.0 million consists of a combination of $ 65.0 million in cash plus securities plus certain assets at CGI.

On July 1, 2021, CGI exchanged their Series A and Series A-2 Preferred Stock for new classes of Series A-3 and A-4 Preferred Stock with an extended maturity of July 1, 2026 and a redemption option at the Company's discretion, with other terms substantially unchanged from the terms in the Series A and Series A-2 Preferred Stock.

Concurrently with the sale of CGI and the exchange of the Series A and Series A-2 Preferred stock for new classes of Series A-3 and A-4 Preferred Stock, Michael Gorzynski, a director of the Company and executive chairman of Continental, increased his beneficial ownership of the Company's outstanding common stock to 10.8 %.

On July 14, 2021, HC2 Broadcasting had entered into an Asset Purchase Agreement for $ 6.5 million to sell its non-core channel share agreement.

On August 2, 2021, HC2 Broadcasting finalized the sale of two of its non-core full power stations for $ 4.0 million.

On July 21, 2021, the Company provided an additional $ 15.0 million in Series C funding to R2 Technologies Inc.

at a post-money valuation of $ 150.0 million.

The investment was made through HC2’s Life Sciences subsidiary, Pansend Life Sciences, LLC, increasing the Company's fully diluted ownership to 50.4 %.

On October 21, 2021, HC2 Broadcasting entered into the Fifth Omnibus Amendment to Secured Notes, Consent and Second Amendment to Asset Sale Under Secured Notes and Intercreditor Agreement (the “Amendment”), which, among other things, extended $ 52.2 million of its Senior Secured Notes, due October 21, 2021, through November 30, 2022.

In addition, HC2 Broadcasting completed the last of a series of repurchases of all the outstanding secured and convertible promissory notes, inclusive of accrued interest, of DTV using a combination of cash on hand and proceeds from the sales on non-core assets.

On November 1, 2021, the Company entered into a lease agreement with RPP Palm Beach Property LP for 20,950 square feet of special purpose space.

The lease is contingent on obtaining necessary permits to refurbish the space and will commence upon completion of such renovations.

The term of the lease is for 10 years and is expected to begin in November of 2023 or later.

Annual lease payments are $ 2.1 million, subject to a 3 % annual escalation.

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