What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2022-03-09 compared with 2021-03-10 · 1119 added, 1248 removed, 1283 unchanged (65% of the section changed)

11 unchanged sentences

Further, the evaluation of the effectiveness of internal control over financial reporting described below was made as of a specific date, and continued effectiveness in future periods is subject to the risks that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies and procedures may decline.

As permitted by SEC guidance, management excluded from its assessment the operations of the Banker Steel acquisition made during 2021, which is described in Note 5.

Acquisitions, Dispositions, and Deconsolidations to our Consolidated Financial Statements included in this Annual Report.

Banker Steel constituted 26.6% and 270.1% of total assets and net assets, respectively, as of December 31, 2021, and 22.4% and 6.1% of revenues and net income (loss), respectively, for the year ended December 31, 2021.

As of December 31, 2021, we were in the process of integrating Banker Steel's operations, including internal controls over financial reporting.

Such exclusion was in accordance with the SEC guidance that an assessment of a recently acquired business may be omitted in management’s report on internal controls over financial reporting, providing the acquisition took place within twelve months of management’s evaluation.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2021.

4 unchanged sentences

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the fiscal quarter ended December 31, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no changes in our internal control over financial reporting that occurred during the fiscal year ended December 31, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

OTHER INFORMATION

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

The information required by Part III will be provided in our definitive proxy statement for our 2022 annual meeting of stockholders ("2022 Proxy Statement"), which is incorporated herein by reference.

5 unchanged sentences

Our Code of Conduct covers, among other things, compliance resources, conflicts of interest, compliance with laws, rules and regulations, internal reporting of violations and accountability for adherence to the Code of Conduct.

A copy of the Code of Conduct is available under the "Investor Relations-Corporate Governance" section of our website at www.hc2.com .

A copy of the Code of Conduct is available under the "Investor Relations-Corporate Governance" section of our website at www.innovatecorp.com .

Any amendment of the Code of Conduct or any waiver of its provisions for a director or executive officer must be approved by the Board or a duly authorized committee thereof.

1 unchanged sentence

EXECUTIVE COMPENSATION

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

Information regarding this item will be set forth in our 2022 Proxy Statement and is incorporated herein by reference.

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

11 unchanged sentences

Number Description

2.1 Amended and Restated Stock Purchase Agreement, dated as of December 24, 2015, by and among HC2, Continental General Corporation and Great American Financial Resources, Inc.

(incorporated by reference to Exhibit 2.1 to HC2’s Current Report on Form 8-K, filed on December 28, 2015)(File No.

2.2 Stock Purchase Agreement, dated as of November 6, 2017, by and between Humana, Inc.

and Continental General Insurance Company (incorporated by reference to Exhibit 2.1 to HC2's Current Report on Form 8-K, filed on November 7, 2017) (File No.

2.1 Fourth Amended and Restated Limited Liability Company Agreement of Global Marine Holdings, LLC, dated as of November 30, 2017, by and among Global Marine Holdings, LLC and the Members party thereto (incorporated by reference to Exhibit 2.1 to HC2's Current Report on Form 8-K, filed on November 30, 2017) (File No.

2.4 Agreement and Plan of Merger, by and among DBM Global Inc., DBM Merger Sub, Inc., CB-Horn Holdings, Inc.

and Charlesbank Equity Fund VI, Limited Partnership, as Stockholders' Representative, dated as of October 10, 2018 (incorporated by reference to Exhibit 2.1 to HC2's Current Report on Form 8-K, filed on December 4, 2018) (File No.

2.5 Amendment No.

1 to Agreement and Plan of Merger, by and among DBM Global Inc., DBM Merger Sub, Inc., CB-Horn Holdings, Inc.

and Charlesbank Equity Fund VI, Limited Partnership, as Stockholders' Representative, dated as of November 29, 2018 (incorporated by reference to Exhibit 2.2 to HC2's Current Report on Form 8-K, filed on December 4, 2018) (File No.

2.2 Merger Agreement, dated as of May 2, 2018, by and among Janssen Biotech, Inc., Dogfish Merger Sub, Inc., Benevir Biopharm, Inc., and Shareholder Representative Services LLC, as holder representative (incorporated by reference to Exhibit 10.1 to HC2's Current Report on Form 8-K, filed on May 3, 2018) (File No.

2 unchanged sentences

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

2.5 First Amendment to Agreement and Plan of Merger, dated as of January 15, 2021 (incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K filed by HC2 on January 19, 2021) (File No.

2.6 Membership Interest Purchase Agreement, dated March 12, 2021 by and among DBM Global Inc., Bridge Fabrication Banker Holdings LLC, The Banker Family Irrevocable Trust #3 U/A/D December 22, 2009, Chesley F.

McPhatter, III, Richard Plant and Bridge Fabrication Banker Holdings LLC (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed by HC2 on March 15, 2021) (File No.

2.7 First Amendment to Membership Interest Purchase Agreement, dated May 25, 2021 by and among DBM Global Inc., Bridge Fabrication Banker Holdings LLC, The Banker Family Irrevocable Trust #3 U/A/D December 22, 2009, Chesley F.

McPhatter, III, Richard Plant and Bridge Fabrication Banker Holdings LLC (incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K filed by HC2 on May 27, 2021) (File No.

2.8 Stock Purchase Agreement, dated March 26, 2021, by and among HC2 Holdings 2, Inc., Continental Insurance Group, Ltd.

and Continental General Holdings LLC (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed by HC2 on March 29, 2021) (File No.

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

5 unchanged sentences

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

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

3.5 Certificate of Amendment No.

1 unchanged sentence

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

Number Description

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

4.2 Certificate of Designation of Series A-2 Convertible Participating Preferred Stock of HC2 (incorporated by reference to Exhibit 4.1 to HC2’s Current Report on Form 8-K, filed on January 9, 2015) (File No.

4.3 Certificate of Correction of the Certificate of Amendment to the Certificate of Designation of Series A Convertible Participating Preferred Stock of HC2, filed on January 5, 2015 (incorporated by reference to Exhibit 4.1 on HC2’s Quarterly Report on Form 10-Q, filed on August 10, 2015) (File No.

4.4 Certificate of Correction of the Certificate of Amendment to the Certificate of Designation of Series A Convertible Participating Preferred Stock of HC2, filed on January 5, 2015 (incorporated by reference to Exhibit 4.2 on HC2’s Quarterly Report on Form 10-Q, filed on August 10, 2015) (File No.

4.5 Certificate of Correction of the Certificate of Amendment to the Certificate of Designation of Series A Convertible Participating Preferred Stock of HC2, filed on May 29, 2014 (incorporated by reference to Exhibit 4.3 on HC2’s Quarterly Report on Form 10-Q, filed on August 10, 2015) (File No.

4.6 Certificate of Correction of the Certificate of Amendment to the Certificate of Designation of Series A-2 Convertible Participating Preferred Stock of HC2, filed on January 5, 2015 (incorporated by reference to Exhibit 4.6 on HC2’s Quarterly Report on Form 10-Q, filed on August 10, 2015) (File No.

4.7 Warrant Agreement, dated as of December 24, 2015, between HC2 and Great American Financial Resources, Inc.

(incorporated by reference to Exhibit 4.1 to HC2’s Current Report on Form 8-K, filed on December 28, 2015) (File No.

3.6 Certificate of Amendment to the Certificate of Incorporation, as filed with the Secretary of State of Delaware on August 18, 2021, with an effective date of September 20, 2021 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on August 19, 2021) (File No.

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

3.8 Amendment #1 to Fourth Amended and Restated By-Laws of INNOVATE Corp.

, effective September 20, 2021 (incorporated by reference to Exhibit 3.

2 to the Current Report on Form 8-K filed on August 19, 2021) (File No.

3.9 Certificate of Designations of Series B Preferred Stock, dated August 30, 2021 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on August 30, 2021) (File No.

4.1 Indenture, dated as of November 20, 2018, by and among HC2, the guarantors party thereto and U.S.

Bank National Association (incorporated by reference to Exhibit 4.1 to HC2's Current Report on Form 8-K, filed on November 21, 2018) (File No.

4.9 Indenture, dated as of November 20, 2018, by and among HC2 and U.S.

Bank National Association (incorporated by reference to Exhibit 4.2 to HC2's Current Report on Form 8-K, filed on November 21, 2018) (File No.

4.2 Certificate of Designation for Series A Fixed-to-Floating Rate Perpetual Preferred Shares of DBM Global Inc., dated as of November 30, 2018 (incorporated by reference to Exhibit 2.4 to HC2's Current Report on Form 8-K, filed on December 4, 2018) (File No.

4.3 Certificate of Designation of Series A Fixed-to-Floating Rate Perpetual Preferred Stock of HC2 Broadcasting Holdings Inc., dated as of December 3, 2018 (incorporated by reference to Exhibit 2.15 to HC2's Annual Report on Form 10-K filed on March 12, 2019) (File No.

4.4 Amended and Restated Certificate of Designation of Series A Fixed-to-Floating Rate Perpetual Preferred Stock of DBM Global Intermediate Holdco Inc.

(incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K filed by HC2 Holdings, Inc.

("HC2") on July 7, 2021) (File No.

4.5 Secured Note dated October 24, 2019, by and among HC2 Station, HC2 LPTV, HC2 Broadcasting Inc.

4 unchanged sentences

(collectively, the "Subsidiary Borrowers"), HC2 Intermediate (the "Intermediate Parent), HC2 Broadcasting Holdings (the "Parent Borrower" and, together with the Intermediate Parent and the Subsidiary Borrowers, the "Borrowers", Great American Life Insurance Company ("GALIC") and Great American Insurance Company ("GAIC") (incorporated by reference to Exhibit 4.13 to HC2's Annual Report on Form 10-K, filed on March 16, 2020) (File No.

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

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

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

4.7 First Omnibus Amendment to Secured Notes and Intercreditor Agreement by and among Station Group , LPTV , Broadcasting , Network , and HC2 Broadcasting Inc.

, Intermedia te Parent , Parent Borrower , and MSD PCOF Partners, XVIII, LLC ("MSD"), GA L IC and GAIC (incorporated by reference to Exhibit 4.1 to HC2’s Quarterly Report on Form 10-Q, filed on May 11, 2020) (File No.

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

1 unchanged sentence

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

Number Description

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

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

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

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

4.90 Indenture governing the 8.500% senior secured notes due 2026, dated as of February 1, 2021, by and among HC2 Holdings, Inc., the guarantors party thereto and U.S.

Bank National Association (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed by HC2 on February 1, 2021) (File No.

4.10 Form of 8.500% senior secured notes due 2026 (included in exhibit 4.1) (incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K filed by HC2 on February 1, 2021) (File No.

4.11 Indenture governing the 7.5% convertible senior notes due 2026, dated as of February 1, 2021, by and between HC2 Holdings, Inc.

Bank National Association (incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K filed by HC2 on February 1, 2021) (File No.

4.12 Form of 7.5% convertible senior notes due 2026 (included in exhibit 4.3) (incorporated by reference to Exhibit 4.4 to the Current Report on Form 8-K filed by HC2 on February 1, 2021) (File No.

4.13 Certificate of Designation of Series A-3 Convertible Participating Preferred Stock of HC2 Holdings, Inc.

(incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed by HC2 Holdings, Inc.

("HC2") on July 7, 2021) (File No.

4.14 Certificate of Designation of Series A-4 Convertible Participating Preferred Stock of HC2 Holdings, Inc.

(incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K filed by HC2 Holdings, Inc.

("HC2") on July 7, 2021) (File No.

4.15 Tax Benefits Preservation Plan, dated August 30, 2021 (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed on August 30, 2021) (File No.

4.16 Description of the Registrant's Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934

4.17 Agreement Re:

Secured Notes, dated January 22, 2019, by and among HC2 Station, HC2 LPTV and the Institutional Investors (incorporated by reference to Exhibit 10.1 to HC2's Current Report on Form 8-K, filed on January 23, 2019) (File No.

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

10.3^ 2014 HC2 Executive Bonus Plan (incorporated by reference to Exhibit 10.1 to HC2’s Current Report on Form 8-K, filed on June 18, 2014) (File No.

10.4 Securities Purchase Agreement, dated as of September 22, 2014, by and among HC2 and affiliates of DG Capital Management, LLC and Luxor Capital Partners, LP (incorporated by reference to Exhibit 10.3 to HC2’s Current Report on Form 8-K, filed on September 26, 2014) (File No.

10.5 Second Amended and Restated Registration Rights Agreement, dated as of January 5, 2015, by and among HC2 Holdings, the initial purchasers of the Series A Preferred Stock, the initial purchasers of the Series A-1 Preferred Stock and the purchasers of the Series A-2 Preferred Stock (incorporated by reference to Exhibit 10.2 on HC2’s Current Report on Form 8-K, filed on January 9, 2015) (File No.

10.6 Consent and Waiver, dated as of October 9, 2014 to Securities Purchase Agreement, dated as of May 29, 2014, by and among HC2 and affiliates of Hudson Bay Capital Management LP, Benefit Street Partners L.L.C.

and DG Capital Management, LLC (incorporated by reference to Exhibit 10.14 on HC2’s Quarterly Report on Form 10-Q, filed on November 10, 2014) (File No.

10.7 Consent, Waiver and Amendment, dated as of September 22, 2014 to Securities Purchase Agreement, dated as of May 29, 2014, by and among HC2 and affiliates of Hudson Bay Capital Management LP, Benefit Street Partners L.L.C.

and DG Capital Management, LLC (incorporated by reference to Exhibit 10.15 on HC2’s Quarterly Report on Form 10-Q, filed on November 10, 2014) (File No.

10.2^ Reformed and Clarified Option Agreement, dated October 26, 2014, by and between HC2 and Philip Falcone (incorporated by reference to Exhibit 10.18.1 on HC2's Annual Report on Form 10-K, filed on March 16, 2015) (File No.

3 unchanged sentences

10.6^ Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.2 on HC2’s Current Report on Form 8-K, filed on September 22, 2014) (File No.

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

and Wayne Barr, Jr.

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

10.8^ Employment Agreement dated as of March 1, 2015, by and between HC2 and Suzi R.

Herbst (incorporated by reference to Exhibit 10.55 to HC2's Annual Report on Form 10-K, filed on March 9, 2017) (File No.

10.9^ Employment Agreement dated as of September 11, 2017, by and between HC2 and Joseph Ferraro (incorporated by reference to Exhibit 10.1 to HC2's Quarterly Report on Form 10-Q, filed on November 8, 2017) (File No.

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

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

10.15 Voluntary Conversion Agreement, dated August 2, 2016, by and between HC2 and Corrib Master Fund, Ltd., a holder of the Company’s Series A Participating Preferred Stock, par value ($0.01 per share) (incorporated by reference to Exhibit 10.3 on HC2’s Quarterly Report on Form 10-Q, filed on August 9, 2016) (File No.

10.11^ Form of Employee Nonqualified Option Award Agreement (incorporated by reference to Exhibit 10.4 on HC2’s Quarterly Report on Form 10-Q, filed on August 9, 2016) (File No.

10.17 Voluntary Conversion Agreement, dated as of October 7, 2016, by and between Hudson Bay Absolute Return Credit Opportunities Master Fund, LTD.

and HC2 (incorporated by reference to Exhibit 10.1 on HC2’s Current Report on Form 8-K, filed on October 11, 2016) (File No.

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

Number Description

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

10.20 Registration Rights Agreement, dated as of August 2, 2016, by and between Corrib Master Fund, Ltd.

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

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

(incorporated by reference to Exhibit 10.1 to HC2's Current Report on Form 8-K, filed on May 8, 2017) (File No.

10.13^ Form of Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.1 to HC2's Current Report on Form 8-K, filed on June 14, 2017) (File No.

10.14^ HC2 Amended and Restated 2014 Omnibus Equity Award Plan (incorporated by reference to Exhibit B to the HC2 Definitive Proxy Statement filed on April 26, 2017 ) (File No.

10.15 Securities Purchase Agreement dated as of June 27, 2017 among DTV Holding Inc., John N.

7 unchanged sentences

and Bella Spectra Corporation (incorporated by reference to Exhibit 10.3 to HC2's Current Report on Form 8-K, filed on June 28, 2017) (File No.

10.26^ Employment Agreement dated as of September 11, 2017, by and between HC2 and Joseph Ferraro (incorporated by reference to Exhibit 10.1 to HC2's Quarterly Report on Form 10-Q, filed on November 8, 2017) (File No.

10.27^ Separation Agreement by and between HC2 Holdings, Inc.

and Paul Voigt dated May 9, 2018 (incorporated by reference to Exhibit 10.1 to HC2's Quarterly Report on Form 10-Q, filed on August 8, 2018) (File No.

10.18^ HC2 Second Amended and Restated 2014 Omnibus Equity Award Plan (incorporated by reference to Exhibit A to the HC2 Definitive Proxy Statement, filed on April 30, 2018) (File No.

10.19 Second Amended & Restated Limited Liability Company Agreement of Pansend Life Sciences, LLC, dated as of September 20, 2017, by and among HC2 Holdings 2, Inc., David Present and Cherine Plumaker (incorporated by reference to Exhibit 10.2 to HC2's Current Report on Form 8-K, filed on May 3, 2018) (File No.

10.30 Agreement Re:

10.20 Securities Purchase Agreement, by and between DBM Global Inc.

and DBM Global Intermediate Holdco Inc., dated November 30, 2018 (incorporated by reference to Exhibit 2.3 to HC2's Current Report on Form 8-K, filed on December 4, 2018) (File No.

10.32 Financing Agreement, dated as of November 30, 2018, by and among DBM Global Inc.

("DBM"), as borrower, certain direct and indirect subsidiaries of DBM as borrowers or guarantors, the lenders from time to time party thereto and TCW Asset Management Company LLC, as administrative agent for the lenders and collateral agent for the secured parties (incorporated by reference to Exhibit 2.5 to HC2's Current Report on Form 8-K, filed on December 4, 2018) (File No.

10.33 Fourth Amended and Restated Credit and Security Agreement, dated as of November 30, 2018, by and among DBM Global Inc.

and certain of its subsidiaries, collectively as borrower, and Wells Fargo Bank, National Association as lender (incorporated by reference to Exhibit 2.6 to HC2's Current Report on Form 8-K, filed on December 4, 2018) (File No.

10.34 First Amendment to Fourth Amended and Restated Credit and Security Agreement dated as of May 6, 2019, by and among DBMG, and certain of its subsidiaries, and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 10.4 to HC2's Quarterly Report on Form 10-Q, filed on August 8, 2019) (File No.

10.21 Ninth Amended and Restated Agreement Re:

Secured Notes dated October 24, 2019, among HC2 Station, HC2 LPTV, HC2 Network, HC2 Broadcasting, GALIC, GAIC and MSD (incorporated by reference to Exhibit10.38 to HC2's Annual Report on Form 10-K, filed on March 16, 2020) (File No.

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

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

Number Description

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

001-35210 ) .

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

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

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

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

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

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

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

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

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

and JDS1, LLC and CCUR Holdings, Inc.

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

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

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

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

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

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

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

1 unchanged sentence

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

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

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

and Wayne Barr, Jr.

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

21.1 Subsidiaries of HC2 (filed herewith).

10.24 Third Omnibus Ame ndment to Secured Notes and Second Amendment to Intercreditor Agreement by and among Station Group, LPTV, Broadcasting, Network, and HC2 Broadcasting Inc., Intermediate Parent, Parent Borrower, and MSD PCOF Partners, XVIII, LLC ("MSD"), GALIC and GAIC (incorporated by reference to Exhibit 10.3 on HC2's Current Report on Quarterly Report on Form 10-Q filed on November 9, 2020) (File No.

10.25 Credit Agreement, dated as of May 27, 2021, by and among DBM Global Inc., the other Borrowers listed on Schedule 1.1 thereto, the Lenders, which are party thereto from time to time and UMB Bank, n.a., a national banking association, as Letter of Credit Issuer and as Administrative Agent (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by HC2 Holdings, Inc.

("HC2") on May 27, 2021) (File No.

10.26 HC2 Preferred Support Agreement, dated July 1, 2021, by and among HC2 Holdings, Inc., Continental General Insurance Company and Continental General Holdings LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by HC2 on July 1, 2021) (File No.

10.27 DBM Common Support Agreement, dated July 1, 2021, by and among HC2 Holdings, Inc., Continental General Insurance Company and Continental General Holdings LLC (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by HC2 on July 1, 2021 (File No.

10.28 Form of Exchange Agreement, dated July 1, 2021, by and among HC2 Holdings, Inc.

and the investors party thereto (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by HC2 Holdings, Inc.

("HC2") on July 7, 2021) (File No.

10.29 Second Amended and Restated Registration Rights Agreement, dated as of January 5, 2015, by and among HC2 Holdings, Inc., the initial purchasers of the Series A Preferred Stock, the initial purchasers of the Series A Preferred Stock and the purchasers of the Series A-2 Preferred Stock (incorporated by reference to Exhibit 10.2 on the Company's Current Report on Form 8-K, filed on January 9, 2015) (File No.

10.3 Letter Agreement dated March 26, 2021 by and between HC2 Holdings, Inc.

and Continental General Insurance Company (incorporated by reference to Exhibit 10.

5 to the Quarterly Report on Form 10- Q filed by HC2 on August 6 , 2021) (File No.

10.31 Fifth Omnibus Amendment to Secured Notes, Consent and Second Amendment to Asset Sale Under Secured Notes and Intercreditor Agreement , dated as of October 21, 2021 by and among HC2 Station Group, Inc., HC2 LPTV Holdings, Inc., HC2 Broadcasting Inc., HC2 Network Inc., HC2 Broadcasting License Inc., HC2 Broadcasting Intermediate H oldings Inc., HC2 Broadcasting Holdings Inc., MSD PCOF Partners XVIII, LLC, Great American Life Insurance Company and Great American Insurance Company (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by INNOVATE Corp.

on October 27, 2021) (File No.

10.32^ Executive Severance Guidelines (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by INNOVATE Corp.

on October 27, 2021) (File No.

10.33 Second Omnibus Amendment to Secured Notes dated as of August 31, 2020, by and among Station Group, LPTV, Broadcasting, Network, and HC2 Broadcasting Inc., Intermediate Parent, Parent Borrower, and MSD PCOF Partners, XVIII, LLC ("MSD"), GALIC and GAIC (filed herewith).

10.34 Fourth Omnibus Amendment to Secured Notes and Third Amendment to Intercreditor Agreement, dated as of November 25, 2020, by and among Station Group, LPTV, Broadcasting, Network, and HC2 Broadcasting Inc., Intermediate Parent, Parent Borrower, and MSD PCOF Partners, XVIII, LLC ("MSD"), GALIC and GAIC (filed herewith),

10.35^ 2019 INNOVATE Corp.

Executive Bonus Plan (filed herewith) .

10.36^ Form of Restricted Stock Award Agreement (filed herewith).

10.37^ Form of Stock Option Agreement (filed herewith).

10.38^ Form of Director Restricted Stock Award Agreement (filed herewith).

21.1 Subsidiaries of INNOVATE (filed herewith).

23.1 Consent of BDO USA, LLP, an independent registered public accounting firm (filed herewith).

2 unchanged sentences

32.1* Section 1350 Certification of Chief Executive Officer and Chief Financial Officer (furnished herewith).

Number Description

101 The following materials from the registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, formatted in extensible business reporting language (XBRL);

5 unchanged sentences

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

HC2 HOLDINGS, INC.

INNOVATE Corp.

/S/ WAYNE BARR, JR.

4 unchanged sentences

POWER OF ATTORNEY

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

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

and Michael J.

3 unchanged sentences

/S/ WAYNE BARR, JR.

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

President and Chief Executive Officer (Principal Executive Officer) and Director March 9, 2022

Wayne Barr, Jr.

1 unchanged sentence

SENA Chief Financial Officer (Principal Financial and Accounting Officer) March 9, 2022

/S/ KENNETH S.

COURTIS Director March 9, 2022

/S/ WARREN H.

5 unchanged sentences

Shelly Lombard

/S/ KENNETH S.

COURTIS Director March 10, 2021

HC2 HOLDINGS, INC.

INNOVATE CORP.

INDEX TO FINANCIAL STATEMENTS AND SCHEDULES

Reports of Independent Registered Public Accounting Firm

Reports of Independent Registered Public Accounting Firm ( BDO USA, LLP , New York, NY ;

PCAOB ID# 243 )

Consolidated Statements of Operations for the years ended December 31, 2021 and 2020

Consolidated Statements of Comprehensive Income for the years ended December 31, 20 20 and 20 19

Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2021 and 2020

Consolidated Balance Sheets as of December 31, 2021 and 2020

5 unchanged sentences

(3) Discontinued Operations

(5) Business Combinations

(6) Investments

(7) Fair Value of Financial Instruments

(8) Accounts Receivable

(9) Inventory

(10) Recoverable from Reinsurers

(5) Acquisitions, Dispositions, and Deconsolidations

(6) Accounts Receivable, net

(7) Property, Plant and Equipment, net

(8) Goodwill and Intangible Assets

(13) Life, Accident and Health Reserves

(14) Accounts Payable and Other Current Liabilities

(9) Debt Obligations

(1 6 ) Leases

(10) Supplementary Financial Information

(12) Income Taxes

7 unchanged sentences

Shareholders and Board of Directors

HC2 Holdings, Inc.

INNOVATE Corp.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of HC2 Holdings, Inc.

(the “Company”) and subsidiaries as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive income, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020 , in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheets of INNOVATE Corp.

(the “Company”) and subsidiaries as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive (loss) income, stockholders’ (deficit) equity, and cash flows for each of the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”.

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 9, 2022 expressed an unqualified opinion thereon.

12 unchanged sentences

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

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

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

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

3 unchanged sentences

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

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

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

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

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

overhead costs.

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

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

1 unchanged sentence

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

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

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

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

1 unchanged sentence

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

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

Valuation of Investment in Securities

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

With respect to the sale of the Company's Insurance segment, Continental Insurance Group Ltd (“CIG”) disclosed in Note 3 to the consolidated financial statements, the carrying value of the deconsolidated entity included Level 3 fixed maturity securities and equity securities at the sale closing date, a portion of which were valued based on non-binding broker quotes, as disclosed in Note 2 to the consolidated financial statements.

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

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

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

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

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

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

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

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

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

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

Reserves for Long-Term Care Policy and Contract Benefits

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

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

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

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

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

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

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

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

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

Accounting for Issuance of Preferred Stock

As described in Note 15 to the consolidated financial statements, on July 1, 2021 and as a part of the sale of CIG which resulted in the deconsolidation of the entity, the Company entered into an agreement to exchange the remaining shares of the Series A and Series A-2 Convertible Participating Preferred Stock held by the now deconsolidated CGIC for an equivalent number of Series A-3 and Series A-4 Convertible Participating Preferred Stock and issued DBMGi Series A Preferred Stock to the now deconsolidated CGIC.

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

The Series A-3 and Series A-4 Preferred Stock were classified as temporary equity as of December 31, 2021.

The DBMGi Series A 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.

The DBMGi Series A Preferred Stock was classified as temporary equity as of December 31, 2021.

We identified the accounting for issuance of preferred stock as a critical audit matter.

Significant judgments and highly complex technical accounting guidance are required in the determination of the scope of the applicable accounting guidance and appropriate balance sheet classification, including the identification and evaluation of embedded features potentially requiring bifurcation as derivatives as well as the determination of initial and subsequent recognition and measurement, and the determination of any resulting adjustments to earnings per share.

Auditing these elements involved especially challenging and complex auditor judgment due to extent of audit effort required to address these matters, including the extent of specialized skills or knowledge needed.

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

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

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

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

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

• Reading and analyzing the contract terms related to the issuance of Series A-3 and A-4 Preferred Stock and the issuance of DBMGi Series A Preferred Stock.

• Evaluating the reasonableness of the conclusions made by the Company related to the accounting treatment for issuance of preferred stock, including the Company’s consideration of relevant accounting standards to analyze the proper balance sheet classification, the embedded features, and the initial and subsequent recognition and measurement.

• Reviewing and recalculating the computation of the Company’s earnings per share as of December 31, 2021.

• Utilizing personnel with specialized knowledge and skills in the relevant technical accounting guidance to assist in evaluating the appropriateness of Management’s application of relevant accounting guidance for the issuance of Preferred Stock.

Accounting for Exchange of Convertible Notes

As described in Notes 2 and 9 to the consolidated financial statements, on February 1, 2021, the Company entered into exchange agreements by which the Company exchanged the 2022 Convertible Notes for newly issued 7.50% convertible notes due 2026.

The Company accounted for this exchange under the debt extinguishment model and the embedded conversion feature contained in the 2026 Convertible Notes was recorded as a premium on the 2026 Convertible Notes.

We identified accounting for the exchange of convertible notes as a critical audit matter.

Significant judgments and highly complex technical accounting guidance are required in the determination of (i) whether the exchange of convertible notes was a modification or extinguishment of debt;

(ii) whether the conversion feature should be bifurcated and accounted for as a derivative and the substantial premium model should be applied, and (iii) whether the convertible notes should be recorded as a liability in its entirety.

Auditing these elements involved especially challenging and complex auditor judgment due to the nature and extent of audit effort required to evaluate management’s application of highly complex technical accounting guidance to these elements, including the extent of specialized skills or knowledge needed.

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

• Reading and analyzing the contract terms of the Indenture for the 7.50% Convertible Senior Notes due 2026 related to the exchange of convertible notes.

• Evaluating the reasonableness of the conclusions made by the Company related to the accounting treatment for modification or extinguishment of debt, including the Company’s consideration of relevant accounting standards to analyze the conversion feature, premium and classification and presentation of the instrument as a whole in the consolidated balance sheet.

• Utilizing personnel with specialized knowledge and skills in the relevant technical accounting guidance to assist in evaluating the appropriateness of management’s application of relevant technical accounting guidance to the exchange of convertible notes.

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

3 unchanged sentences

Shareholders and Board of Directors

HC2 Holdings, Inc.

INNOVATE Corp.

Opinion on Internal Control over Financial Reporting

We have audited HC2 Holdings, Inc.’s (the “Company’s”) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”).

We have audited INNOVATE Corp.

and subsidiaries’ (the “Company’s”) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive income, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2020, and the related notes and our report dated March 10, 2021 expressed an unqualified opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive (loss) income, stockholders’ equity, and cash flows for each of the years then ended, and the related notes and our report dated March 9, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

8 unchanged sentences

We believe that our audit provides a reasonable basis for our opinion.

As indicated in the accompanying Item 9A, Management’s Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Banker Steel Holdco LLC, which was acquired on May 27, 2021, and which is included in the consolidated balance sheets of the Company as of December 31, 2021, and the related consolidated statements of operations, comprehensive (loss) income, stockholders’ equity, and cash flows for the year then ended.

Banker Steel Holdco constituted 26.6% and 270.1% of total assets and net assets, respectively, as of December 31, 2021, and 22.4% and 6.1% of revenues and net income (loss), respectively, for the year then ended.

Management did not assess the effectiveness of internal control over financial reporting of Banker Steel Holdco LLC because of the timing of the acquisition which was completed on May 27, 2021.

Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Banker Steel Holdco, LLC.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

2 unchanged sentences

March 9, 2022

HC2 HOLDINGS, INC.

INNOVATE CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

4 unchanged sentences

Revenue $ 1,205.2 $ 716.9

Life, accident and health earned premiums, net 115.1 116.9

Net investment income 188.9 203.8

Net realized and unrealized gains (losses) on investments ( 15.1 ) 0.7

Net revenue 1,005.8 1,077.0

Operating expenses

Cost of revenue 1,021.5 588.5

Policy benefits, changes in reserves, and commissions 250.0 234.5

Gross profit 183.7 128.4

Operating expenses:

Selling, general and administrative 168.3 145.5

Depreciation and amortization 25.4 17.7

Asset impairment expense 13.5 50.0

Other operating income ( 20.0 ) ( 5.2 )

Total operating expenses 1,009.9 1,051.7

(Loss) income from operations ( 4.1 ) 25.3

Other operating loss (gain) 0.6 ( 6.5 )

Loss from operations ( 10.6 ) ( 28.3 )

Other (expense) income:

Interest expense ( 59.1 ) ( 74.8 )

Loss on early extinguishment or restructuring of debt ( 12.5 ) ( 9.4 )

(Loss) income from equity investees ( 3.4 ) 1.6

Gain on bargain purchase — 1.1

Loss from equity investees ( 2.8 ) ( 3.4 )

Other income 4.3 69.2

Loss from continuing operations before income taxes ( 80.7 ) ( 46.7 )

Income tax benefit (expense) ( 10.5 ) 19.6

Income tax expense ( 5.6 ) ( 7.0 )

Loss from continuing operations ( 86.3 ) ( 53.7 )

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

Loss from discontinued operations (including loss on sale of $ 159.9 million and $ 44.1 million for the years ended December 31, 2021 and 2020, respectively)

( 149.9 ) ( 48.4 )

1 unchanged sentence

Net loss attributable to noncontrolling interest and redeemable noncontrolling interest 8.7 10.1

Net loss attributable to HC2 Holdings, Inc.

Net loss attributable to INNOVATE Corp.

( 227.5 ) ( 92.0 )

Preferred dividends, deemed dividends, and repurchase gains 3.6 —

Preferred dividends and deemed dividends from conversions 2.2 3.6

Net loss attributable to common stock and participating preferred stockholders $ ( 229.7 ) $ ( 95.6 )

12 unchanged sentences

See notes to Consolidated Financial Statements

HC2 HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

INNOVATE CORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(in millions)

1 unchanged sentence

Net loss $ ( 236.2 ) $ ( 102.1 )

Other comprehensive income

Foreign currency translation adjustment 7.9 ( 1.9 )

Unrealized gains on available-for-sale securities 191.6 288.4

Actuarial loss on pension plan — ( 7.8 )

Other comprehensive (loss) income

Foreign currency translation adjustment, net of tax 2.1 7.9

Unrealized (loss) gain on available-for-sale securities, net of tax ( 57.7 ) 191.6

Dispositions ( 334.0 ) 30.3

Other comprehensive income 229.8 278.7

Comprehensive income 127.7 242.6

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

Comprehensive income attributable to HC2 Holdings, Inc.

Other comprehensive (loss) income ( 389.6 ) 229.8

Comprehensive (loss) income ( 625.8 ) 127.7

Comprehensive (loss) income attributable to noncontrolling interests and redeemable noncontrolling interests ( 7.8 ) ( 8.2 )

Comprehensive (loss) income attributable to INNOVATE Corp.

$ ( 633.6 ) $ 119.5

See notes to Consolidated Financial Statements

HC2 HOLDINGS, INC.

INNOVATE CORP.

CONSOLIDATED BALANCE SHEETS

(in millions, except share amounts)

Fixed maturity securities, available-for-sale at fair value $ 4,456.1 $ 4,028.9

Equity securities 77.3 92.5

Mortgage loans 57.2 183.5

Policy loans 17.8 19.1

Other invested assets 57.2 68.1

Total investments 4,665.6 4,392.1

2021 December 31,

Current assets

Cash and cash equivalents $ 45.5 $ 43.8

Accounts receivable, net 247.1 134.7

Recoverable from reinsurers 957.5 953.7

Contract assets 118.6 86.6

Inventory 17.0 9.9

Restricted cash 2.0 1.5

Assets held for sale 1.5 5,942.1

Other current assets 10.9 8.7

Total current assets 442.6 6,227.3

Investments 56.0 55.4

Deferred tax asset 3.0 3.0

2 unchanged sentences

Intangibles, net 208.4 172.1

Assets held for sale 126.4 555.2

Other assets 73.3 42.2

Total assets $ 1,080.6 $ 6,723.8

Liabilities, temporary equity and stockholders’ equity

Life, accident and health reserves $ 4,627.5 $ 4,567.1

Annuity reserves 228.8 236.4

Value of business acquired 199.8 221.1

Accounts payable and other current liabilities 176.3 190.6

Liabilities, temporary equity and stockholders’ (deficit) equity

Current liabilities

Accounts payable $ 179.2 $ 69.7

Accrued liabilities 93.4 77.1

Current portion of debt obligations 69.5 433.6

Contract liabilities 79.1 33.2

Liabilities held for sale — 5,306.7

Other current liabilities 18.3 12.9

Total current liabilities 439.5 5,933.2

Deferred tax liability 9.1 7.0

Debt obligations 556.8 127.9

Liabilities held for sale 74.7 334.9

Other liabilities 63.3 39.8

5 unchanged sentences

Total temporary equity 68.1 15.7

Stockholders’ equity

Stockholders’ (deficit) equity

Common stock, $ 0.001 par value

Shares authorized:

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

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

Shares issued:

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

79,225,964 and 77,836,586 at December 31, 2021 and December 31, 2020, respectively

Shares outstanding:

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

77,836,748 and 76,726,835 at December 31, 2021 and December 31, 2020, respectively

Additional paid-in capital 330.6 355.7

Treasury stock, at cost:

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

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

( 5.2 ) ( 4.2 )

Accumulated deficit ( 416.2 ) ( 188.7 )

Accumulated other comprehensive income (loss) 396.9 168.7

Total HC2 Holdings, Inc.

stockholders’ equity 559.8 349.8

Accumulated other comprehensive income 6.4 396.9

Total INNOVATE Corp.

stockholders’ (deficit) equity ( 84.3 ) 559.8

Noncontrolling interest 28.1 40.4

Total stockholders’ equity 600.2 443.6

Total liabilities, temporary equity and stockholders’ equity $ 6,742.8 $ 6,958.3

Total stockholders’ (deficit) equity ( 56.2 ) 600.2

Total liabilities, temporary equity and stockholders’ (deficit) equity $ 1,080.6 $ 6,723.8

See notes to Consolidated Financial Statements

HC2 HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

INNOVATE CORP.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY

(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) (a) Total INNOVATE Stockholders' Equity (Deficit) Non-

Interest Total Stockholders’ Equity (Deficit) Temporary Equity

Shares Amount

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

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

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

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

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

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

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

1 unchanged sentence

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

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

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

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

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

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

5 unchanged sentences

Fair value adjustment of redeemable noncontrolling interest — — 0.2 — — — 0.2 — 0.2 0.1

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

Taxes paid in lieu of shares issued for share-based compensation — — — ( 1.0 ) — — ( 1.0 ) — ( 1.0 ) —

1 unchanged sentence

Issuance of common stock 1.1 — 0.2 — — — 0.2 — 0.2 —

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

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

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

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

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

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

Transactions with noncontrolling interests — — ( 22.2 ) — — — ( 22.2 ) ( 12.7 ) ( 34.9 ) 9.4

1 unchanged sentence

Net loss — — — — ( 227.5 ) — ( 227.5 ) ( 2.0 ) ( 229.5 ) ( 6.7 )

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

Other comprehensive (loss) income — — — — — ( 390.5 ) ( 390.5 ) 0.9 ( 389.6 ) —

Balance as of December 31, 2021 77.8 $ 0.1 $ 330.6 $ ( 5.2 ) $ ( 416.2 ) $ 6.4 $ ( 84.3 ) $ 28.1 $ ( 56.2 ) $ 68.1

(a) Inclusive of other comprehensive income, foreign currency cumulative translation adjustments totaled $ 7.3 million and $ 13.4 million as of December 31, 2021 and 2020, respectively.

See notes to Consolidated Financial Statements

HC2 HOLDINGS, INC.

INNOVATE CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

9 unchanged sentences

Amortization of deferred financing costs and debt discount 10.5 15.1

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

Amortization of discount on investments, net — ( 0.1 )

Loss on extinguishment of debt 12.5 9.4

Gain on bargain purchase — ( 1.1 )

(Loss) Income from equity investees 3.4 ( 1.6 )

Loss from equity investees 2.8 3.4

Asset impairment expense 2.8 13.7

1 unchanged sentence

Deferred income taxes 2.0 ( 4.7 )

Annuity benefits 6.3 9.8

Other operating activities ( 4.2 ) ( 10.3 )

1 unchanged sentence

Accounts receivable ( 38.3 ) 92.9

Recoverable from reinsurers ( 4.0 ) 4.4

Contract assets ( 19.1 ) ( 36.1 )

Other current assets ( 0.3 ) 4.8

Other assets 10.6 9.9

Life, accident and health reserves 60.3 44.9

Accounts payable and other current liabilities 1.3 ( 18.0 )

Accounts payable 57.9 5.8

Accrued liabilities 8.5 ( 4.7 )

Contract liabilities 7.2 ( 17.5 )

Other current liabilities ( 2.2 ) ( 17.0 )

Other liabilities ( 10.9 ) ( 23.3 )

Cash provided by operating activities 52.4 53.2

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

Cash used in continuing operating activities ( 6.5 ) ( 55.2 )

Cash provided by discontinued operating activities 33.5 96.3

Cash provided by operating activities 27.0 41.1

2 unchanged sentences

Proceeds from disposal of property, plant and equipment 13.2 41.2

Purchase of investments ( 997.1 ) ( 1,060.1 )

Sale of investments — 0.6

Maturities and redemptions of investments 98.1 123.5

Cash received from the sale of equity method investments 85.5 —

Cash received from dispositions, net 147.4 13.5

Cash received from (paid for) acquisitions, net — ( 19.8 )

Sale of equity method investments — 85.5

Cash received from dispositions, net of cash disposed 74.0 147.4

Extraordinary dividend received in business disposition 62.5 —

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

Other investing activities 1.0 5.0

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

Cash (used in) provided by continuing investing activities ( 1.9 ) 261.9

Cash used in discontinued investing activities ( 221.3 ) ( 99.8 )

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

Cash (used in) provided by investing activities ( 223.2 ) 162.1

Cash flows from financing activities

Proceeds from debt obligations ( 4.1 ) 88.9

Proceeds from (Repayments of) debt obligations 487.6 ( 4.1 )

Principal payments on debt obligations ( 458.1 ) ( 181.9 )

Proceeds from sale of HC2 preferred stock 27.0 —

Proceeds from rights offering 34.5 —

Proceeds from sale of preferred stock — 38.0

Cash received by subsidiary to issue preferred stock 10.5 37.2

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

Annuity receipts 1.6 2.2

Annuity surrenders ( 15.6 ) ( 18.1 )

Redemption of preferred stock ( 10.4 ) —

Transactions with noncontrolling interests ( 13.5 ) ( 62.9 )

Other financing activities ( 4.2 ) ( 8.8 )

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

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

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

Cash provided by (used in) continuing financing activities 11.9 ( 182.5 )

Cash used in discontinued financing activities ( 7.6 ) ( 22.0 )

Cash provided by (used in) financing activities 4.3 ( 204.5 )

Effects of exchange rate changes on cash, cash equivalents and restricted cash ( 1.3 ) 1.1

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

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

Net decrease in cash and cash equivalents, including restricted cash and cash classified within assets held for sale ( 193.2 ) ( 0.2 )

Net decrease in cash and cash equivalents from discontinued operations ( 195.4 ) ( 20.8 )

Net change in cash, cash equivalents and restricted cash 2.2 20.6

2 unchanged sentences

See notes to Consolidated Financial Statements

HC2 HOLDINGS, INC.

INNOVATE CORP.

NOTES TO 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.

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

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

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

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

DBMG is a fully integrated Industrial Construction, Structural Steel and Facility Maintenance provider that provides fabrication and erection of structural steel and heavy steel plate services and also fabricates trusses and girders and specializes in the fabrication and erection of large-diameter water pipe and water storage tanks, as well as 3-D Building Information Modeling (“BIM”) and detailing.

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

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

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

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

Through the recently acquired Banker Steel, DBMG provides full-service fabricated structural steel and erection services primarily for the East Coast and Southeast commercial and industrial construction market, in addition to full design-assist services.

The Company maintains an approximately 91 % controlling interest in DBMG.

2 unchanged sentences

("Genovel"), which seeks to develop products to treat early osteoarthritis of the knee and approximately 56 % in R2 Technologies, Inc.

("R2"), which develops develops aesthetic and medical technologies for the skin.

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

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

("HC2 Broadcasting") and its subsidiaries.

HC2 Broadcasting strategically acquires and operates over-the-air broadcasting stations across the United States.

In addition, HC2 Broadcasting, through its wholly-owned subsidiary, HC2 Network Inc.

("R2"), which develops aesthetic and medical technologies for the skin.

Pansend also invests in other early stage or developmental stage healthcare companies including an approximately 47 % interest in MediBeacon Inc.

("MediBeacon"), and an approximately 26 % interest in Triple Ring Technologies, Inc ("Triple Ring").

Our Spectrum segment is comprised of HC2 Broadcasting Holdings Inc.

("Broadcasting") and its subsidiaries.

Broadcasting strategically acquires and operates over-the-air broadcasting stations across the United States.

In addition, Broadcasting, through its wholly-owned subsidiary, HC2 Network Inc.

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

Our Insurance segment is comprised of Continental Insurance Group Ltd.

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

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

The Company maintains a 100 % interest in CIG.

The Company maintains a 98 % controlling interest in Broadcasting and maintains a controlling interest of approximately 77 %, inclusive of approximately 10 % proxy and voting 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 HMN Technologies Co., Ltd.

(“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.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

3 unchanged sentences

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

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

For the years ended December 31, 2021 and December 31, 2020, the results of DBMG, Genovel, R2, 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.

Basis of Presentation

The accompanying Consolidated Financial Statements of the Company included herein have been prepared in U.S.

dollars in conformity with accounting principles generally accepted in the United States of America (“U.S.

GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC").

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

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 Consolidated Financial Statements through a combination of available cash and distributions from our subsidiaries.

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, 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.

Our ability to sell assets and certain of our investments to meet our existing financing needs may also be limited by our existing financing instruments.

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

There are many uncertainties regarding the current coronavirus ("COVID-19") pandemic, and the Company 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 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.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

COVID-19 has continued to cause supply chain challenges related to labor shortages and supply chain disruptions, which may create significant delays in our ability to complete projects or deliver products.

The receipt of material from impacted areas has been slowed or disrupted and our suppliers are expected to face similar challenges in fulfilling orders.

In addition, reductions in the number of ocean carrier voyages, ocean freight capacity issues, congestion at major international gateways and other economic factors continue to persist worldwide due to COVID-19 and worldwide supply impacts as there is much greater demand for shipping and reduced capacity and equipment, which has resulted in recent price increases per shipping container.

In addition, in the United States, trucking costs have risen dramatically due to driver shortages and increased labor costs, as well as new federal and state safety, environmental and labor regulations.

These changes, as well as COVID-19 related state and local restrictions on domestic trucking and the operation of distribution centers, may disrupt our supply chain, which may result in a delay in the completion of our projects and cause us to incur significant additional costs.

Although we may attempt to pass on certain of these increased costs to our customers, we may not be able to pass all of these cost increases on to our customers.

As a result, our margins may be adversely impacted by such cost increases.

These supply chain disruptions and transportation challenges could have a material adverse effect on our results of operations or financial condition.

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

Cash and Cash Equivalents

2 unchanged sentences

Estimates of fair value included in the Consolidated Financial Statements, in conformity with ASC 820, Fair Value Measurements and Disclosures , represent the Company’s best estimates and valuations developed, when needed, with the assistance of independent appraisers or, where such valuations have not yet been completed or are not available, industry data and trends and by reference to relevant market rates and transactions.

The following estimates and assumptions are inherently subject to significant uncertainties and contingencies beyond the control of the Company.

Such estimates and assumptions are inherently subject to significant uncertainties and contingencies beyond the control of the Company.

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

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

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

Fixed maturity securities

The Company determines the appropriate classification of investments in fixed maturity securities at the acquisition date and re-evaluates the classification at each balance sheet date.

All of our investments in fixed maturity securities are classified as available-for-sale.

The Company carries these investments at fair value with net unrealized gains or losses, net of tax and related adjustments, reported as a component of Accumulated Other Comprehensive Income (Loss) ("AOCI") of the Company's Consolidated Statements of Stockholders' Equity.

Premiums and discounts on fixed maturity securities are amortized using the interest method and reported in Net investment income;

mortgage-backed securities are amortized over a period based on estimated future principal payments, including prepayments.

Prepayment assumptions are reviewed periodically and adjusted to reflect actual prepayments and changes in expectations.

When the Company sells a security, the difference between the sale proceeds and amortized cost (determined based on specific identification) is reported in Net realized and unrealized gains (losses) on investments.

When a decline in the value of a specific investment is considered to be other-than-temporary at the balance sheet date, a provision for impairment is charged to earnings (included in realized gains (losses) on investments) and the cost basis of that investment is reduced.

If the Company can assert that it does not intend to sell an impaired fixed maturity security and it is not more likely than not that it will have to sell the security before recovery of its amortized cost basis, then the other-than-temporary impairment is separated into two components:

(i) the amount related to credit losses (recorded in earnings) and (ii) the amount related to all other factors (recorded in AOCI).

The credit-related portion of an other-than-temporary impairment is measured by comparing a security’s amortized cost to the present value of its current expected cash flows discounted at its effective yield prior to the impairment charge.

If the Company intends to sell an impaired security, or it is more likely than not that it will be required to sell the security before recovery, an impairment charge to earnings is recorded to reduce the amortized cost of that security to fair value.

Equity securities

Equity securities that have readily determinable fair values are recorded at fair value with unrealized gains and losses, due to changes in fair value, reflected in Net realized and unrealized gains (losses) on investments.

Dividend income from equity securities is recognized in Net investment income.

Realized gains and losses on the sale of equity securities are recognized in Net realized and unrealized gains (losses) on investments.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Equity Method Investments

The Company utilizes the equity method to account for investments when it possesses the ability to exercise significant influence, but not control, over the operating and financial policies of the investee.

The ability to exercise significant influence is presumed when an investor possesses more than 20% of the voting interests of the investee.

This presumption may be overcome based on specific facts and circumstances that demonstrate that the ability to exercise significant influence is restricted.

The ability to exercise significant influence is presumed when an investor possesses more than 20% of the voting interests of the investee, such as with our investments in MediBeacon and Triple Ring, of which we own an approximately 47 % interest in MediBeacon and an approximately 26 % interest in Triple Ring.

This presumption may be overcome based on specific facts and circumstances that demonstrate that the ability to exercise significant influence is restricted, such as with our 19 % equity method investment in HMN, as we continue to maintain a seat on the entity's board of directors and can exert significant influence.

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

12 unchanged sentences

quoted prices in markets that are not active;

or market standard valuation techniques and assumptions with significant inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

or market standard valuation techniques and assumptions with significant inputs that are observable or can be corroborated by

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

observable market data for substantially the full term of the assets or liabilities.

Such observable inputs include benchmarking prices for similar assets in active, liquid markets, quoted prices in markets that are not active and observable yields and spreads in the market.

7 unchanged sentences

Even though unobservable, management believes these inputs are based on assumptions deemed appropriate given the circumstances and consistent with what other market participants would use when pricing similar assets and liabilities.

For the Company’s invested assets, this category primarily includes private placements, asset-backed securities, and to a lesser extent, certain residential and commercial mortgage-backed securities, among others.

For the Company’s invested assets, most of which relate to the 2020 held-for-sale assets of the Insurance segment, this category primarily includes private placements, asset-backed securities, and to a lesser extent, certain residential and commercial mortgage-backed securities, among others.

Prices are determined using valuation methodologies such as discounted cash flow models and other similar techniques.

9 unchanged sentences

The selection of the valuation technique(s) to apply considers the definition of an exit price and the nature of the asset or liability being valued and significant expertise and judgment is required .

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Accounts Receivable

1 unchanged sentence

Our allowance for doubtful accounts considers historical experience, the age of certain receivable balances, credit history, current economic conditions and other factors that may affect the counterparty’s ability to pay.

The policy for determining past due status is based on the contractual payment terms of each customer.

Once collection efforts by the Company are exhausted, the determination for charging off uncollectible receivables is made.

For the years ended December 31, 2021 and 2020, the Company recorded bad debt expense of $ 0.1 million and $ 0.6 million, respectively.

Inventory is valued at the lower of cost or net realizable value under the first-in, first-out method.

3 unchanged sentences

The policy for long-term work in progress contracts is disclosed within the Revenue and Cost Recognition accounting policy.

Premium revenue and benefits are reported net of the amounts related to reinsurance ceded to and assumed from other companies.

Expense allowances from reinsurers are included in other operating and general expenses.

Amounts recoverable from reinsurers are estimated in a manner consistent with the direct reserve associated with the reinsured policies.

Accounting for Income Taxes

6 unchanged sentences

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

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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

4 unchanged sentences

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

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

Additionally, the deferred tax assets generated by certain businesses that do not qualify to be included in the INNOVATE Corp.

consolidated income tax return have been reduced by a full valuation allowance.

Based on consideration of both positive and negative evidence, we determined that it was more likely than not that the net deferred tax assets of the HC2 U.S.

Based on consideration of both positive and negative evidence, we determined that it was more likely than not that the net deferred tax assets of the INNOVATE Corp.

consolidated filing group will not be realized.

Therefore, a valuation allowance was maintained against the HC2 U.S.

Therefore, a valuation allowance was maintained against the INNOVATE Corp.

consolidated filing group’s net deferred tax assets as of December 31, 2021.

The appropriateness and amount of the valuation allowance are based on cumulative history of losses and our assumptions about the future taxable income of each affiliate and the timing of the reversal of deferred tax assets and liabilities.

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

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

In relation to tax effects for accumulated OCI, our policy is to release the tax effects of amounts reclassified from accumulated OCI to pre-tax income (loss) from continuing operations.

Any remaining tax effect in accumulated OCI is released following a portfolio approach.

Property, Plant and Equipment

9 unchanged sentences

Assets under construction are not depreciated until they are complete and available for use.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

When assets are sold or otherwise retired, the costs and accumulated depreciation are removed from the books and the resulting gain or loss is included in operating results.

15 unchanged sentences

If the carrying amount of the intangible asset exceeds its fair value, an impairment loss shall be recognized in an amount equal to the excess.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Intangible assets subject to amortization consists of certain trade names, customer contracts and developed technology.

22 unchanged sentences

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

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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

3 unchanged sentences

The estimate of the appropriate discount rate to be used to apply the present value technique in determining fair value was the Company’s weighted average cost of capital which is based on the effective rate of its debt obligations at the current market values (for periods during which the Company had debt obligations) as well as the current volatility and trading value of the Company’s common stock.

Value of Business Acquired ("VOBA")

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

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

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

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

VOBA amortization are reported within depreciation and amortization in the accompanying consolidated statements of operations.

The VOBA balance is also periodically evaluated for recoverability to ensure that the unamortized portion does not exceed the expected recoverable amounts.

At each evaluation date, actual historical gross profits are reflected, and estimated future gross profits and related assumptions are evaluated for continued reasonableness.

Any adjustment in estimated future gross profits requires that the amortization rate be revised ("unlocking") retroactively to the date of the policy or contract issuance.

The cumulative unlocking adjustment is recognized as a component of current period amortization.

Annuity Benefits Accumulated

Annuity receipts and benefit payments are recorded as increases or decreases in annuity benefits accumulated rather than as revenue and expense.

Increases in this liability (primarily interest credited) are charged to expense and decreases for charges are credited to annuity policy charges revenue.

Reserves for traditional fixed annuities are generally recorded at the stated account value.

Life, Accident and Health Reserves

Liabilities for future policy benefits under traditional life, accident and health policies are computed using the net level premium method.

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

Claim reserves and liabilities established for accident and health claims are modified as necessary to reflect actual experience and developing trends.

For long-duration contracts (such as traditional life and long-term care insurance policies), loss recognition occurs when, based on current expectations as of the measurement date, existing contract liabilities plus the present value of future premiums (including reasonably expected rate increases) are not expected to cover the present value of future claims payments and related settlement and maintenance costs (excluding overhead) as well as unamortized acquisition costs.

If a block of business is determined to be in loss recognition, a charge is recorded in earnings in an amount equal to the excess of the present value of expected future claims costs and unamortized acquisition costs over existing reserves plus the present value of expected future premiums (with no provision for adverse deviation).

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

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

This adjustment is included in unrealized gains (losses) on marketable securities, a component of AOCI.

The Company accounts for leases in accordance with ASC 842, Leases , which requires the balance sheet recognition of lease assets and lease liabilities by lessees for those leases classified as operating and finance leases.

The Company determines if an arrangement is a lease at inception.

Operating leases are included in operating lease assets, current operating lease liabilities and long-term operating lease liabilities in the Consolidated Balance Sheets and are recognized based on the present value of lease payments over the lease term at the commencement date.

Finance leases are included in finance lease assets, current finance lease liabilities and long-term finance lease liabilities in the Consolidated Balance Sheets and are recognized based on the present value of lease payments over the lease term at commencement date.

The majority of the Company’s leases do not provide an implicit rate of return;

therefore, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

For lease agreements that contain non-lease components, the Company elected to combine lease and non-lease components as a single lease component.

The Company has operating leases for land, office space, and certain Company vehicles and equipment and finance leases for certain Company vehicles and equipment.

The leases are expiring between 2022 and 2045.

Leases with an initial term of 12 months or less are not recorded on the balance sheets.

Lease expense is recognized on a straight-line basis over the lease term.

For purposes of calculating operating lease liabilities, lease terms may be deemed to include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

As of December 31, 2021, the operating lease liability does not include any options to extend or terminate leases.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Presentation of Taxes Collected

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

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Foreign Currency Transactions

8 unchanged sentences

The net effect of such translation gains and losses are reflected within AOCI in the stockholders’ equity section of the consolidated balance sheets.

If there is a planned or completed sale or liquidation of the Company's ownership in a foreign operation, the relevant foreign currency translation adjustment is recognized in the consolidated statement of operations.

Convertible Instruments

16 unchanged sentences

Actual results may differ from these estimates.

Significant estimates include allowance for doubtful accounts receivable, the extent of progress towards completion on contracts, contract revenue and costs on long-term contracts, valuation of certain investments and the insurance reserves, market assumptions used in estimating the fair values of certain assets and liabilities, the calculation used in determining the fair value of HC2’s stock options required by ASC 718, Compensation - Stock Compensation ("ASC 718"), income taxes and various other contingencies.

Significant estimates include allowance for doubtful accounts receivable, the extent of progress towards completion on contracts, contract revenue and costs on long-term contracts, valuation of certain investments and the insurance reserves, market assumptions used in estimating the fair values of certain assets and liabilities, the calculation used in determining the fair value of INNOVATE’s stock options required by ASC 718, Compensation - Stock Compensation ("ASC 718"), income taxes and various other contingencies.

Estimates of fair value represent the Company’s best estimates developed with the assistance of independent appraisals or various valuation techniques and, where the foregoing have not yet been completed or are not available, industry data and trends and by reference to relevant market rates and transactions.

The estimates and assumptions are inherently subject to significant uncertainties and contingencies beyond the control of the Company.

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

HC2 HOLDINGS, INC.

The estimates and assumptions are inherently subject to significant uncertainties and contingencies beyond the

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

control of the Company.

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

Share-Based Compensation

The Company accounts for share-based compensation issued to employees in accordance with the provisions of ASC 718 and to non-employees pursuant to ASC 505-50, Equity-based payments to non-employees.

The Company accounts for share-based compensation issued to employees and non-employees in accordance with the provisions of ASC 718 .

All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for using a fair-value based method.

9 unchanged sentences

Share-based compensation is recorded net of actual forfeitures.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentration of credit risk principally consist of trade accounts receivable.

The Company performs ongoing credit evaluations of its customers but generally does not require collateral to support customer receivables.

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

Concentrations of Credit Risk and of Significant Suppliers

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents, and accounts receivable.

The Company maintains all cash and cash equivalents at accredited financial institutions, in amounts that exceed federally insured limits.

The Company has not experienced any losses in such accounts.

The Company holds $ 4.7 million and $ 8.5 million cash in foreign accounts as of December 31, 2021 and 2020, respectively.

The Company attempts to minimize the risks related to cash and cash equivalents by investing in a range of financial instruments as defined by the Company.

Concentrations of credit risk with respect to accounts receivable are limited by the large number of customers comprising the Company's customer base and their geographic and business dispersion.

The Company performs ongoing credit evaluations of the customers' financial condition and generally does not require collateral to support customer receivables.

For the year ended December 31, 2021, one customer exceeded 10% of the Company's revenue and accounted for approximately 13.9 %.

No customers accounted for more than 10% of accounts receivable.

For the fiscal year ended December 31, 2020, no customer accounted for more than 10% of the Company's revenue and no customers accounted for more than 10% of accounts receivable.

For the year ended December 31, 2021, one supplier accounted for more than 10% of the Company's accounts payable for approximately 15.1 %.

For the fiscal year ended December 31, 2020, no suppliers accounted for more than 10% of the Company's accounts payable.

Income (Loss) Per Common Share

11 unchanged sentences

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

HC2 HOLDINGS, INC.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Other Income (Loss)

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

Years Ended December 31,

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

Loss on embedded derivatives $ ( 0.7 ) $ ( 2.8 )

Gain on sale of equity method investments — 71.2

Other income (expenses), net 0.2 ( 7.2 )

Other income, net 5.0 0.8

Total $ 4.3 $ 69.2

19 unchanged sentences

Investments included in accounts payable $ — $ 17.1

Issuance of preferred stock $ 19.1 $ —

Issuance of redeemable noncontrolling interest $ 40.9 $ —

Extinguishment of convertible note in exchange $ 51.8 $ —

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

Debt assumed in acquisitions $ 6.3 $ —

Reclassification

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

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

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

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

Discontinued Operations for further information;

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

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

Operating Segment and Related Information for further information;

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

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

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

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

Operating Segment and Related Information for further information;

HC2 HOLDINGS, INC.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

2 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.

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

Basic and Diluted Income Per Common Share for further details.

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

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

Accounting Pronouncements Adopted in the Current Year

Accounting for Investments-Equity Securities

ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) , was issued by the FASB in January 2020.

This update clarifies the interaction between the accounting for investments in equity securities, investment in equity method and certain derivatives instruments.

The Company adopted this update as of January 1, 2021 and the update did not have a material impact on the Company's consolidated financial statements.

Accounting for Debt with Conversion Options

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

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

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

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

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

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

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

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

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

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers

ASU 2021-08, Accounting for Contract Assets and Liabilities from Contracts with Customers (Topic 805) was issued by the FASB in October 2021.

This update requires that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, Revenue Recognition (Topic 606) .

At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts by assessing how the acquiree applied Topic 606 to determine what to record for the acquired revenue contracts.

Generally, this should result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree's financial statements.

The Company adopted this update as of January 1, 2021, and applied the guidance to the Company's acquisition of Banker Steel.

Accounting Pronouncements to be Adopted Subsequent to December 31, 2021

1 unchanged sentence

ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) , Measurement of Credit Losses on Financial Instruments, was issued by FASB in June 2016.

This standard is effective January 1, 2020 (with early adoption permitted), and will impact, at least to some extent, the Company's accounting and disclosure requirements for it's recoverable from reinsurers, accounts receivable, and mortgage loans.

This standard is effective January 1, 2020 (with early adoption permitted).

This new standard changes the impairment model for most financial assets that are measured at amortized cost and certain other instruments, including trade receivables, from an incurred loss model to an expected loss model and adds certain new required disclosures.

Under the expected loss model, entities will recognize estimated credit losses over the entire contractual term of the instrument rather than delaying recognition of credit losses until it is probable the loss has been incurred.

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

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

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

The Company will continue to identify any other financial assets not excluded from scope.

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

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

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

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

• Financial assets (or a group of financial assets) measured at amortized cost will be required to be presented at the net amount expected to be collected, with an allowance for credit losses deducted from the amortized cost basis, resulting in a net carrying value that reflects the amount the entity expects to collect on the financial asset at purchase.

• Credit losses relating to available for sale fixed maturity securities will be recorded through an allowance for credit losses, rather than reductions in the amortized cost of the securities and is anticipated to increase volatility in the Company's Consolidated Statements of Operations.

The allowance methodology recognizes that value may be realized either through collection of contractual cash flows or through the sale of the security.

Therefore, the amount of the allowance for credit losses will be limited to the amount by which fair value is below amortized cost because the classification as available for sale is premised on an investment strategy that recognizes that the investment could be sold at fair value, if cash collection would result in the realization of an amount less than fair value.

• The Company's Consolidated Statements of Operations will reflect the measurement of expected credit losses for newly recognized financial assets as well as the expected increases or decreases (including the reversal of previously recognized losses) of expected credit losses that have taken place during the period.

The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount.

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

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

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

Focus areas will include, but not be limited to:

(i) updating procedures to reflect new guidance requiring establishment of allowance for credit losses on available for sale debt securities;

(ii) establishing procedures to review reinsurance risk to include but not limited to review of reinsurer ratings, trust agreements where applicable and historical and current performance;

(iii) establishing procedures to identify and review all remaining financial assets within scope;

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

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Long-Duration Contracts

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Focus areas will include, but not be limited to:

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

(ii) establishing appropriate aggregation of liabilities;

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

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

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

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

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

The Company will not be required to adopt Topic 326 until January 1, 2023.

Currently, the Company continues to evaluate the potential impact of the new standard on its financial results.

Subsequent Events

1 unchanged sentence

Subsequent Events for the summary of the subsequent events.

HC2 HOLDINGS, INC.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Discontinued Operations

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

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

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

Years Ended December 31,

Net Revenue $ 519.6 $ 907.2

Revenue $ 1.7 $ 519.6

Life, accident and health earned premiums, net 55.7 115.1

Net investment income 92.4 188.9

Realized/unrealized gains (losses) on investments 5.1 ( 15.0 )

Total revenue 154.9 808.6

Cost of revenue 0.8 492.4

Policy benefits, changes in reserves, and commissions 126.0 250.0

Selling, general and administrative 21.1 62.0

1 unchanged sentence

Other operating expenses — 0.3

Income (loss) from operations ( 11.9 ) 3.6

Income from operations 18.0 12.2

Interest expense ( 0.5 ) ( 12.1 )

1 unchanged sentence

Income from equity investees — 0.5

Other income (loss) ( 1.5 ) ( 0.2 )

Other loss ( 3.1 ) ( 2.3 )

Pre-tax loss from discontinued operations ( 145.5 ) ( 45.8 )

Income tax benefit 1.0 1.2

Income tax expense ( 4.4 ) ( 2.6 )

Loss from discontinued operations $ ( 149.9 ) $ ( 48.4 )

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 December 31, 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.

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 INNOVATE as the Stockholder Representative for the Beyond6 stockholders.

The sale closed on January 15, 2021.

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.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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 years ended December 31, 2021 and 2020 associated with the principal prepayment from continuing operations to discontinued operations on the Company’s Consolidated Statements of Operations:

Years Ended December 31,

Interest expense $ 0.1 $ 0.9

Amortization of deferred financing costs and original issuance discount $ — $ 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 years ended December 31, 2021 and 2020, from continuing operations to discontinued operations on the Company’s Consolidated Statements of Operations:

Years Ended December 31,

Interest expense $ 0.3 $ 3.2

Amortization of deferred financing costs and original issuance discount $ — $ 0.4

The sale of GMSL closed on February 28, 2020.

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

At the time of the sale, the Company recorded a $ 39.3 million loss on the sale and recognized $ 31.3 million of Accumulated other comprehensive loss.

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

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

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

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

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 years ended December 31, 2021 and 2020 associated with the principal prepayment from continuing operations to discontinued operations on the Company’s Consolidated Statement of Operations:

Years Ended December 31,

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

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 years ended December 31, 2021 and 2020, from continuing operations to discontinued operations on the Company’s Consolidated Statements of Operations:

Years Ended December 31,

3 unchanged sentences

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

Proceeds were used for general corporate purposes.

HC2 HOLDINGS, INC.

The proceeds were used for general corporate purposes.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Sale of Beyond6

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

The sale closed on January 15, 2021.

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

Other invested assets $ — $ 16.9

2021 December 31,

Current assets

Cash and cash equivalents $ — $ 195.2

Accounts receivable, net — 13.6

Other current assets 1.5 8.7

Total current assets 1.5 217.5

Investments — 4,610.2

Recoverable from reinsurers — 957.5

Deferred tax asset — 1.4

Property, plant and equipment, net — 90.5

3 unchanged sentences

Total assets held for sale $ 1.5 $ 5,942.1

Account payable and other current liabilities $ 10.3 $ 148.9

Current liabilities

Accounts payable $ — $ 2.6

Accrued liabilities — 35.8

Current portion of debt obligations — 5.7

Other current liabilities — 7.4

Total current liabilities — 51.5

Life, accident and health reserves — 4,627.5

Annuity reserves — 228.8

Value of business acquired — 199.8

Deferred tax liability — 136.5

Debt obligations — 50.6

Pension liability — 18.8

Other liabilities — 12.0

Total liabilities held for sale $ — $ 5,306.7

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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

2 unchanged sentences

A contract with a customer exists when:

(a) the parties have approved the contract and are committed to perform their respective obligations, (b) the rights of the parties can be identified, (c) payment terms can be identified, (d) the arrangement has commercial substance, and (e) collectibility of consideration is probable.

Judgment is required when determining if the contractual criteria are met, specifically in the earlier stages of a project when a formally executed contract may not yet exist.

In these situations, the Company evaluates all relevant facts and circumstances, including the existence of other forms of documentation or historical experience with our customers that may indicate a contractual agreement is in place and revenue should be recognized.

In determining if the collectibility of consideration is probable, the Company considers the customer’s ability and intention to pay such consideration through an evaluation of several factors, including an assessment of the creditworthiness of the customer and our prior collection history with such customer.

In determining if the collectability of consideration is probable, the Company considers the customer’s ability and intention to pay such consideration through an evaluation of several factors, including an assessment of the creditworthiness of the customer and our prior collection history with such customer.

Identify the performance obligations in the contract

3 unchanged sentences

(a) capable of being distinct, whereby the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer, and (b) distinct within the context of the contract, whereby the transfer of the good or service to the customer is separately identifiable from other promises in the contract.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

In addition, when assessing performance obligations within a contract, the Company considers the warranty provisions included within such contract.

15 unchanged sentences

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

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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

14 unchanged sentences

The selection of the method to measure progress towards completion can be either an input method or an output method and requires judgment based on the nature of the goods or services to be provided.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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

3 unchanged sentences

Spectrum 42.0 40.3

Life Sciences 3.5 —

Total revenue $ 1,205.2 $ 716.9

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

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

2021 December 31,

Accounts receivables with customers

2 unchanged sentences

Spectrum 9.4 7.3

Life Sciences 0.3 —

Total accounts receivables with customers $ 236.5 $ 125.8

10 unchanged sentences

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

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Payment Terms

The timing of customer billings is generally dependent upon advance billing terms, milestone billings based on completion of certain phases of work, or when services are provided.

Under the typical payment terms of master and other service agreements and fixed price contracts, the customer makes progress payments based on quantifiable measures of performance by the Company as defined by each specific agreement.

Progress payments, generally net of amounts retained, are paid by the customer over the duration of the contract.

Amounts billed and due from customers, as well as the amount of contract assets, are generally classified within current assets in the consolidated balance sheets.

Accounts Receivable, net and Contract Assets and Contract Liabilities for related discussion.

Amounts expected to be collected beyond one year are classified as other long-term assets.

Service Contracts

5 unchanged sentences

Retention on contract receivables are amounts due on progress billings, which are withheld until the completed project has been accepted by the customer.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Disaggregation of Revenues

7 unchanged sentences

Industrial 292.5 214.9

Convention 85.8 10.6

Government 68.0 65.0

Healthcare 59.8 29.5

Transportation 52.7 72.6

Leisure 23.2 42.8

Healthcare 29.5 49.5

Convention 10.6 77.4

Other 37.7 22.8

9 unchanged sentences

Our contract assets do not include capitalized costs to obtain and fulfill a contract.

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

Retainage for which the Company has an unconditional right to payment that is only subject to the passage of time are classified as accounts receivable.

Retainage receivable subject to conditions other than the passage of time, or conditional retainage, do not meet the definition of a receivable and are therefore included in contract assets and contract liabilities, as determined on a contract by contract basis.

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

1 unchanged sentence

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

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

Contract Assets and Contract Liabilities

The Company classifies contract assets and liabilities that may be settled beyond one year from the balance sheet date as current, consistent with the length of time of the Company’s project operating cycle.

Retainage receivable represents amounts invoiced to customers where payments have been partially withheld (usually less than 10 %) pending the completion of certain milestones, satisfaction of other contractual conditions or the completion of the project.

Retainage agreements vary from project to project and balances could be outstanding for several months or years depending on a number of circumstances, such as contract-specific terms, project performance and other variables that may arise as the Company makes progress toward completion.

As of December 31, 2021 and 2020, the amount of retainage receivable estimated by management to be collected beyond one year is approximately 24.6 % and 1.0 % of the balance, respectively.

When payment of the retainage is contingent upon the Company fulfilling its obligations under the contract it does not meet the criteria to be included in accounts receivable and remains in the contract’s respective contract assets or contract liability, determined on a contract-by-contract basis.

The Company has reflected such amounts within the consolidated balance sheets as of December 31, 2021 and 2020.

While retainage receivable have historically been presented and disclosed within accounts receivable, the impact to correct this immaterial error in the December 31, 2020 balance sheet resulted in a reduction of previously stated accounts receivable amounting to $ 50.0 million, offset by an increase of $ 31.0 million to current contract assets and a $ 19.0 million reduction to current contract liabilities.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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

2021 December 31,

Cost in excess of billings $ 68.3 $ 55.6

Conditional retainage 50.3 31.0

Contract assets $ 118.6 $ 86.6

Billings in excess of costs $ ( 137.6 ) $ ( 52.2 )

Conditional retainage 58.5 19.0

Contract liabilities $ ( 79.1 ) $ ( 33.2 )

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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

The change in contract liabilities is a result of periodic billing in excess of costs of $ 50.5 million driven largely by new commercial projects, offset by revenue recognized that was included in the contract liability balance at the beginning of the period in the amount of $ 48.9 million.

The change in contract assets is a result of the recording of $ 122.4 million of contract assets driven by new commercial projects and $ 22.7 million of contract assets for projects acquired in the Banker Steel acquisition, offset by $ 113.1 million of contract assets 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 of $ 72.7 million driven largely by new commercial projects and $ 38.6 million of contract liabilities 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 $ 65.4 million.

Transaction Price Allocated to Remaining Unsatisfied Performance Obligations

2 unchanged sentences

Commercial $ 452.6 $ 502.0 $ 954.6

Convention 56.1 — 56.1

Healthcare 26.0 — 26.0

Industrial 278.9 7.6 286.5

Transportation 21.6 16.1 37.7

Government 26.9 — 26.9

Leisure 17.1 — 17.1

Healthcare 85.6 — 85.6

Convention 109.3 40.0 149.3

Other 8.0 — 8.0

Remaining unsatisfied performance obligations $ 1,000.0 $ 565.7 $ 1,565.7

DBMG includes an additional $ 12.0 million in its backlog that is not included in the remaining unsatisfied performance obligations noted above.

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.

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

4 unchanged sentences

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

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Life Sciences Segment

Beginning in 2021, R2 Technologies commercially launched its first systems product, the GlacialRx, and other topical consumables.

The GlacialRx system is primarily sold to dermatologist offices for an initial upfront fee.

Software on the device controls the number of times the device may be used to perform a treatment.

The initial upfront fee entitles the user to a defined number of uses.

After the initial prepurchased uses are exhausted, the dermatologist office can purchase additional uses of the treatment for an additional fee, resulting in recurring revenues to R2 Technologies as the devices are utilized.

Further, topical consumables are also separately sold to dermatologist offices which patients can utilize post-treatment to increase the efficacy of the treatment.

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

Years Ended December 31,

Systems and consumables revenue $ 3.5 $ —

Total Life Sciences segment revenue $ 3.5 $ —

Spectrum Segment

13 unchanged sentences

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

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Payment Terms

We have an unconditional right to receive payment of the amount billed generally within 30 days of the invoice date.

Payment terms are expressly stated in our standard terms and conditions.

The invoiced amount to be received is recorded in accounts receivable on our balance sheet.

Disaggregation of Revenues

1 unchanged sentence

Years Ended December 31,

Network advertising $ 18.4 $ 22.7

Broadcast station $ 18.6 $ 15.5

Network advertising 18.1 18.4

Network distribution 3.2 4.0

Other 2.1 2.4

Total revenue from contracts with customers 40.3 41.8

Other revenue — —

Total Spectrum segment revenue $ 42.0 $ 40.3

2 unchanged sentences

Acquisitions, Dispositions, and Deconsolidations

Infrastructure Segment

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Banker Steel Acquisition

On March 15, 2021, the Company announced that DBMG entered into an agreement to acquire 100 % of Banker Steel Holdco LLC ("Banker Steel") for $ 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 INNOVATE in the settlement of certain intercompany balances.

Banker Steel provides full-service fabricated structural steel and erection services primarily for the East Coast and Southeast commercial and industrial construction market, in addition to full design-assist services.

Banker Steel consists of six operating companies:

Banker Steel Co., LLC;

NYC Constructors, LLC;

Derr & Isbell Construction LLC;

Innovative Detailing and Engineering Solutions;

and Lynchburg Freight and Specialty LLC.

The transaction was accounted for as a business acquisition and the valuation was finalized in the last quarter of 2021.

The 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):

Purchase Consideration at Fair Value

Partial draw on new $ 110.0 million revolving credit facility

Sellers' notes 49.6

Bankers Steel debt - assumed 6.3

Gross consideration 145.0

Seller transaction costs - assumed 0.4

Bankers debt - assumed 6.3

R&W premium paid by seller 0.5

Net consideration $ 137.8

Cash and cash equivalents $ 9.3

Accounts receivable, net 70.9

Contract assets 22.6

Assets held for sale 0.7

Inventory 5.7

Other current assets 1.7

Property, plant, and equipment, net 58.6

Other assets 40.1

Intangibles, net 60.8

Goodwill 16.7

Total assets to be acquired 287.1

Accounts Payable 39.1

Contract liabilities 38.6

Other current liabilities 31.1

Other liabilities 34.2

Long-term debt, less current portion 6.3

Total liabilities to be assumed 149.3

Total net assets acquired $ 137.8

During the 2021 measurement period, adjustments to our acquisition accounting were made to certain amounts.

These include updates to accounts receivable based on additional information obtained regarding collectability, values assigned to intangible assets, and additional accrued liabilities.

As such, the valuation was finalized during the fourth quarter of 2021.

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

Among the factors that contributed to goodwill was approximately $ 60.8 million assigned to intangibles, including customer relationships of $ 33.8 million with a useful life of 18 years, trade names of $ 7.4 million with a useful life of 15 years, existing customer contracts of $ 17.6 million with a useful life of 2 years and leasehold interests of $ 2.0 million with varying useful life.

Goodwill is not amortized.

The portion of goodwill that is deductible for tax purposes is $ 14.0 million.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Acquisition costs incurred by DBMG in connection with the acquisition of Banker Steel were approximately $ 2.0 million, which were included in selling, general and administrative expenses.

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

The following schedule presents the results of operations data for the year ended December 31, 2021 for Banker Steel since the date of acquisition (in millions):

Year Ended December 31, 2021

Revenue $ 265.9

Net income from operations $ 15.5

Net income attributable to INNOVATE $ 8.8

Pro Forma Adjusted Summary

The following schedule presents unaudited consolidated pro forma results of operations data as if the acquisition of Banker Steel had occurred on January 1, 2020.

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

Year Ended December 31, 2021 Year Ended December 31, 2020

Revenue $ 1,402.7 $ 1,114.1

Income (loss) from operations $ 0.9 $ 1.5

Net loss attributable to INNOVATE $ ( 219.2 ) $ ( 70.6 )

During the year ended December 31, 2021, the Company purchased an additional 53,759 shares of DBM Global, Inc.

on the open market, increasing its ownership to approximately 91 % from 89 %.

Spectrum Segment

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

All transactions were accounted for as asset acquisitions.

During the year ended December 31, 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 77 %, inclusive of approximately 10 % proxy and voting rights from minority holders, from private purchases and proxy voting rights.

Other Segment

5 unchanged sentences

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

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

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

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

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

The transaction closed on February 28, 2020.

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

HC2 received net proceeds of approximately $ 100.8 million.

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

INNOVATE received net proceeds of approximately $ 100.8 million.

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

In the first quarter of 2020, the Company recorded a $ 39.3 million loss on the sale and recognized a $ 31.3 million of Accumulated other comprehensive loss, which was comprised of $ 17.2 million of actuarial losses on pension and $ 14.1 million of currency translation adjustments.

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

HC2 HOLDINGS, INC.

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

INNOVATE CORP.

NOTES TO 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.

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.

In conjunction with the first tranche of the sale, the Company received $ 85.5 million in cash, of which $ 17.5 million and $ 2.1 million were paid to noncontrolling interest holders and redeemable noncontrolling interest holders, respectively.

New Saxon recorded a $ 71.1 million gain, included in Other income (loss) in the Condensed Consolidated Statements of Operations.

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 closing date, New Saxon recorded a $ 71.1 million gain, included in Other income (loss) in the Consolidated Statements of Operations.

The gain recognized includes $ 11.3 million related to the fair value of the put option.

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

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

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

2 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 consideration of $ 70.0 million, subject to working capital adjustments.

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.

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.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Fixed Maturity Securities

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

December 31, 2020 Amortized

Gains Unrealized

Government and government agencies $ 7.3 $ 1.1 $ — $ 8.4

States, municipalities and political subdivisions 383.5 58.4 — 441.9

Residential mortgage-backed securities 49.3 4.6 ( 1.0 ) 52.9

Commercial mortgage-backed securities 104.7 2.0 ( 9.3 ) 97.4

Asset-backed securities 415.0 2.2 ( 14.1 ) 403.1

Corporate and other 2,970.1 510.6 ( 28.3 ) 3,452.4

Total fixed maturity securities $ 3,929.9 $ 578.9 $ ( 52.7 ) $ 4,456.1

December 31, 2019 Amortized

Cost Unrealized

Gains Unrealized

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

States, municipalities and political subdivisions 405.4 34.7 — 440.1

Residential mortgage-backed securities 63.0 4.5 ( 0.6 ) 66.9

Commercial mortgage-backed securities 108.2 1.8 ( 0.6 ) 109.4

Asset-backed securities 592.6 2.2 ( 17.0 ) 577.8

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

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

The amortized cost and fair value of fixed maturity securities available-for-sale as of December 31, 2020 are shown by contractual maturity in the table below (in millions).

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

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

Corporate, Municipal, U.S.

Government and Other securities

Due in one year or less $ 52.3 $ 53.1

Due after one year through five years 278.6 290.9

Due after five years through ten years 483.6 519.8

Due after ten years 2,546.4 3,038.9

Subtotal 3,360.9 3,902.7

Mortgage-backed securities 154.0 150.3

Asset-backed securities 415.0 403.1

Total $ 3,929.9 $ 4,456.1

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

December 31, 2020 December 31, 2019

Total Amortized

Finance, insurance, and real estate $ 1,123.2 $ 1,208.2 35.0 % $ 632.2 $ 674.9 23.8 %

Transportation, communication and other services 684.3 799.0 23.1 % 785.7 855.2 30.3 %

Manufacturing 700.0 884.9 25.6 % 728.7 825.9 29.2 %

Other 462.6 560.3 16.3 % 422.5 471.0 16.7 %

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

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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

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

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

The Company recognized the following (in millions):

Years Ended December 31,

Net realized and unrealized gains on investments $ 6.8 $ 2.1

Other income (expenses), net 0.1 0.3

Total other-than-temporary impairments $ 6.9 $ 2.4

The following table presents the total unrealized losses for the 125 and 139 fixed maturity securities held by the Company as of December 31, 2020 and December 31, 2019, respectively, where the estimated fair value had declined and remained below amortized cost by the indicated amount (in millions):

December 31, 2020 December 31, 2019

Fixed maturity securities Unrealized Losses % of

Total Unrealized Losses % of

Less than 20% $ ( 50.3 ) 95.4 % $ ( 32.6 ) 97.6 %

20% or more for less than six months ( 0.2 ) 0.4 % — — %

20% or more for six months or greater ( 2.2 ) 4.2 % ( 0.8 ) 2.4 %

Total $ ( 52.7 ) 100.0 % $ ( 33.4 ) 100.0 %

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

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

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

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

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

The Company neither intends to sell nor does it expect to be required to sell the securities with unrealized losses as of December 31, 2020.

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

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

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

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

December 31, 2020 Less than 12 months 12 months or greater Total

Value Unrealized

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

States, municipalities and political subdivisions 0.3 — — — 0.3 —

Residential mortgage-backed securities 2.9 ( 0.2 ) 3.8 ( 0.8 ) 6.7 ( 1.0 )

Commercial mortgage-backed securities 62.2 ( 9.3 ) 0.2 — 62.4 ( 9.3 )

Asset-backed securities 86.5 ( 3.6 ) 158.4 ( 10.5 ) 244.9 ( 14.1 )

Corporate and other 179.1 ( 9.0 ) 114.6 ( 19.3 ) 293.7 ( 28.3 )

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

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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

Value Unrealized

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

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

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

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

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

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

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

As of December 31, 2020, investment grade fixed maturity securities (as determined by nationally recognized rating agencies) represented approximately 70.0 % of the gross unrealized loss and 79.9 % of the fair value.

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

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

Equity securities

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

Equity securities 2020 2019

Common stock $ 4.0 $ 10.5

Perpetual preferred stock 73.3 82.0

Total equity securities $ 77.3 $ 92.5

Other invested assets

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

December 31, 2020 December 31, 2019

Alternative Equity

Method Measurement

Alternative Equity

Common stock $ — $ 2.5 $ — $ 2.4

Preferred stock — 10.0 — 16.1

Other 11.3 33.4 — 49.6

Total $ 11.3 $ 45.9 $ — $ 68.1

Net investment income

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

Years Ended December 31,

Fixed maturity securities, available-for-sale at fair value $ 177.4 $ 177.3

Equity securities 2.9 7.6

Mortgage loans 12.5 15.0

Policy loans 1.1 1.1

Other invested assets ( 3.9 ) 4.0

Gross investment income 190.0 205.0

External investment expense ( 1.1 ) ( 1.2 )

Net investment income $ 188.9 $ 203.8

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Net realized and unrealized gains (losses) on investments

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

Years Ended December 31,

Realized gains on fixed maturity securities $ 17.2 $ 10.6

Realized losses on fixed maturity securities ( 17.7 ) ( 10.2 )

Realized gains on equity securities 0.2 3.4

Realized losses on equity securities ( 2.3 ) ( 3.3 )

Realized gains on mortgage loans 2.2 1.0

Realized losses on mortgage loans — ( 0.3 )

Net unrealized gains (losses) on equity securities ( 8.8 ) 3.4

Net unrealized gains (losses) on derivative instruments 0.9 ( 1.7 )

Impairment loss ( 6.8 ) ( 2.2 )

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

Fair Value of Financial Instruments

Assets by Hierarchy Level

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

December 31, 2020 Fair Value Measurement Using:

Total Level 1 Level 2 Level 3

Fixed maturity securities

Government and government agencies $ 8.4 $ 5.4 $ 3.0 $ —

States, municipalities and political subdivisions 441.9 — 441.9 —

Residential mortgage-backed securities 52.9 — 45.6 7.3

Commercial mortgage-backed securities 97.4 — 64.0 33.4

Asset-backed securities 403.1 — 36.1 367.0

Corporate and other 3,452.4 44.7 3,176.0 231.7

Total fixed maturity securities 4,456.1 50.1 3,766.6 639.4

Equity securities

Common stocks 4.0 3.5 — 0.5

Perpetual preferred stocks 73.3 5.1 20.8 47.4

Total equity securities 77.3 8.6 20.8 47.9

Total assets accounted for at fair value $ 4,533.4 $ 58.7 $ 3,787.4 $ 687.3

Embedded derivative $ 5.8 $ — $ — $ 5.8

Other 0.4 — — 0.4

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

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

December 31, 2019 Fair Value Measurement Using:

Total Level 1 Level 2 Level 3

Fixed maturity securities

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

States, municipalities and political subdivisions 440.1 — 440.1 —

Residential mortgage-backed securities 66.9 — 57.7 9.2

Commercial mortgage-backed securities 109.4 — 74.8 34.6

Asset-backed securities 577.8 — 27.2 550.6

Corporate and other 2,827.0 46.5 2,669.5 111.0

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

Equity securities

Common stocks 10.5 7.1 — 3.4

Perpetual preferred stocks 82.0 5.0 22.8 54.2

Total equity securities 92.5 12.1 22.8 57.6

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

Embedded Derivatives $ 3.0 $ — $ — $ 3.0

Other 1.3 — — 1.3

Total liabilities accounted for at fair value $ 4.3 $ — $ — $ 4.3

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

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

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

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

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

The Company’s assessment resulted in a net transfer out of Level 3 of $ 135.8 million primarily related to corporate securities during the year ended December 31, 2019.

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

Fixed Maturity Securities.

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

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

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

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

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

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

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

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

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

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

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

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

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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

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

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

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

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

Generally, these securities have been reflected within Level 3.

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

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

Otherwise, a Level 3 classification is used.

Equity Securities.

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

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

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

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

Cash Equivalents.

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

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

Level 3 Measurements and Transfers

The following tables summarize changes to the Company’s financial instruments carried at fair value and classified within Level 3 of the fair value hierarchy for the year ended December 31, 2020 and 2019 (in millions):

Total realized/unrealized gains (losses) included in

December 31, 2019 Net earnings

(loss) Other comp.

income (loss) Purchases and

issuances Sales and

settlements Transfer to

Level 3 Transfer out of

Level 3 Balance at

December 31, 2020

Fixed maturity securities

States, municipalities and political subdivisions $ — $ 0.2 $ 1.1 $ — $ ( 3.0 ) $ 15.2 $ ( 13.5 ) $ —

Residential mortgage-backed securities 9.2 0.1 ( 1.1 ) — ( 2.5 ) 6.8 ( 5.2 ) 7.3

Commercial mortgage-backed securities 34.6 ( 2.0 ) ( 1.1 ) — ( 1.9 ) 30.0 ( 26.2 ) 33.4

Asset-backed securities 550.6 ( 8.0 ) 4.3 60.1 ( 251.5 ) 191.8 ( 180.3 ) 367.0

Corporate and other 111.0 ( 3.9 ) 1.3 101.1 ( 9.0 ) 76.8 ( 45.6 ) 231.7

Total fixed maturity securities 705.4 ( 13.6 ) 4.5 161.2 ( 267.9 ) 320.6 ( 270.8 ) 639.4

Equity securities

Common stocks 3.4 ( 2.9 ) — — — — — 0.5

Perpetual preferred stocks 54.2 2.3 ( 9.4 ) — ( 1.4 ) 1.7 — 47.4

Total equity securities 57.6 ( 0.6 ) ( 9.4 ) — ( 1.4 ) 1.7 — 47.9

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

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Total realized/unrealized (gains) losses included in

December 31, 2019 Net earnings

(loss) Other comp.

income (loss) Purchases and

issuances Sales and

settlements Transfer to

Level 3 Transfer out of

Level 3 Balance at

December 31, 2020

Embedded derivative $ 3.0 $ 2.8 $ — $ — $ — $ — $ — $ 5.8

Other 1.3 ( 0.9 ) — — — — — 0.4

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

Total realized/unrealized gains (losses) included in

December 31, 2018 Net earnings

(loss) Other comp.

income (loss) Purchases and

issuances Sales and

settlements Transfer to

Level 3 Transfer out of

Level 3 Balance at

December 31, 2019

Fixed maturity securities

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

Residential mortgage-backed securities 19.0 — 0.1 — ( 1.9 ) 1.5 ( 9.5 ) 9.2

Commercial mortgage-backed securities 58.2 0.8 1.5 7.5 ( 37.6 ) 5.1 ( 0.9 ) 34.6

Asset-backed securities 478.2 ( 2.1 ) 14.1 184.4 ( 236.7 ) 189.1 ( 76.4 ) 550.6

Corporate and other 85.0 ( 3.2 ) 5.5 28.5 ( 28.5 ) 106.5 ( 82.8 ) 111.0

Total fixed maturity securities 640.4 ( 4.5 ) 21.3 220.4 ( 305.2 ) 306.4 ( 173.4 ) 705.4

Equity securities

Common stocks 5.9 ( 1.5 ) 0.1 0.3 ( 1.2 ) — ( 0.2 ) 3.4

Perpetual preferred stocks 55.3 ( 3.9 ) ( 0.1 ) 2.5 ( 2.6 ) 3.0 — 54.2

Total equity securities 61.2 ( 5.4 ) — 2.8 ( 3.8 ) 3.0 ( 0.2 ) 57.6

Derivatives — — — — — — — —

Total financial assets $ 701.6 $ ( 9.9 ) $ 21.3 $ 223.2 $ ( 309.0 ) $ 309.4 $ ( 173.6 ) $ 763.0

Total realized/unrealized (gains) losses included in

December 31, 2018 Net earnings

(loss) Other comp.

income (loss) Purchases and

issuances Sales and

settlements Transfer to

Level 3 Transfer out of

Level 3 Balance at

December 31, 2019

Embedded derivatives $ 8.4 $ ( 5.4 ) $ — $ — $ — $ — $ — $ 3.0

Other 1.8 ( 0.5 ) — — — — — 1.3

Total financial liabilities $ 10.2 $ ( 5.9 ) $ — $ — $ — $ — $ — $ 4.3

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

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

HC2 HOLDINGS, INC.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Fair Value of Financial Instruments Not Measured at Fair Value

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

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

December 31, 2020 Fair Value Measurement Using:

Carrying Value Estimated Fair Value Level 1 Level 2 Level 3

Mortgage loans $ 57.2 $ 57.2 $ — $ — $ 57.2

Policy loans 17.8 17.8 — 17.8 —

Other invested assets 11.3 11.3 — — 11.3

Total assets not accounted for at fair value $ 86.3 $ 86.3 $ — $ 17.8 $ 68.5

Annuity benefits accumulated (1)

$ 237.8 $ 235.2 $ — $ — $ 235.2

Long-term obligations (2)

560.4 578.8 — 578.8 —

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

December 31, 2019 Fair Value Measurement Using:

Carrying Value Estimated Fair Value Level 1 Level 2 Level 3

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

Policy loans 19.1 19.1 — 19.1 —

Other invested assets — — — — —

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

Annuity benefits accumulated (1)

$ 233.9 $ 231.0 $ — $ — $ 231.0

Long-term obligations (2)

722.2 718.0 — 718.0 —

Total liabilities not accounted for at fair value $ 956.1 $ 949.0 $ — $ 718.0 $ 231.0

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

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

Mortgage Loans on Real Estate.

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

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

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

Annuity Benefits Accumulated.

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

Long-term Obligations.

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

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

Accounts Receivable, net

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

2021 December 31,

Contracts in progress $ 226.8 $ 118.6

4 unchanged sentences

Total $ 247.1 $ 134.7

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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

Raw materials and consumables $ 8.7 $ 9.6

Work in process — 0.8

Finished goods 1.2 0.3

Total $ 9.9 $ 10.7

Recoverable from Reinsurers

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

December 31, 2020 December 31, 2019

Reinsurer A.M.

Best Rating Amount % of Total Amount % of Total

Munich American Reassurance Company A+ $ 366.6 38.3 % $ 347.6 36.4 %

Hannover Life Reassurance Company of America A+ 306.3 32.0 % 323.3 33.9 %

Loyal American Life Insurance Company A 150.7 15.7 % 147.5 15.5 %

Great American Life Insurance Company A+ 57.4 6.0 % 56.2 5.9 %

ManhattanLife Assurance Company of America B+ 46.4 4.8 % 47.0 4.9 %

Other 30.1 3.2 % 32.1 3.4 %

Total $ 957.5 100.0 % $ 953.7 100.0 %

Property, Plant and Equipment, net

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

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

2021 December 31,

Equipment, furniture and fixtures, and software $ 180.7 $ 113.7

6 unchanged sentences

Depreciation expense was $ 25.0 million and $ 20.8 million for the years ended December 31, 2021 and 2020, respectively.

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

These amounts included $ 12.2 million and $ 9.1 million of depreciation expense recognized within cost of revenue for each of the years ended December 31, 2021 and 2020.

As of December 31, 2021 and 2020 the total net book value of equipment under capital leases consisted of $ 0.2 million and $ 0.9 million, respectively.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Goodwill and Intangibles, net

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

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

Estimating the fair value of a reporting unit requires various assumptions including projections of future cash flows, perpetual growth rates and discount rates.

8 unchanged sentences

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

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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

2 unchanged sentences

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

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

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

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

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

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

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

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

At December 31, 2021 and at December 31, 2020, the Company further reviewed qualitative factors of potential impairment for Goodwill and Intangible assets, inclusive of further impact of COVID-19, and there were no triggering events which would indicate impairment may have occurred.

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

Infrastructure

Spectrum Insurance Total

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

Measurement Period Adjustment 7.1 — — 7.1

Impairments — — ( 47.3 ) ( 47.3 )

Translation ( 0.3 ) — — ( 0.3 )

Spectrum Total

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

Acquisitions 16.7 — 16.7

Translation ( 0.3 ) — ( 0.3 )

Balance at December 31, 2021 $ 106.0 $ 21.4 $ 127.4

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Indefinite-lived Intangible Assets

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

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

December 31, 2021 December 31, 2020

FCC licenses $ 106.5 $ 113.0

State licenses 2.5 2.5

Total $ 106.5 $ 113.0

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

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

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

In 2020, FCC licenses decreased $ 23.2 million.

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

For the year ended December 31, 2021, FCC licenses decreased $ 6.5 million predominantly as a result of our Spectrum segment selling non-core FCC licenses.

In addition, for the years ending December 31, 2021 and 2020, the Company recorded impairment charges of $ 0.7 million and $ 13.5 million, respectively, in Other operating loss (gain) related to select FCC licenses which were sold in order to bring their carrying value equal to the agreed upon sales price prior to the execution of the sale.

The weighted-average period prior to the next renewal for FCC licenses was 3.0 years and 2.4 years as of December 31, 2021 and 2020, respectively, after taking into consideration licenses that were successfully renewed shortly after year-end.

While broadcast television licenses are issued for a fixed period of time (generally eight years), renewals of these licenses have occurred routinely and at nominal cost.

In addition, the Company does not believe that the expiration or non-renewal of any of our FCC licenses would have a material adverse effect on the expected future cash flows and profitability.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Definite Lived Intangible Assets

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

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

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

1 unchanged sentence

Trade names 14 years $ 25.4 $ ( 6.3 ) $ 19.1 $ 18.0 $ ( 4.6 ) $ 13.4

Customer relationships 9 years 36.4 ( 12.1 ) 24.3 36.2 ( 8.8 ) 27.4

Customer relationships and contracts 11 years 87.7 ( 21.6 ) 66.1 36.4 ( 12.1 ) 24.3

Channel sharing arrangements 35 years 12.6 ( 1.1 ) 11.5 20.2 ( 1.6 ) 18.6

1 unchanged sentence

Total $ 134.2 $ ( 32.3 ) $ 101.9 $ 80.1 $ ( 21.0 ) $ 59.1

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

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

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

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

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):

Amortization expense for definite lived intangible assets was $ 12.6 million and $ 6.0 million for the year ended December 31, 2021 and 2020, respectively, and was included in Depreciation and amortization in our Consolidated Statements of Operations.

For the year ended December 31, 2021, Channel sharing arrangements decreased $ 7.6 million predominantly as a result of our Spectrum segment selling a non-core channel sharing arrangement.

The Company estimates the annual amortization expense of amortizable intangible assets for the next five fiscal years will be as follows (in millions):

Estimated Amortization

Definite Lived Intangible Assets Negative VOBA

2021 $ 5.9 $ ( 19.6 )

2022 5.7 ( 18.3 )

2023 5.6 ( 17.1 )

2024 5.5 ( 15.8 )

2025 4.9 ( 14.7 )

Thereafter 51.2

Total $ 101.9

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Life, Accident and Health Reserves

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

Long-term care insurance reserves $ 4,269.0 $ 4,201.6

Traditional life insurance reserves 166.0 173.4

Other accident and health insurance reserves 192.5 192.1

Total life, accident and health reserves $ 4,627.5 $ 4,567.1

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

Years Ended December 31,

Beginning balance $ 761.3 $ 738.7

recoverable from reinsurers

( 131.0 ) ( 136.4 )

Beginning balance, net 630.3 602.3

Current year 217.5 211.8

Prior years ( 49.8 ) ( 47.2 )

Total incurred 167.7 164.6

Paid related to insured events of:

Current year ( 18.2 ) ( 17.5 )

Prior years ( 152.1 ) ( 141.0 )

Total paid ( 170.3 ) ( 158.5 )

Interest on liability for policy and contract claims 22.5 21.9

Ending balance, net 650.2 630.3

recoverable from reinsurers

Ending balance $ 782.4 $ 761.3

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

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

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

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

Accounts Payable and Other Current Liabilities

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

Accounts payable $ 69.7 $ 68.6

Accrued expenses and other current liabilities 52.7 70.1

Accrued payroll and employee benefits 38.2 38.7

Accrued interest 13.9 11.3

Accrued income taxes 1.8 1.9

Total accounts payable and other current liabilities $ 176.3 $ 190.6

HC2 HOLDINGS, INC.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

1 unchanged sentence

Debt obligations consist of the following (in millions):

2021 December 31,

Infrastructure

LIBOR plus 5.85 % Note, due 2023

$ 71.6 $ 77.0

LIBOR plus 1.50 % 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

11.00 % Note due 2024

Obligations under finance leases 0.1 0.2

1 unchanged sentence

10.50 % Note due 2021

8.50 % Note due 2022

10.50 % Note due 2022

Other, various maturity dates — 2.9

2 unchanged sentences

11.50 % Senior Secured Notes, due 2021

8.50 % Senior Secured Notes, due 2026

7.50 % Convertible Senior Notes, due 2022

7.50 % Convertible Senior Notes, due 2026

LIBOR plus 5.75 % Line of Credit

Total 576.6 754.1

Issuance discount, net and deferred financing costs ( 15.1 ) ( 30.2 )

Unamortized issuance discount, issuance premium, and deferred financing costs ( 4.5 ) ( 15.1 )

current portion of debt obligations ( 69.5 ) ( 433.6 )

Debt obligations $ 556.8 $ 127.9

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

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

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

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

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

4 unchanged sentences

2025 — 41.3 41.3

2026 — 487.3 487.3

Thereafter — — —

4 unchanged sentences

Infrastructure

Wells Fargo Facility

DBMG has a Credit and Security Agreement ("Wells Fargo Facility") with Wells Fargo Bank, National Association ("Wells Fargo").

Under the initial terms of the agreement, Wells Fargo agreed to advance up to a maximum amount of $ 50.0 million to DBMG, including up to $ 14.5 million of letters of credit (the "Revolving Line").

The Revolving Line had a floating interest rate based on LIBOR plus 2.0 %, required monthly interest payments, and was due in April 2019.

The Wells Fargo Facility allows for the issuance by DBMG of additional loans in the form of notes of up to $ 10.0 million ("Real Estate Term Advance"), at LIBOR plus 2.5 % and the issuance of a note payable of up to $ 15.0 million, ("Real Estate Term Advance 2") at LIBOR plus 2.5 %, each as separate tranches of debt under the Wells Fargo Facility.

In April 2018, the Wells Fargo Facility was amended, increasing the maximum advance amount under the Revolving Line to $ 70.0 million, modifying the floating interest rate to daily three month LIBOR plus 1.5 % and extending the maturity date through March 31, 2023.

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

HC2 HOLDINGS, INC.

In May 2021, DBMG repaid its LIBOR plus 1.50 % revolving line of credit under the Credit and Security Agreement with Wells Fargo Bank ("Revolving Line") and its term loan due 2023 under a financing agreement with TCW Asset Management Company LLC ("TCW Loan").

In addition, DBMG entered into a new credit facility with UMB Bank ("UMB").

Under the terms of the agreement, UMB agreed to a $ 110.0 million term loan ("UMB Term Loan") and $ 110.0 million revolving credit agreement ("UMB Revolving Line").

The UMB Term loan expires in 2026 and will bear interest at a rate of 3.25 % with an effective interest rate of 3.25 %.

The UMB Revolving Line expires in 2024 and will bear interest at a rate of Prime Rate minus 1.10 %.

The proceeds were used to fully repay DBMG's existing debt obligations, fund a portion of the Banker Steel acquisition, and provide additional working capital capacity to DBMG.

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

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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

In July 2018, the Wells Fargo Facility was amended, increasing the availability of the borrowing base allowing DBMG to borrow an additional $ 10.0 million of the $ 70.0 million total line and bearing interest at daily three month LIBOR plus 2.5 %.

The temporary borrowing base increase and related interest had an initial maturity date of October 2018, subsequently extended to November 2018.

In November 2018, the Wells Fargo Facility was amended, increasing the maximum advance amount under the Revolving Line to up to $ 80.0 million.

In May 2019, the Wells Fargo Facility was amended, permanently increasing the borrowing base to allow greater availability of the $ 80.0 million total line.

The $ 17.0 million long-term tranche was also increased to $ 22.0 million with a maturity of May 2026.

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

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

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

In addition, $ 9.8 million in outstanding letters of credit were issued under the Wells Fargo Facility, of which zero has been drawn.

In November 2018, DBMG and its subsidiaries entered into a financing agreement with TCW Asset Management Company LLC ("TCW"), for the aggregate principal amount of $ 80.0 million (the "TCW Loan").

The net proceeds from the TCW Loan were used to refinance the debt assumed and closing costs of the GrayWolf acquisition.

The TCW Term Loan matures on the earlier of (a) November 30, 2023;

(b) the maturity date of the Wells Fargo Facility;

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

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

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

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

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

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

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

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

3 unchanged sentences

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

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

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

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

4 unchanged sentences

and Great American Life Insurance Company to extend the maturity on its 8.50 % Note and 10.50 % Note to October 2021.

In September 2020, Spectrum further amended its agreement governing 8.50 % Note, increasing the principal balance by $ 4.0 million to $ 43.3 million.

In September 2020, Spectrum further amended its agreement governing its 8.50 % Note, increasing the principal balance by $ 4.0 million to $ 43.3 million.

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

1 unchanged sentence

In December 2020, Spectrum paid down $ 21.0 million and $ 9.6 million of its 8.50 % Note and 10.50 % Note, respectively from the proceeds from the sale of stations.

On August 30, 2021, 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.

On October 21, 2021, 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.

Concurrently, Broadcasting completed the last of a series of repurchases of all the outstanding secured notes, inclusive of accrued interest, of DTV America Corporation (“DTV”) for a total consideration of $ 6.2 million using a combination of cash on hand and proceeds from the sales on non-core assets.

On October 26, 2021, Broadcasting repurchased the outstanding convertible promissory notes of DTV for a total consideration of $ 0.7 million using proceeds from the sales of non-core assets.

Subsequent to these acquisitions, DTV’s debt is held by Broadcasting and eliminated in consolidation.

The extinguishment of DTV's debt yielded a loss on extinguishment of $ 1.0 million included in Loss on early extinguishment or restructuring of debt in the Consolidated Statement of Operations.

Non-Operating Corporate

On November 20, 2018, HC2 repaid its 11.0 % Notes, and issued $ 470.0 million aggregate principal amount of 11.50 % senior secured notes due 2021 (the "Senior Secured Notes") and $ 55.0 million aggregate principal amount of 7.5 % convertible senior notes due June 1, 2022 (the "Convertible Notes").

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

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

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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

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

On February 1, 2021, INNOVATE repaid its 2021 Senior Secured Notes and issued $ 330.0 million aggregate principal amount of 8.50 % 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 7.50 % convertible senior notes due 2022 (the "2022 Convertible Notes"), pursuant to which the Company exchanged such holders' 2022 Convertible Notes for newly issued 7.50 % convertible notes due 2026 (the "2026 Convertible Notes").

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

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

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

The extinguishment of the $ 51.8 million of 2022 Convertible Notes yielded a loss on extinguishment of $ 5.5 million, an acceleration of the amortization of discount of $ 5.3 million, and extinguishment of the bifurcated conversion option classified as equity of $ 7.7 million.

2021 Senior Secured Notes

2 unchanged sentences

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

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

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

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

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

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

In October 2020, HC2 redeemed an additional $ 2.1 million of its Senior Secured Notes at a price equal to 104.5 % of the principal amount plus accrued interest through the redemption date.

HC2 recognized $ 0.1 million in extinguishment loss related to the this redemption, which is included in Loss on early extinguishment or restructuring of debt in our Condensed Consolidated Statement of Operations.

The Senior Secured Notes were issued at 98.75 % of par with a stated interest rate of 11.50 % and an effective interest rate of 13.20 %, which reflects a discount of $ 5.9 million.

In March 2020, with the cash proceeds from the sale of GMSL, INNOVATE redeemed $ 76.9 million of its Senior Secured Notes at a price equal to 104.5 % of the principal amount plus accrued interest through the redemption date.

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

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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

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

In October 2020, INNOVATE redeemed an additional $ 2.1 million of its Senior Secured Notes at a price equal to 104.5 % of the principal amount plus accrued interest through the redemption date.

INNOVATE recognized $ 0.1 million in extinguishment loss related to this redemption, which is included in Loss on early extinguishment or restructuring of debt in our Consolidated Statement of Operations.

2026 Senior Secured Notes

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

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

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

The 2026 Senior Secured Notes were issued at 100 % of par, with a stated interest rate of 8.50 % and an effective interest rate of 9.26 %, which reflects $ 2.7 million of deferred financing fees.

2022 Convertible Notes

1 unchanged sentence

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

The Convertible Notes were issued at 100 % of par.

The Convertible Notes were issued at 100 % of par with an effective interest rate of 17.60 %, which reflects the $ 12.6 million discount and $ 2.0 million of deferred financing fees.

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

6 unchanged sentences

Based on the closing price of our common stock of $ 3.26 on December 31, 2020, the if-converted value of the Convertible Notes did not exceed its principal value.

For the year ended December 31, 2020, interest cost recognized for the period relating to both the contractual interest coupon and amortization of the discount on the Convertible notes was $ 4.1 million and $ 3.4 million, respectively.

For the year ended December 31, 2019, interest cost recognized for the period relating to both the contractual interest coupon and amortization of the discount on the Convertible notes was $ 4.1 million and $ 2.9 million, respectively.

Line of credit

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

The 2019 Revolving Credit Agreement matures in June 2021.

Loans under the 2019 Revolving Credit Agreement bear interest at a per annum rate equal to, at HC2's option, one, two or three month LIBOR plus a margin of 6.75 %.

In April 2019 and May 2019, HC2 drew $ 5.0 million and $ 10.0 million of the 2019 Revolving Credit Agreement, respectively.

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

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

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

HC2 HOLDINGS, INC.

For the year ending December 31, 2020, interest expense recognized for the period relating to both the contractual interest coupon and amortization of the discount on the Convertible Notes was $ 4.1 million.

At December 31, 2021, the Convertible Notes had a net carrying value of $ 3.1 million and an unamortized discount of $ 0.1 million.

Based on the closing price of our common stock of $ 3.71 on December 31, 2021, the if-converted value of the Convertible Notes did not exceed its principal value.

For the year ending December 31, 2021, interest expense recognized for the period relating to both the contractual interest coupon and amortization of the discount on the Convertible Notes was $ 0.6 million.

2026 Convertible Notes

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

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

The 2026 Convertible Notes were issued at 100 % of par with a stated interest rate of 7.50 %.

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

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

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

At December 31, 2021, the 2026 Convertible Notes had a carrying value of $ 61.2 million and an unamortized premium of $ 10.4 million.

Based on the closing price of our common stock of $ 3.71 on December 31, 2021, the if-converted value of the 2026 Convertible Notes did not exceed its principal value.

For the year ended December 31, 2021, interest expense recognized for the period relating to both the contractual interest coupon and amortization of discount net of premium was $ 3.6 million and $ 1.7 million, respectively.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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

The 2020 Revolving Credit Agreement matures in September 2021.

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

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

The Company used the proceeds for general corporate purposes.

Line of Credit

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

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

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

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.

2026 Senior Secured Notes Terms and Conditions

The Secured Notes mature on December 1, 2021.

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

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

The 2026 Senior Secured Notes mature on February 1, 2026.

The 2026 Senior Secured Notes accrue interest at a rate of 8.50 % per year.

Interest on the 2026 Senior Secured Notes is paid semi-annually on February 1 and August 1 of each year.

Issue Price .

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

The issue price of the 2026 Senior Secured Notes was 100 % of par.

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

4 unchanged sentences

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

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

The 2026 Senior Secured Notes are secured by a first priority lien on substantially all of the Company’s assets (except for certain "Excluded Assets," and subject to certain "Permitted Liens," each as defined in the Secured Indenture), including, without limitation:

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

7 unchanged sentences

Events of Default .

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

Notes to become immediately due and payable.

The Secured Indenture contains customary events of default which could, subject to certain conditions, cause the 2026 Senior Secured Notes to become immediately due and payable.

Restricted Payments.

The Secured Indenture contains specific covenants which restrict the Company's ability and the ability of its restricted subsidiaries (as defined in the Secured Indenture) to incur certain additional indebtedness;

make certain dividends, distributions, investments and other restricted payments;

repay certain debt;

sell certain assets;

or enter into certain transactions with affiliates.

These covenants are subject to a number of exceptions and qualifications.

At December 31, 2021, the Company was in compliance with all covenants contained in the 2026 Senior Secured Notes.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

2022 Convertible Notes Terms and Conditions

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

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

6 unchanged sentences

Optional Redemption .

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

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

The redemption price will equal 100 % of the

HC2 HOLDINGS, INC.

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

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

The redemption price will equal 100 % of the principal amount of the notes being redeemed, plus accrued and unpaid interest, including additional interest, if any, to, but excluding, the redemption date.

Conversion Rights .

The 2022 Convertible Notes are convertible into shares of the Company’s common stock based on a conversion rate of 234.2971 shares of common stock per $1,000 principal amount of Convertible Notes (equivalent to a conversion price of approximately $ 4.27 per share of the Company’s common stock), at any time prior to the close of business on the business day immediately preceding the maturity date, in principal amounts of $1,000 or an integral multiple of $1,000 in excess thereof.

In addition, following a Make-Whole Fundamental Change (as defined in the indenture governing the 2022 Convertible Notes) or the Company’s delivery of a notice of redemption for the 2022 Convertible Notes, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its 2022 Convertible Notes in connection with (i) such Make-Whole Fundamental Change or (ii) such notice of redemption.

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

Events of Default .

The indenture governing the 2022 Convertible Notes contains customary events of default which could, subject to certain conditions, cause the 2022 Convertible Notes to become immediately due and payable.

2026 Convertible Notes Terms and Conditions

The 2026 Convertible Notes mature on August 1, 2026 unless earlier converted, redeemed or purchased.

The 2026 Convertible Notes accrue interest at a rate of 7.5 % per year.

Interest on the 2026 Convertible Notes is paid semi-annually on February 1 and August 1 of each year.

Issue Price .

The issue price of the 2026 Convertible Notes was 100 % of par.

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

The notes will be effectively subordinated to all of the Company’s existing and future secured indebtedness, including the Company’s 2026 Senior Secured Notes, to the extent of the value of the collateral securing that indebtedness, and structurally subordinated to all indebtedness and other liabilities of the Company’s subsidiaries, including trade credit.

Optional Redemption .

The Company may not redeem the notes prior to August 1, 2023.

On or after August 1, 2023, the Company may redeem for cash all of the notes if the last reported sale price of the Company’s common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days (which need not be consecutive trading days) during any 30 consecutive trading-day period ending within five trading days prior to the date on which the Company provides notice of redemption.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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

Conversion Rights .

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

The 2026 Convertible Notes are convertible into shares of the Company’s common stock based on an initial conversion rate of 234.2971 shares of common stock per $1,000 principal amount of Convertible Notes (equivalent to a conversion price of approximately $ 4.27 per share of the Company’s common stock), at any time prior to the close of business on the business day immediately preceding the maturity date, in principal amounts of $1,000 or an integral multiple of $1,000 in excess thereof.

In addition, following a Make-Whole Fundamental Change (as defined in the Convertible Indenture) or the Company’s delivery of a notice of redemption for the 2026 Convertible Notes, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its 2026 Convertible Notes in connection with (i) such Make-Whole Fundamental Change or (ii) such notice of redemption.

4 unchanged sentences

MSD PCOF Partners IX, LLC (“MSD”)

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

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

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

The Revolving Credit Agreement matures on February 23, 2024.

Obligations under the Revolving Credit Agreement constitute a First-Out Debt, as defined in the Secured Indenture, and are secured on a pari passu basis with the 2026 Senior Secured Notes.

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

INNOVATE is in compliance with its debt covenants as of December 31, 2021.

Supplementary Financial Information

Contracts in Progress

Contract assets and contract liabilities and recognized earnings consist of the following (in millions):

2021 December 31,

Costs incurred on contracts in progress $ 2,161.5 $ 752.9

Estimated earnings 316.4 139.0

Contract revenue earned on uncompleted contracts 2,477.9 891.9

progress billings 2,438.4 838.5

$ 39.5 $ 53.4

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

Contract assets $ 118.6 $ 86.6

Contract liabilities ( 79.1 ) ( 33.2 )

$ 39.5 $ 53.4

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Inventory consists of the following (in millions):

2021 December 31,

Raw materials and consumables $ 14.3 $ 8.7

Work in process 1.2 —

Finished goods 1.5 1.2

Total inventory $ 17.0 $ 9.9

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

December 31, 2021 December 31, 2020

Alternative (1)

Method Total Measurement

Alternative (1)

Common stock $ — $ 2.1 $ 2.1 $ — $ 2.5 $ 2.5

Preferred stock — 7.5 7.5 — 15.4 15.4

Fixed maturities 0.5 — 0.5 0.5 — 0.5

Put option 11.3 — 11.3 11.3 — 11.3

Equity method securities — 34.6 34.6 — 25.7 25.7

Total $ 11.8 $ 44.2 $ 56.0 $ 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

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

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

December 31, 2021 Fair Value Measurement Using:

Carrying Value Estimated Fair Value Level 1 Level 2 Level 3

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

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

Debt obligations (1)

$ 626.3 $ 648.2 $ — $ 648.2 $ —

Total liabilities not accounted for at fair value $ 626.3 $ 648.2 $ — $ 648.2 $ —

December 31, 2020 Fair Value Measurement Using:

Carrying Value Estimated Fair Value Level 1 Level 2 Level 3

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

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

Debt obligations (1)

$ 560.7 $ 579.2 $ — $ 579.2 $ —

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

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

Debt Obligations.

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

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

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Carrying amounts of the Company's long-term obligations of $ 626.3 million and $ 560.7 million for the years ending December 31, 2021 and December 31, 2020 are inclusive of $( 4.5 ) million and $( 15.1 ) million of Unamortized issuance discount, issuance premium, and deferred financing costs.

See Footnote 9.

Debt Obligations for further information.

Equity Method Investments

For the year ended December 31, 2021, certain investments subject to Regulation S-X Rule 4-08(g) held by the Company in aggregate have met the significance criteria as defined under SEC guidance.

In accordance with Rule 8-03(b)(3) of Regulation S-X, the Company must assess whether its equity method investment is a significant equity method investment.

In evaluating the significance of this investment, the Company performed the income, asset, and investment tests described in S-X 3-05 and S-X 1-02(w).

Rule 8-03(b)(3) of Regulation S-X requires summarized financial information in a quarterly report if any of the three tests exceeds 20%.

Under the income test, the Company’s proportionate share of its equity method investee's aggregated net income exceeded the applicable threshold of 20%, and accordingly it is required to provide summarized income statement information for this investee for all periods presented.

The Company's share of net loss from its equity method investment totaled $ 2.8 million and $ 3.4 million for the years ended December 31, 2021 and 2020, respectively.

The following tables provide summarized financial information for the Company's equity method investments (in millions):

2021 December 31,

Assets $ 604.5 $ 524.2

Liabilities 481.5 405.9

Equity $ 123.0 $ 118.3

Years Ended December 31,

Total revenues $ 624.1 $ 468.2

Gross profit $ 95.5 $ 82.7

Income from continuing operations $ 11.5 $ 11.1

Net income $ 6.4 $ 6.8

Other Non-Current Assets

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

2021 December 31,

Right of use asset $ 69.6 $ 39.8

Other 3.7 2.4

Total other non-current assets $ 73.3 $ 42.2

Accrued Liabilities

Accrued liabilities consist of the following (in millions):

2021 December 31,

Accrued expenses and other current liabilities $ 24.5 $ 27.9

Accrued payroll and employee benefits 38.9 34.7

Accrued interest 29.6 13.9

Accrued income taxes 0.4 0.6

Total accrued liabilities $ 93.4 $ 77.1

Other Non-Current Liabilities

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

2021 December 31,

Lease liability, net of current portion $ 58.5 $ 31.6

Other 4.8 8.2

Total other non-current liabilities $ 63.3 $ 39.8

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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

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

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

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

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

2021 December 31,

Right-of-use assets:

Operating lease (Other assets) $ 44.3 $ 47.4

Operating lease (Other non-current assets) $ 69.6 $ 39.8

Finance lease (Property, plant and equipment, net) 0.2 0.9

1 unchanged sentence

Lease liabilities:

Operating lease (Other liabilities) $ 47.5 $ 51.0

Current portion of operating lease (Other current liabilities) $ 15.5 $ 11.2

Non-current portion of operating lease (Other non-current liabilities) 58.5 31.6

Finance lease (Debt obligations) 0.1 0.8

3 unchanged sentences

The Company has entered into operating and finance lease agreements primarily for land, office space, equipment and vehicles, expiring between 2022 and 2045.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

In addition, for the year ended December 31, 2021, the Company recorded an impairment of the right-of-use assets totaling $ 2.1 million in Other operating loss (gain).

For the years ended December 31, 2021 and 2020, the Company recorded short-term lease costs totaling $ 19.2 million and $ 18.0 million, respectively.

The Company is expected to incur $ 9.9 million future short-term lease costs for the year ended December 31, 2022.

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

8 unchanged sentences

Total lease cost $ 22.5 $ 15.2

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

Cash flow information related to leases for the years ended December 31, 2021 and 2020 is as follows (in millions):

Years Ended December 31,

6 unchanged sentences

Operating leases $ 48.3 $ 15.6

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

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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

2021 December 31,

Weighted-average remaining lease term (years) - operating lease 7.5 4.0

5 unchanged sentences

2022 $ 18.7 $ 0.1

2022 12.8 0.1

Thereafter 30.7 —

2 unchanged sentences

Total lease liability balance $ 74.0 $ 0.1

The Company expects $ 0.9 million of lease payments in 2021 resulting from short-term leases not accounted for under ASC 842.

HC2 HOLDINGS, INC.

In November 2021, INNOVATE Corp.

entered into a ten-year lease agreement for a special purpose space in West Palm Beach, Florida.

The new lease has not yet commenced, but will require future monthly lease payments of approximately $ 0.2 million over the entire lease term and yearly common area maintenance charges of $ 0.6 million, both of which are subject to 3 % annual upward adjustments, with total square footage of 20,950 .

The new lease also provides for the Company to receive an allowance from the Landlord of $ 2.1 million to be used toward costs to design, engineer, install, supply and to construct improvements which is payable at the end of the lease.

The future lease payments and the allowance are not yet recorded on our consolidated balance sheet.

We expect the accounting lease commencement date for this initial portion of the lease for financial reporting purposes to begin no later than November 2023.

Also in November 2021, the Company entered into a three-year lease agreement for office space in West Palm Beach, Florida.

The lease commencement date was November 15, 2021, and requires monthly lease payments of approximately $ 12.5 thousand over the entire lease term, subject to a 3 % annual upward adjustment, with total square footage of 2,723 .

The future lease payments and corresponding right of use asset of $ 0.4 million were recorded on our consolidated balance sheet as a lease liability.

In December 2021, the Company entered into a five-year lease agreement with an option to extend the lease for another five years for office space in West Palm Beach, Florida.

The new lease has not commenced yet, but will require future monthly lease payments of approximately $ 0.14 million over the entire lease term, subject to 3 % annual upward adjustment, with total square footage of 15,786 .

The future lease payments are not yet recorded on our consolidated balance sheet, as the building is still under construction.

We expect the accounting lease commencement date for this initial portion of the lease for financial reporting purposes to begin in the fourth quarter of 2023.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

The provisions (benefits) for income taxes for the years ended December 31, 2020 and 2019 were as follows (in millions):

The provisions expense for income taxes for the years ended December 31, 2021 and 2020 were as follows (in millions):

Years Ended December 31,

7 unchanged sentences

Subtotal Deferred 1.9 6.6

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

Income tax expense $ 5.6 $ 7.0

The US and foreign components of income (loss) from continuing operations before income taxes for the years ended December 31, 2021 and 2020 were as follows (in millions):

2 unchanged sentences

Foreign 9.0 78.3

Income (loss) from continuing operations before income taxes $ ( 27.8 ) $ ( 41.8 )

The provisions (benefits) for income taxes differed from the amount computed by applying the federal statutory income tax rate to income (loss) before income taxes due to the following items for the years ended December 31, 2020 and 2019 (in millions):

Loss from continuing operations before income taxes $ ( 80.7 ) $ ( 46.7 )

The provisions expense for income taxes differed from the amount computed by applying the federal statutory income tax rate to income (loss) before income taxes due to the following items for the years ended December 31, 2021 and 2020 (in millions):

Years Ended December 31,

3 unchanged sentences

Foreign rate differential 0.4 0.2

Minority interest — 0.2

Executive and stock compensation 0.4 1.2

2 unchanged sentences

Return to provision 3.3 5.6

ASU 2017-11 adoption — ( 1.3 )

Goodwill impairment — 10.0

Rate Change 20.2 ( 3.0 )

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

5 unchanged sentences

Other 1.6 1.3

Warrant Liability 1.5 1.7

Equity Income/Loss ( 1.1 ) ( 0.6 )

Derivative ( 1.8 ) —

Income tax (benefit) expense $ 5.6 $ 7.0

The income tax expense as of December 31, 2021 is $ 5.6 million.

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

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

The amount recorded primarily relates to tax expense as calculated under ASC 740 for taxpaying entities.

Additionally, the tax benefits associated with losses generated by the INNOVATE Corp.

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

HC2 HOLDINGS, INC.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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

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

The income tax expense was $ 7.0 million for the years ended December 31, 2020.

The amount recorded primarily relates to tax expense incurred in China from the partial sale of HMN and the tax expense as calculated under ASC 740 for taxpaying entities 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 Coronavirus Aid, Relief, and Economic Security Act.

Additionally, the tax benefits associated with losses generated by the INNOVATE Corp.

tax consolidated group and certain other businesses were reduced by a full valuation allowance as we do not believe it is more-likely-than-not that the losses will be utilized.

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

3 unchanged sentences

Deferred compensation 6.7 6.6

Lease liability 13.0 17.4

UK trading loss carryforward — 38.3

163(j) Carryforward 58.1 58.6

Insurance claims and reserves 176.4 166.1

Value of insurance business acquired ("VOBA") 43.7 48.5

Deferred acquisition costs 19.0 16.7

Lease liability 20.9 13.0

Other deferred tax assets 13.4 20.5

2 unchanged sentences

Total net deferred tax assets 60.8 61.0

Basis difference in intangibles ( 22.7 ) ( 19.1 )

Basis difference in fixed assets ( 14.1 ) ( 22.1 )

Insurance company investments ( 373.1 ) ( 335.0 )

Right of use assets ( 19.8 ) ( 12.1 )

Basis difference in intangibles ( 26.1 ) ( 22.2 )

Other deferred tax liabilities ( 6.9 ) ( 8.6 )

1 unchanged sentence

Net deferred tax liabilities $ ( 6.1 ) $ ( 4.0 )

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

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

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

6 unchanged sentences

In accordance with ASC Topic 740, during each reporting period the Company assesses the likelihood that its deferred tax assets will be realized and determines if adjustments to its valuation allowances are appropriate.

Management evaluated the need to maintain the valuation allowance against the deferred taxes of the HC2 Holdings, Inc.

Management evaluated the need to maintain the valuation allowance against the deferred taxes of the INNOVATE Corp.

consolidated tax group (“the group”) for each of the reporting periods based on the positive and negative evidence available.

The objective negative evidence evaluated was the group’s historical operating results over the prior three-year period.

The group is in a cumulative three-year loss as of December 31, 2020 and is forecasting losses in the near future, which provide negative evidence that is difficult to overcome and would require a substantial amount of objectively verifiable positive evidence of future income to support the realizability of the group’s deferred tax assets.

The group is in a cumulative three-year loss as of December 31, 2021 which provide negative evidence that is difficult to overcome and would require a substantial amount of objectively verifiable positive evidence of future income to support the realizability of the group’s deferred tax assets.

While positive evidence exists by way of unrealized gains in the Company’s investments, management concluded that the negative evidence now outweighs the positive evidence.

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

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

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

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

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

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

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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

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

consolidated income tax return.

At December 31, 2021, the Company has gross U.S.

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

net operating loss carryforwards available to reduce future taxable income of the U.S.

consolidated group in the amount of $ 164.5 million.

The Company expects that approximately $ 95.7 million of the gross U.S.

5 unchanged sentences

Additionally, the Company has $ 103.6 million of gross U.S.

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

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

net operating loss carryforwards from its subsidiaries that do not qualify to be included in the INNOVATE Corp.

consolidated income tax return, including $ 66.2 million from R2, $ 33.1 million from DTV America, and other entities of $ 4.3 million.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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

4 unchanged sentences

382 of approximately $ 2.3 million.

On November 4, 2015, HC2 issued 8,452,500 shares of its stock in a primary offering.

On November 4, 2015, INNOVATE issued 8.5 million shares of its stock in a primary offering.

The Company believes the issuance resulted in a Section 382 ownership change and $ 31.7 million gross U.S.

6 unchanged sentences

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

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

As of December 31, 2021, the Company had foreign operating loss carryforwards of approximately $ 2.5 million.

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

10 unchanged sentences

Uncertain tax benefits - December 31 $ 17.6 $ 22.9

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

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

In the normal course of business the Company is subject to examination by taxing authorities throughout the world.

3 unchanged sentences

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

HC2 HOLDINGS, INC.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

2 unchanged sentences

Total obligations $ 378.3

The Company’s future minimum purchase obligations are primarily for materials and subcontractor costs to be used in its construction projects.

The amounts are fixed and determinable and do not include variable components.

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

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

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

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

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

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

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

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

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

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

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

Any legal or other expenses associated with the litigation are accrued for as the expenses are incurred.

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

1 unchanged sentence

VAT assessment

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

On February 20, 2017, and on August 15, 2017, the Company's subsidiary, PTGi International Carrier Services Ltd.

(“PTGi-ICS Ltd”), received notices from Her Majesty’s Revenue and Customs office in the U.K.

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

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

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

On February 15, 2022, the Upper Tribunal (Tax and Chancery) Chamber (the "Tax Tribunal") found in favor of PTGi-ICS Ltd.

HMRC has acknowledged that it will not appeal the Tax Tribunal’s decision and it must pay reasonable legal fees incurred by PTGi-ICS Ltd.

While repayment of the outstanding VAT payment is expected to be made soon, the Company shall separately pursue reimbursement of legal fees.

INNOVATE CORP.

NOTES TO 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 (the "Court") 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 expect to file a motion to dismiss the Amended Complaint in early April.

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

HC2 intends to vigorously defend this litigation.

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

The Court heard argument on the motions to dismiss on January 21, 2022.

Ruling from the bench, the Court granted Defendants’ motions to dismiss, in part.

The Court dismissed all claims against all individual defendants other than Ronald Yagoda, including all claims against AJ Stahl, Kenneth S.

Courtis, Robert V.

Leffler, Jr., Philip A.

Falcone, Michael J.

Sena, and Paul Voigt.

As to the two remaining defendants—INNOVATE Corp.

and Ronald Yagoda—the Court dismissed all claims regarding (i) DBMG acting as a guarantor or providing collateral for loans taken on by the Company;

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

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

and (iv) DBMG’s payments to the Company in 2016 and May 2017 pursuant to a Tax Sharing Agreement between DBMG and the Company.

The Company believes the surviving claims in the FVI Amended Complaint relating to (i) DBMG’s payments to the Company after May 2017 pursuant to a Tax Sharing Agreement between DBMG and the Company and (ii) DBMG’s issuance of preferred stock to the Company to finance DBMG’s 2018 acquisition of GrayWolf Industrial are without merit, and the Company intends to vigorously defend this litigation.

DTV Derivative Litigation

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

OSHA Complaint

On November 4, 2020, the Company received notice that a complaint was filed on August 27, 2020, with the U.S.

Department of Labor (OSHA Complaint Number 2-4173-20-156), by a former employee of Continental Insurance Group Ltd.

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

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

The DOL has not issued a determination.

2021-0224 (Del.

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 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.

On June 23, 2021, plaintiffs amended their complaint.

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.

Defendants moved to dismiss the amended complaint in its entirety on August 25, 2021, and the parties completed briefing on the motions to dismiss on November 10, 2021.

The Court will hear argument on the motions to dismiss on March 29, 2022.

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.

1 unchanged sentence

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

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

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

On December 18, 2020, Mr.

Falcone filed a demand for arbitration against the Company with the American Arbitration Association ("AAA").

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

The Company contends that the claims in Mr.

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

In addition, Mr.

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

Falcone is no longer a director of the Company.

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

The Company intends to cooperate in audit matters.

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

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

The Company and Mr.

Falcone mediated on July 14, 2021, and on July 19, 2021, both the Company and Mr.

Falcone accepted the mediator’s proposal, and the Company has reserved for an amount consistent with the mediator’s proposal.

The parties executed an agreement on January 31, 2022 memorializing the terms of their settlement.

The Company paid the settlement amount in February 2022 in accordance with the agreement except for a portion of the amount that will be paid following court approval.

The settlement reached was consistent with the amount accrued for.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Books and Records Demand

On July 28, 2021, the Company received a demand from a company stockholder pursuant to 8 Del.

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

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

Share-based Compensation

On April 11, 2014, HC2’s Board of Directors adopted the HC2 Holdings, Inc.

On April 11, 2014, INNOVATE’s Board of Directors adopted the INNOVATE Corp.

Omnibus Equity Award Plan (the "2014 Plan"), which was originally approved at the annual meeting of stockholders held on June 12, 2014.

On April 21, 2017, the Board of Directors, subject to stockholder approval, adopted the Amended and Restated 2014 Omnibus Equity Award Plan (the "Restated 2014 Plan").

The Restated 2014 Plan was approved by HC2's stockholders at the annual meeting of stockholders held on June 14, 2017.

Subject to adjustment as provided in the Restated 2014 Plan, the Restated 2014 Plan authorizes the issuance of 3,500,000 shares of common stock of HC2, plus any shares that again become available for awards under the 2014 Plan, plus any shares that again become available for awards under the Restated 2014 Plan.

The Restated 2014 Plan was approved by INNOVATE's stockholders at the annual meeting of stockholders held on June 14, 2017.

Subject to adjustment as provided in the Restated 2014 Plan, the Restated 2014 Plan authorizes the issuance of 3,500,000 shares of common stock of INNOVATE, plus any shares that again become available for awards under the 2014 Plan, plus any shares that again become available for awards under the Restated 2014 Plan.

On April 20, 2018, the Board of Directors, subject to stockholder approval, adopted the Second Amended and Restated 2014 Omnibus Equity Award Plan (the "Second A&R 2014 Plan").

The Second A&R 2014 Plan was approved by HC2's stockholders at the annual meeting of stockholders held on June 13, 2018.

Subject to adjustment as provided in the Second A&R 2014 Plan, the Second A&R 2014 Plan authorizes the issuance of up to 3,500,000 shares of common stock of HC2 plus any shares that again become available for awards under the 2014 Plan or the Amended 2014 Plan.

The Second A&R 2014 Plan was approved by INNOVATE's stockholders at the annual meeting of stockholders held on June 13, 2018.

Subject to adjustment as provided in the Second A&R 2014 Plan, the Second A&R 2014 Plan authorizes the issuance of up to 3,500,000 shares of common stock of INNOVATE plus any shares that again become available for awards under the 2014 Plan or the Amended 2014 Plan.

The Second A&R 2014 Plan provides that no further awards will be granted pursuant to the Amended 2014 Plan.

However, awards previously granted under either the 2014 Plan or the Amended 2014 Plan will continue to be subject to and governed by the terms of the 2014 Plan and Amended 2014 Plan, respectively.

The Compensation Committee of HC2's Board of Directors administers the 2014 Plan, the Amended 2014 Plan and the Second A&R 2014 Plan and has broad authority to administer, construe and interpret the plans.

The Compensation Committee of INNOVATE's Board of Directors administers the 2014 Plan, the Amended 2014 Plan and the Second A&R 2014 Plan and has broad authority to administer, construe and interpret the plans.

The Second A&R 2014 Plan provides for the grant of awards of non-qualified stock options, incentive (qualified) stock options, stock appreciation rights, restricted stock awards, restricted stock units, other stock based awards, performance compensation awards (including cash bonus awards) or any combination of the foregoing.

2 unchanged sentences

The guidance generally requires that such transactions be accounted for using a fair-value based method and share-based compensation expense be recorded, based on the grant date fair value, estimated in accordance with the guidance, for all new and unvested stock awards that are ultimately expected to vest as the requisite service is rendered.

The Company granted 143,096 and zero options during the year ended December 31, 2020 and 2019, respectively.

The Company granted zero and 143,096 options during the year ended December 31, 2021 and 2020, respectively.

For the year ended December 31, 2020, the weighted average fair value at date of grant for options granted was $ 1.47 per option.

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

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Year Ended December 31,

4 unchanged sentences

Total share-based compensation expense recognized by the Company and its subsidiaries under all equity compensation arrangements was $ 2.4 million and $ 3.0 million for the years ended December 31, 2021 and 2020, respectively.

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

All grants are time based and vest either immediately or over a period established at grant, typically with a requisite service period of two to three years for the employee to vest in the stock-based award, subject to discretion by Compensation Committee of the Board of Directors.

There are no other substantive conditions for vesting.

The Company recognizes compensation expense for equity awards, reduced by actual forfeitures, using the straight-line basis.

The Company was authorized to issue approximately 2.2 million and 4.8 million shares for awards for the years ended December 31, 2021 and 2020, respectively.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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

11 unchanged sentences

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

12 unchanged sentences

At December 31, 2021, the intrinsic value and average remaining life of the Company's outstanding options were $ 0.2 million and approximately 2.6 years, and intrinsic value and average remaining life of the Company's exercisable options were $ 0.2 million and approximately 2.6 years.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

The maximum contractual term of the Company's exercisable options is approximately 10 years.

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

The unrecognized compensation cost is expected to be recognized over the remaining weighted average period of 0.2 years.

There are 42,205 unvested stock options expected to vest, with a weighted average remaining life of 3.8 years, a weighted average exercise price of $ 5.27 , and an intrinsic value of zero .

There are 1,350 unvested stock options expected to vest, with a weighted average remaining life of 7.2 years, a weighted average exercise price of $ 2.62 , and an intrinsic value of $ 0.1 million.

Rights Offering

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

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

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

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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

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

4 unchanged sentences

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

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

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

The Backstop Commitment was classified as Level 3.

1 unchanged sentence

The Backstop Commitment ceased upon the consummation of the Rights Offering.

On November 20, 2020, HC2's stockholders voted to approve (i) an amendment to the Company’s certificate of incorporation to increase the number of authorized shares of common stock of the Company to 160,000,000 shares and (ii) the conversion of up to 35,000 shares of Series B preferred stock of the Company in connection with the Company’s Rights Offering.

On November 20, 2020, INNOVATE's stockholders voted to approve (i) an amendment to the Company’s certificate of incorporation to increase the number of authorized shares of common stock of the Company to 160,000,000 shares and (ii) the conversion of up to 35,000 shares of Series B preferred stock of the Company in connection with the Company’s Rights Offering.

On November 20, 2020, we completed the Rights Offering and issued a total of 28,716,820 shares of our common stock, 16,825,280 common shares were issued immediately, and 11,891,540 were issued from the conversion of 26,994 shares of Series B Preferred stock as noted below.

3 unchanged sentences

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

2021 December 31,

Preferred shares authorized, $ 0.001 par value

2 unchanged sentences

Series A-2 shares issued and outstanding (1)

Series B shares issued and outstanding — —

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

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

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

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

On August 10, 2015, the Company adopted certain Certificates of Correction of the Certificates of Amendment to the Certificates of Designation

HC2 HOLDINGS, INC.

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

On August 2, 2016, the Company entered into separate agreements with each of Corrib Master Fund, Ltd.

("Corrib"), then a holder of 1,000 shares of Series A Preferred Stock, and certain investment entities managed by Luxor Capital Group, LP ("Luxor"), that together then held 9,000 shares of Series A-1 Preferred Stock.

In conjunction with the conversions, the Company agreed to provide the following two forms of additional consideration for as long as the Preferred Stock remained entitled to receive dividend payments (the "Additional Share Consideration"):

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

of the Series A Certificate, the Series A-1 Certificate and the Series A-2 Certificate, and on June 24, 2016 the Company adopted certain amendments to the Series A-1 Certificate of Designation.

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

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

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

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

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

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

• The Company agreed that in the event that Corrib and Luxor would have been entitled to any Participating Dividends payable, had they not converted the Preferred Stock (as defined in the respective Series A and Series A-1 Certificate of Designation), after the date of their Preferred Share conversion, then the Company will issue to Corrib and Luxor, on the date such Participating Dividends become payable by the Company, in a transaction exempt from the registration requirements of the Securities Act the number of shares of common stock equal to (a) the value of the Participating Dividends Corrib or Luxor would have received pursuant to Sections (2)(c) and (2)(d) of the respective Series A and Series A-1 Certificates of Designation, divided by (b) the Thirty Day VWAP (as defined in the respective Series A and Series A-1 Certificates of Designation) for the period ending two business days prior to the underlying event or transaction that would have entitled Corrib or Luxor to such Participating Dividend had Corrib’s or Luxor’s Preferred Stock remain unconverted.

• 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 year ended December 31, 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 year ended December 31, 2020, 278,194 and 31,379 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 year ended December 31, 2021 was valued by the Company at $ 0.3 million and for the year ended December 31, 2020 was valued by the Company at $ 0.8 million on the date of issuance and was recorded within Preferred stock and deemed dividends from conversion line item of the Consolidated Statements of Operations as a deemed dividend.

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

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, 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 as of December 31, 2021 of $ 18.8 million.

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.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Subsequent Measurement.

The Company has elected to account for the Series A-3 and Series A-4 Preferred Stock by immediately recognizing changes in the redemption value as they occur.

The carrying value of the Series A-3 and Series A-4 Preferred Stock will be adjusted to equal what the redemption amount would be as if the redemption were to occur at the end of the reporting period as if it were also the redemption date for the Series A-3 and Series A-4 Preferred Stock.

Any cash dividends paid will directly reduce the carrying value of the Series A-3 and Series A-4 Preferred Stock until the carrying value equals the redemption value.

The Company has a history of paying dividends on its preferred stock and expects to continue to pay such dividends each quarter.

Optional Conversion.

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

Pursuant to the Series A Certificate, each share of Series A Preferred Stock is currently convertible at a conversion price of $ 3.52 .

Pursuant to the Series A-2 Certificate, each share of Series A-2 Preferred Stock is currently convertible at a conversion price of $ 5.32 .

Such conversion prices are subject to adjustment for dividends, certain distributions, stock splits, combinations, reclassifications, reorganizations, mergers, recapitalizations and similar events, as well as in connection with issuances of equity or equity-linked or other comparable securities by the Company at a price per share (or with a conversion or exercise price or effective issue price) that is below the applicable conversion price (which adjustment shall be made on a weighted average basis).

Redemption by the Holders / Automatic Conversion.

On May 29, 2021, holders of the Preferred Stock are entitled to cause the Company to redeem the Preferred Stock at the accrued value per share plus accrued but unpaid dividends (to the extent not included in the accrued value of Preferred Stock).

Each share of Preferred Stock that is not so redeemed will be automatically converted into shares of common stock at the conversion price then in effect.

Upon a change of control (as defined in the Certificates of Designation) holders of the Preferred Stock are entitled to cause the Company to redeem their Preferred Stock at a price per share of Preferred Stock equal to the greater of (i) the accrued value of the Preferred Stock, which amount would be multiplied by 150 % in the event of a change of control occurring on or prior to May 29, 2017, plus any accrued and unpaid dividends (to the extent not included in the accrued value of Preferred Stock), and (ii) the value that would be received if the share of Preferred Stock were converted into common stock immediately prior to the change of control.

Redemption by the Company.

At any time after May 29, 2017, the Company may redeem the Preferred Stock, in whole but not in part, at a price per share generally equal to 150 % of the original accrued value or on that date, plus accrued but unpaid dividends (to the extent not included in the accrued value of Preferred Stock), subject to the holder’s right to convert prior to such redemption.

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.

Forced Conversion .

After May 29, 2017, the Company may force conversion of the Preferred Stock into common stock if the common stock’s thirty-day VWAP exceeds 150 % of the then-applicable Conversion Price and the common stock’s daily VWAP exceeds 150 % of the then applicable Conversion Price for at least twenty trading days out of the thirty trading day period used to calculate the thirty-day VWAP.

In the event of a forced conversion, the holders of Preferred Stock will have the ability to elect cash settlement in lieu of conversion if certain market liquidity thresholds for the common stock are not achieved.

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 .

The Series A Preferred Stock ranks at parity with the Series A-2 Preferred Stock.

In the event of any liquidation, dissolution or winding up of the Company (any such event, a "Liquidation Event"), the holders of Preferred Stock are entitled to receive per share the greater of (i) the accrued value of the Preferred Stock, which amount would be multiplied by 150 % in the event of a Liquidation Event occurring on or prior to May 29, 2017, plus any accrued and unpaid dividends (to the extent not included in the accrued value of Preferred Stock), and (ii) the value that would be received if the share of Preferred Stock were converted into common stock immediately prior to such occurrence.

The Preferred Stock will rank junior to any existing or future indebtedness but senior to the common stock and any future equity securities other than any future senior or pari-passu preferred stock issued in compliance with the Certificates of Designation.

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 each series of Preferred Stock are entitled to vote on an as-converted basis with the holders of the other series of Preferred Stock (on an as-converted basis) and holders of the Company’s common stock on all matters submitted to a vote of the holders of common stock.

Certain series of Preferred Stock are entitled to vote with the holders of certain other series of Preferred Stock on certain matters, and separately as a class on certain limited matters.

Subject to maintenance of certain ownership thresholds by the initial purchasers of the Series A Preferred Stock also have the right to vote shares of Preferred Stock as a separate class for at least one director, as discussed below under "Board Rights."

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 Preferred Stock is outstanding, consent of the holders of shares representing at least 75 % of certain of the Preferred Stock then outstanding is required for certain material actions.

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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.

1 unchanged sentence

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.

As of December 31, 2020 Preferred A shares and Preferred A-2 shares were convertible into 1,835,695 and 751,880 shares, respectively of HC2 common stock, excluding CGI shares eliminated in consolidation, as discussed below.

Preferred Share Activity

Series B Preferred Stock

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

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

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

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

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

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

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

On November 20, 2020, as part of the rights offering, Lancer Capital funded $ 21.4 million, and the Company issued Lancer Capital an additional 21,434 shares of Series B Preferred Stock.

Immediately upon issuance of the shares, the Company converted all of Lancer Capital's Series B Preferred Stock into 11,891,540 shares of the Company's Common Stock.

The Series B Preferred Stock became convertible upon the approval of shareholders during the Special Meeting of Stockholders on November 20, 2020.

As a result, the Company recorded a beneficial conversion feature of $ 2.0 million related to the issuances of the Preferred B Preferred Stock, which was immediately accreted and recorded within the Preferred dividends, deemed dividends, and repurchase gains line item of the Consolidated Statements of Operations as a deemed dividend.

Series A Shares

On December 18, 2018 and December 20, 2018, CGI, a wholly owned subsidiary of the Company closed on the purchase of 6,125 shares of Series A Preferred Stock, which, as of December 31, 2020, is convertible into a total of 1,763,706 shares of the Company's common stock.

The shares and dividends accrued related to the Series A Preferred shares owned by CGI are eliminated in consolidation.

On January 11, 2019, CGI purchased 10,000 shares of Series A-2 Preferred Stock, which, as of December 31, 2020, is convertible into a total of 1,879,699 shares of the Company's common stock.

The shares and dividends accrued related to the Series A-2 Preferred Stock owned by CGI are eliminated in consolidation.

The shares were purchased at a discount of $ 1.7 million, which was recorded within the Preferred dividends, deemed dividends, and repurchase gains line item of the Consolidated Statements of Operations as a deemed dividend.

Luxor and Corrib Conversions

On August 2, 2016, the Company entered into separate agreements with each of Corrib Master Fund, Ltd.

("Corrib"), then a holder of 1,000 shares of Series A Preferred Stock, and certain investment entities managed by Luxor Capital Group, LP ( "Luxor"), that together then held 9,000 shares of Series A-1 Preferred Stock.

HC2 HOLDINGS, INC.

At December 31, 2021, Series A-3 Preferred Stock and Series A-4 Preferred Stock were convertible into 1,740,700 and 1,875,533 shares, respectively, of INNOVATE's common stock.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

become payable by the Company, in a transaction exempt from the registration requirements of the Securities Act the number of shares of common stock equal to (a) the value of the Participating Dividends Corrib or Luxor would have received pursuant to Sections (2)(c) and (2)(d) of the respective Series A and Series A-1 Certificate of Designation, divided by (b) the Thirty Day VWAP (as defined in the respective Series A and Series A-1 Certificate of Designation) for the period ending two business days prior to the underlying event or transaction that would have entitled Corrib or Luxor to such Participating Dividend had Corrib’s or Luxor’s Preferred Stock remain unconverted.

• The Company agreed that it will issue to Corrib and Luxor, on each quarterly anniversary commencing May 29, 2017 (or, if later, the date on which the corresponding dividend payment is made to the holders of the outstanding Preferred Stock), through and until the Maturity Date (as defined in the respective Series A and Series A-1 Certificate of Designation), in a transaction exempt from the registration requirements of the Securities Act the number of shares of common stock equal to (a) 1.875 % the Accrued Value (as defined in the respective Series A and Series A-1 Certificate of Designation) of Corrib’s or Luxor’s Preferred Stock as of the Closing Date (as defined in applicable Voluntary Conversion Agreements) divided by (b) the Thirty Day VWAP (as defined in the respective Series A and Series A-1 Certificate of Designation) for the period ending two business days prior to the applicable Dividend Payment Date (as defined in the respective Series A and Series A-1 Certificate of Designation).

For the year ended December 31, 2020, 278,914 and 31,379 shares of the Company's common stock have been issued to Luxor and Corrib, respectively, in conjunction with the Conversion agreement.

For the year ended December 31, 2019, 269,284 and 30,297 shares of the Company's common stock have been issued to Luxor and Corrib, respectively, in conjunction with the Conversion agreement.

The fair value of the Additional Share Consideration for the year ended December 31, 2020 and 2019 was valued by the Company at $ 0.8 million each on the date of issuance and was recorded within Preferred stock and deemed dividends from conversion line item of the Consolidated Statements of Operations as a deemed dividend.

Preferred Share Dividends

During the years ended December 31, 2020 and 2019, HC2's Board of Directors declared cash dividends with respect to HC2’s issued and outstanding Preferred Stock, excluding Preferred Stock owned by CGI which is eliminated in consolidation, as presented in the following table (in millions):

Declaration Date March 31, 2020 June 30, 2020 September 30, 2020 December 31, 2020

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

Payment Date April 15, 2020 July 15, 2020 October 15, 2020 January 15, 2021

During the year ended December 31, 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 CGIC 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 December 31, 2021

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

Payment Date April 15, 2021 June 4, 2021 October 15, 2021 January 15, 2022

Total Dividend $ 0.2 $ 0.1 $ 0.3 $ 0.3

3 unchanged sentences

Total Dividend $ 0.2 $ 0.2 $ 0.2 $ 0.2

In Connection with the acquisition of CGI and UTA in 2015, the Company issued five year warrants to purchase 2,000,000 shares of the Company's common stock at an exercise price of $ 7.08 per share, subject to customary adjustments for stock splits or similar transactions, exercisable on or after February 3, 2016.

The warrants expired on December 24, 2020.

Related Parties

Series B Preferred Stock

As detailed in Note 20.

Equity, HC2 entered into the Investment Agreement with Lancer Capital, an investment fund led by Avram Glazer, the Chairman of our Board of Directors, pursuant to which Lancer Capital agreed to the Backstop Commitment to purchase up to $ 35.0 million of Series B Preferred Stock in connection with the Rights Offering, based on subscription participation of common shareholders, of which $ 10.0 million may be funded in advance.

On September 17, 2020, Lancer Capital funded $ 5.56 million, receiving 5,560 shares of Series B Preferred stock.

On November 20, 2020, as part of the rights offering, Lancer Capital funded an $ 21.4 million, and the Company issued Lancer Capital an additional 21,434 shares of Series B Preferred Stock.

Immediately upon issuance of the shares, the Company Converted all of Lancer Capital's series B shares to 11,891,540 shares of the Company's Common Stock.

Please see Note 20.

Equity for further detail.

HC2 HOLDINGS, INC.

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.

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.

Subsequent Measurement.

The DBMGi Series A Preferred Stock will be subsequently measured each reporting period at its maximum redemption value, which is equal to the stated value plus all accrued, accumulated and unpaid dividends as of the end of each reporting period as they are currently redeemable.

The Company pays accrued dividends quarterly in cash (with an option to PIK), and there will likely not be any subsequent measurement adjustments recorded to the initial carrying amount.

As such no accretion will be recognized until future dividend payments would otherwise reduce the carrying value below its redemption value.

In such a case, the Company will adjust the carrying value to its maximum redemption amount.

During the year ending December 31, 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 December 31, 2021

Holders of Record Date September 30, 2021 December 31, 2021

Payment Date October 15, 2021 January 15, 2022

Total Dividend $ 0.8 $ 0.9

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

HCP Services Agreement

In January 2015, the Company entered into an arm's length services agreement (the "Services Agreement") with Harbinger Capital Partners ("HCP"), a related party of the Company.

The Services Agreement includes the provision of services such as providing office space, certain administrative salaries and benefits, and other overhead, and each party making available their respective employees to provide services as reasonably requested by the other party, subject to any limitations contained in applicable employment agreements and the terms of the Services Agreement.

The costs allocated between the Company and HCP are based on actual use.

Office space is an allocation of actual costs based on square footage and directly used by HC2 employees.

Time of administrative personnel is allocated by time spent on each entity and other shared overhead is based on actual shared overhead and is allocated based on amounts used for each vendor.

Management of shared overhead and certain administrative personnel were transferred to HC2 at the beginning of 2019.

Both of these services are charged back to HCP on the same basis described above.

The Company recognized expenses of $ 1.6 million and $ 2.7 million, and income of $ 0.1 million and $ 0.3 million under the Services Agreement for the years ended December 31, 2020 and 2019, respectively.

The following table breaks out the components of the Services Agreement net expenses, by Segment for the years ended December 31, 2020 and 2019:

Years Ended December 31,

Corporate Other (1)

Total Corporate Other (1)

Allocated to HC2 by HCP

Office space $ 1.1 $ 0.5 $ 1.6 $ 1.8 $ 0.8 $ 2.6

Administrative salaries and benefits — — — 0.1 — 0.1

Other shared overhead — — — — — —

Total Expenses 1.1 0.5 1.6 1.9 0.8 2.7

Charged back to HCP by HC2

Administrative salaries and benefits 0.1 — 0.1 0.2 — 0.2

Other shared overhead — — — 0.1 — 0.1

Total Income 0.1 — 0.1 0.3 — 0.3

Net related party activity $ 1.0 $ 0.5 $ 1.5 $ 1.6 $ 0.8 $ 2.4

(1) Other in the above table represent certain entities within our Spectrum, Life Sciences and Insurance segments.

With the announcement of the departure of Phillip Falcone, the former CEO and Chairman of the Company, on June 11, 2020, HCP is no longer considered a related party.

On August 2, 2020, the Company issued a notice of termination, effectively ending the Services Agreement with HCP, a former related party.

Rights Offering

Due to an administrative error by our transfer agent, the Company sold an additional 82,459 shares of HC2 common stock to MG Capital Management Ltd.

at the Rights Offering price in December 2020 to make MG Capital Management Ltd.

whole of the error.

GMH's subsidiary, GMSL, prior to its sale in February 2020, had transactions with several of its equity method investees.

A summary of transactions with such equity method investees and balances outstanding are as follows (in millions).

Such activity is reclassified to discontinued operations as a result of the sale of GMSL.

Discontinued Operations for further information:

Years Ended December 31,

Net revenue $ — $ 6.4

Operating expenses $ — $ 1.0

Interest expense $ — $ 1.0

HC2 HOLDINGS, INC.

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 CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Accounts receivable $ — $ 1.2

Long-term obligations $ — $ 22.5

Accounts payable $ — $ 0.1

Dividends $ — $ 4.5

Life Sciences

Pansend has an investment in Triple Ring Technologies, Inc.

Related Parties

Non-Operating Corporate

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 $ 1.0 million and $ 1.9 million in services for the year ended December 31, 2020 and 2019, respectively.

A subsidiary of INNOVATE utilized the services of Triple Ring, incurring zero and $ 1.0 million in services for the years ended December 31, 2021 and 2020, respectively.

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

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 Consolidated Balance Sheets.

During the year ended December 31, 2021, and subsequent to the sale of CGIC on July 1, 2021, to Continental General Holdings LLC, an entity controlled by Michael Gorzynski, a director of the Company and, as of December 31, 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, INNOVATE's Board of Directors declared cash dividends of $ 0.6 million to CGIC with respect to INNOVATE’s issued and outstanding Preferred Stock, and DBMGi's Board of Directors declared cash dividends of $ 1.7 million to CGIC with respect to DBMGi’s issued and outstanding Preferred Stock.

Infrastructure

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 year ended December 31, 2021, and 2020, DBMG incurred lease expense of $ 55 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 $ 3.6 million.

For the year ended December 31, 2021, and 2020, DBMG incurred lease expense of $ 1.0 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 year ended December 31, 2021, and 2020, DBMG incurred interest expense of $ 0.4 million and zero , respectively.

Refer to Footnote 9.

Debt Obligations to our Consolidated Financial Statements for additional information.

Life Sciences

During 2021, R2 Technologies paid $ 0.4 million of a milestone payment to Blossom Innovations, LLC, a related party.

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:

Years Ended December 31,

Segment 2021 2020

Customer A Infrastructure 13.9 % *

*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.

Formerly part of the Marine Services, Telecommunications, and Clean Energy segments, these entities and the investment in HMN have been reclassified to the Other segment.

In addition, as GMSL, ICS, and Beyond6 are discontinued operations, all operating results of GMSL, ICS, and Beyond6 have been reclassified to discontinued operations.

In addition, as GMSL, ICS, Beyond6, and CIG are discontinued operations, all operating results of these entities have been reclassified to discontinued operations.

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

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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

2 unchanged sentences

$ 1,159.7 $ 676.6

Life Sciences 3.5 —

Spectrum 42.0 40.3

Insurance 300.2 331.6

Eliminations (*)

( 11.3 ) ( 10.2 )

Total net revenue $ 1,005.8 $ 1,077.0

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

Total revenue $ 1,205.2 $ 716.9

Years Ended December 31,

(Loss) income from operations

Income (loss) from operations

Infrastructure

2 unchanged sentences

Spectrum ( 0.8 ) ( 2.2 )

Insurance 35.6 37.3

Other ( 2.0 ) ( 2.7 )

Non-operating Corporate ( 23.1 ) ( 27.0 )

Eliminations (*)

( 11.3 ) ( 10.2 )

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

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

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Total loss from operations $ ( 10.6 ) $ ( 28.3 )

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

Years Ended December 31,

(Loss) income from operations $ ( 4.1 ) $ 25.3

Loss from operations $ ( 10.6 ) $ ( 28.3 )

Interest expense ( 59.1 ) ( 74.8 )

Loss on early extinguishment or restructuring of debt ( 12.5 ) ( 9.4 )

(Loss) income from equity investees ( 3.4 ) 1.6

Gain on bargain purchase — 1.1

Loss from equity investees ( 2.8 ) ( 3.4 )

Other income 4.3 69.2

Loss from continuing operations before income taxes ( 80.7 ) ( 46.7 )

Income tax benefit (expense) ( 10.5 ) 19.6

Income tax expense ( 5.6 ) ( 7.0 )

Loss from continuing operations ( 86.3 ) ( 53.7 )

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

Loss from discontinued operations (including loss on sale of $ 159.9 million and $ 44.1 million for the years ended December 31, 2021 and 2020, respectively)

( 149.9 ) ( 48.4 )

Net loss ( 236.2 ) ( 102.1 )

Net loss attributable to noncontrolling interest and redeemable noncontrolling interest 8.7 10.1

Net loss attributable to HC2 Holdings, Inc.

Net loss attributable to INNOVATE Corp.

( 227.5 ) ( 92.0 )

Preferred dividends, deemed dividends, and repurchase gains 3.6 —

Preferred dividends and deemed dividends from conversions 2.2 3.6

Net loss attributable to common stock and participating preferred stockholders $ ( 229.7 ) $ ( 95.6 )

3 unchanged sentences

$ 19.1 $ 10.7

Infrastructure recognized within cost of revenue

Total Infrastructure 31.3 19.8

Life Sciences 0.2 0.1

Spectrum 6.0 6.8

Insurance (*)

( 20.9 ) ( 23.1 )

Non-operating Corporate 0.1 0.1

Total $ ( 3.2 ) $ ( 0.9 )

(*) Balance includes amortization of negative VOBA, which increases net income.

Total depreciation and amortization $ 37.6 $ 26.8

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Years Ended December 31,

3 unchanged sentences

Spectrum 5.3 11.8

Insurance 0.2 0.6

Non-operating Corporate — 0.2

Total $ 24.1 $ 17.8

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

2021 December 31,

Infrastructure

Life Sciences 10.2 18.4

Insurance 4,711.3 4,423.0

Other 45.1 36.1

Eliminations ( 101.1 ) ( 96.9 )

Total $ 56.0 $ 55.4

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

2021 December 31,

Equity Method Investees

Infrastructure $ 0.7 $ 0.9

Life Sciences 9.6 17.9

Other 33.9 24.8

Total $ 44.2 $ 43.6

2021 December 31,

Infrastructure

$ 786.4 $ 475.8

1 unchanged sentence

Spectrum 198.9 213.6

Insurance 5,913.8 5,611.9

Other 48.0 6,021.3

2 unchanged sentences

Total $ 1,080.6 $ 6,723.8

Basic and Diluted Income Per Common Share

Basic and Diluted Income (Loss) Per Common Share

Earnings per share ("EPS") is calculated using the two-class method, which allocates earnings among common stock and participating securities to calculate EPS when an entity's capital structure includes either two or more classes of common stock or common stock and participating securities.

1 unchanged sentence

As such, shares of any unvested restricted stock of the Company are considered participating securities.

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 years ended December 31, 2020 and 2019, due to the results of operations being a loss from continuing operations, net of tax.

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

The Company had no dilutive common share equivalents during the year ended December 31, 2021 and 2020 due to results from continuing operations being a loss, net of tax.

The following table presents a reconciliation of net income (loss) used in basic and diluted EPS calculations (in millions, except per share amounts):

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Years Ended December 31,

Loss from continuing operations $ ( 86.3 ) $ ( 53.7 )

Income (loss) attributable to noncontrolling interest and redeemable noncontrolling interest ( 5.6 ) 4.4

Income (loss) from continuing operations attributable to noncontrolling interest and redeemable noncontrolling interest 7.8 ( 5.9 )

Loss from continuing operations attributable to the Company ( 78.5 ) ( 59.6 )

Preferred dividends, deemed dividends and repurchase gains 2.2 3.6

Loss from continuing operations attributable to HC2 common stockholders ( 47.5 ) ( 17.8 )

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Loss from continuing operations attributable to INNOVATE common stockholders ( 80.7 ) ( 63.2 )

Loss from discontinued operations ( 149.9 ) ( 48.4 )

Loss attributable to noncontrolling interest and redeemable noncontrolling interest 15.7 0.2

Income from discontinued operations attributable to noncontrolling interest and redeemable noncontrolling interest 0.9 16.0

Loss from discontinued operations, net of tax and noncontrolling interest ( 149.0 ) ( 32.4 )

33 unchanged sentences

Diluted $ ( 2.98 ) $ ( 1.88 )

HC2 HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Subsequent Events

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

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

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

On February 3, 2021 the Company announced that R2 has received $ 10.0 million in funding from Huadong Medicine Company Limited (“Huadong”), a leading publicly traded Chinese pharmaceutical company.

Huadong’s investment will be used to fund the launch of R2 Technologies’ first-to-market innovations Glacial Rx and Glacial Spa.

In exchange for its equity investment in R2, Huadong receives exclusive distribution rights for R2’s products in the China and selected Asia-Pacific markets.

On February 23, 2021, the Company entered into a third amendment of the 2020 Revolving Credit Agreement with MSD PCOF Partners IX, LLC.

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

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

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures