Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Commercial $ 50.6
$ 65.2
$ 162.9
$ 202.6
Convention 9.7
54.2
66.8
108.0
Healthcare 12.1
28.4
34.5
85.5
Industrial 63.1
13.8
179.6
49.8
Transportation 14.4
17.4
48.8
31.0
Other 18.3
16.3
63.2
54.3
Total revenue from contracts with customers 168.2

195.3

555.8

531.2
Other revenue 0.2
—
0.4
—
Total Construction segment revenue $ 168.4

$ 195.3

$ 556.2

$ 531.2

~~Contract Assets and Contract Liabilities~~

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

September 30, 2019 December 31, 2018
Contract assets $ 66.3
$ 69.0
Contract liabilities $ (31.1 ) $ (62.0 )

The change in contract assets is a result of the recording of $40.8 million of costs in excess of billings driven by new commercial projects, offset by $40.2 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 $29.8 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 $60.5 million.

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

Within one year Within five years Total
Commercial $ 113.3
$ 21.4
$ 134.7
Convention 16.0
—
16.0
Healthcare 33.3
0.5
33.8
Industrial 127.0
12.1
139.1
Transportation 87.5
0.1
87.6
Other 41.6
—
41.6
Remaining unsatisfied performance obligations $ 418.7
$ 34.1
$ 452.8

DBMG includes an additional $22.5 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.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

~~Marine Services Segment~~

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

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Telecommunication - Maintenance $ 21.6
$ 21.9
$ 62.6
$ 65.8
Telecommunication - Installation 12.8
5.5
28.2
29.3
Power - Operations, Maintenance & Construction Support 6.0
9.3
15.2
25.9
Power - Cable Installation & Repair 7.8
8.1
24.0
28.9
Total revenue from contracts with customers 48.2
44.8
130.0

149.9
Other revenue —
—
—
—
Total Marine Services segment revenue $ 48.2
$ 44.8
$ 130.0

$ 149.9

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

September 30, 2019 December 31, 2018
Contract assets $ 12.1
$ 5.2
Contract liabilities $ (14.9 ) $ (1.0 )

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

Within one year Within five years Thereafter Total
Telecommunication - Maintenance $ 18.5
$ 217.1
$ 60.0
$ 295.6
Telecommunication - Installation 4.8
12.8
—
17.6
Power - Operations, Maintenance & Construction Support 3.1
18.0
—
21.1
Power - Cable Installation & Repair 15.3
49.1
—
64.4
Remaining unsatisfied performance obligations $ 41.7

$ 297.0

$ 60.0
$ 398.7

~~Energy Segment~~

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

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Volume-related $ 8.5
$ 4.2
$ 18.5
$ 12.3
Maintenance services —
—
0.1
0.1
Total revenue from contracts with customers 8.5
4.2
18.6

12.4
RNG incentives 0.1
0.3
0.5
1.0
Alternative fuel tax credit —
0.1
—
2.6
Other revenue 0.1
—
0.2
0.2
Total Energy segment revenue $ 8.7
$ 4.6
$ 19.3

$ 16.2

~~Telecommunications Segment~~

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

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Termination of long distance minutes $ 162.2
$ 187.8
$ 507.0
$ 580.6
Total revenue from contracts with customers 162.2
187.8
507.0
580.6
Other revenue —
—
—
—
Total Telecommunications segment revenue $ 162.2
$ 187.8
$ 507.0
$ 580.6

~~HC2 HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED~~

~~Broadcasting Segment~~

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

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Network advertising $ 5.1
$ 7.4
$ 15.9
$ 21.2
Broadcast station 3.1
2.5
8.7
8.0
Network distribution 1.1
1.7
3.8
3.5
Other 0.7
0.4
1.4
1.0
Total revenue from contracts with customers 10.0
12.0
29.8
33.7
Other revenue —
—
—
—
Total Broadcasting segment revenue $ 10.0
$ 12.0
$ 29.8
$ 33.7

The transaction price allocated to remaining unsatisfied performance obligations consisted of $3.5 million, $7.4 million, and $2.5 million of network advertising, broadcasting station revenues, and other revenue respectively of which $6.4 million is expected to be recognized within one year and $7.0 million is expected to be recognized within five years.

~~4. Acquisitions, Dispositions, and Deconsolidations~~

Construction Segment

On November 30, 2018, DBMG consummated acquisition of GrayWolf Industrial ("GrayWolf"), a premier specialty maintenance, repair and installation services provider, pursuant to that certain Agreement and Plan of Merger, dated October 10, 2018, as amended by Amendment No. 1 to the Agreement and Plan of Merger, dated November 29, 2018. The aggregate fair value of the cash consideration paid in connection with the acquisition of GrayWolf was $139.8 million. The transaction was accounted for as business acquisition.

The ~~preliminary allocation of the fair value of consideration transferred among the identified assets acquired, liabilities assumed, intangibles and residual goodwill are summarized as follows~~following table disaggregates DBMG's revenue by market (in millions):


	Three Months Ended March 31,
	2020		2019
Commercial	$	62.8	$	59.4
Convention	2.4		28.7
Healthcare	8.0		8.8
Industrial	58.9		53.8
Transportation	16.3		18.1
Leisure	16.0		14.9
Other	12.1		8.4
Total revenue from contracts with customers	176.5		192.1
Other revenue	—		—
Total Construction segment revenue	$	176.5	$	192.1��

Other invested assets $ 0.9
Cash and cash equivalents 8.6
Accounts receivable 28.8
Property, plant and equipment 15.4
Goodwill 50.7
Intangibles 44.1
Other assets 18.9
Total assets acquired 167.4
Accounts payable and other current liabilities (23.7 )
Other liabilities (3.9 )
Total liabilities assumed (27.6 )
Total net assets acquired $ 139.8

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


	March 31,		December 31,
	2020		2019
Contract assets	$	61.5	$	50.6
Contract liabilities	$	(69.6)	$	(50.6)

The ~~size and breadth~~change in contract assets is a result of the ~~GrayWolf acquisition necessitates use~~recording of $19.0 million of costs in excess of billings driven by new commercial projects, offset by $8.1 million of costs in excess of billings transferred to receivables from contract assets recognized at the beginning of the ~~one year measurement period to adequately analyze all~~period. The change in contract liabilities is a result of periodic billing in excess of costs of $52.7 million driven largely by new commercial projects, offset by revenue recognized that was included in the ~~factors used in establishing~~contract liability balance at the ~~asset and liability fair values as~~beginning of the ~~acquisition date, including, but~~period in the amount of $33.7 million.

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


	Within one year				Within five years				Total
Commercial	$	145.4			$	—			$	145.4
Convention	19.2				—				19.2
Healthcare	44.8				—				44.8
Industrial	101.6				—				101.6
Transportation	67.5				—				67.5
Leisure	19.8				—				19.8
Other	67.3				—				67.3
Remaining unsatisfied performance obligations			$	465.6			$	—			$	465.6

DBMG includes an additional $19.9 million in its backlog that is not ~~limited~~included in the remaining unsatisfied performance obligations noted above. This backlog represents commitments under master service agreements that are estimated amounts of work to ~~deferred tax assets.~~

~~Goodwill was determined~~be performed based on ~~the residual differences between fair value~~customer communications, historic experience and knowledge of consideration transferred and the value assigned to tangible and intangible assets and liabilities. Among the factors that contributed to goodwill was approximately $10.9 million assigned to the assembled and trained workforce. Goodwill is not amortized and is not deductible for tax purposes.our customers' intentions.

~~Acquisition costs incurred~~Energy Segment

The following table disaggregates ANG's revenue by DBMG in connection with the acquisition of GrayWolf were approximately $4.2 million, which were included in selling, general and administrative expenses. The acquisition costs were primarily related to legal, accounting and valuation services.type (in millions):


	Three Months Ended March 31,
	2020		2019
Volume-related	$	8.7	$	4.8

Total revenue from contracts with customers	8.7		4.8
RNG incentives	0.1		0.3
Alternative fuel tax credit	1.4		—
Other revenue	0.2		—
Total Energy segment revenue	$	10.4	$	5.1

Results of GrayWolf were included in our Consolidated Statements of Operations since the acquisition date. Pro forma results of operations have not been presented because they are not material to our consolidated results of operations.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

~~Energy~~Telecommunications Segment

~~On June 14, 2019, ANG acquired ampCNG's 20 natural gas fueling stations, located primarily in the Southeastern U.S. and Texas, for cash consideration~~ICS's revenues are predominantly derived from wholesale of ~~$41.2 million. ANG’s network reach expanded to over 60 stations, making it one of the largest owners and operators of compressed natural gas stations in the country.~~

To finance the acquisition, ANG entered into a term loan with M&T bank for $28.0 million and issued preferred stock and ten year warrants for common stock for $14.0 million. The preferred stock bears a 14% coupon and is mandatorily redeemable in four years. The warrants are exercisable at $0.001 per share of common stock and will represent 6% of ANG when exercised. ANG received $5.0 million of proceeds from CGI. Consequently, related preferred stock and warrants are eliminated in consolidation. Preferred stock and warrants are recorded within Other liabilities.

~~Insurance Segment~~

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

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

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

Fixed maturity securities, available-for-sale at fair value $ 1,575.4
Equity securities 0.3
Mortgage loans 0.9
Policy loans 2.9
Cash and cash equivalents 806.6
Recoverable from reinsurers 902.5
Other assets 28.2
Total assets acquired 3,316.8
Life, accident and health reserves (2,931.3 )
Annuity reserves (11.3 )
Value of business acquired (214.4 )
Accounts payable and other current liabilities (6.5 )
Deferred tax liability (25.3 )
Other liabilities (11.5 )
Total liabilities assumed (3,200.3 )
Total net assets acquired 116.5
Total fair value of consideration —
Gain on bargain purchase $ 116.5


	Three Months Ended March 31,
	2020		2019
Termination of long distance minutes	$	186.4	$	155.5
Total revenue from contracts with customers	186.4		155.5
Other revenue	—		—
Total Telecommunications segment revenue	$	186.4	$	155.5

~~Gain on bargain purchase~~

Gain on bargain purchase was driven by the Tax Cuts and Jobs Act, which was not stipulated in the negotiations for the transaction and resulted in a material decline in the Value of Business Acquired balance, corresponding deferred tax position and, ultimately, recognition of the bargain purchase gain, largely driven by the following attributes:

~~The Unified Loss Rules tax attribute reduction to tax value of assets and the seller tax adjustments to tax value of liabilities contribute significantly to the bargain purchase price.~~

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

Changes in fair value of acquired assets and assumed liabilities between the date the deal was signed and the closing date was driven by the time it took to obtain regulatory approvals, amongst other closing conditions.

~~HC2 HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED~~

~~Reinsurance Recoverable~~

The reinsurance recoverable balance represents amounts recoverable from third parties. U.S. GAAP requires insurance reserves and reinsurance recoverable balances to be presented on a gross basis, as opposed to U.S. statutory accounting principles, where reserves are presented net of reinsurance. Accordingly, the Company grossed up the fair value of the net insurance contract liability for the amount of reinsurance of approximately $902.5 million, to arrive at a gross insurance liability, and recognized an offsetting reinsurance recoverable amount of approximately $902.5 million. As part of this process, management considered reinsurance counterparty credit risk and considers it to have an immaterial impact on the reinsurance fair value gross-up. To mitigate this risk substantially all reinsurance is ceded to companies with investment grade S&P ratings.

Amounts recoverable from reinsurers were estimated in a manner consistent with the liability associated with the reinsured policies and were an estimate of the reinsurance recoverable on paid and unpaid losses, including an estimate for losses incurred but not reported. Reinsurance recoverable represent expected cash inflows from reinsurers for liabilities ceded and therefore incorporate uncertainties as to the timing and amount of claim payments. Reinsurance recoverable includes the balances due from reinsurers under the terms of the reinsurance agreements for these ceded balances as well as settlement amounts currently due.

~~The Value of Business Acquired~~

VOBA reflects the estimated fair value of in-force contracts in a life insurance company acquisition less the amount recorded as insurance contract liabilities. It represents the portion of the purchase price that is allocated to the value of the rights to receive future cash flows from the business in force at the acquisition date. A VOBA liability (negative asset) occurs when the estimated fair value of in-force contracts in a life insurance company acquisition is less than the amount recorded as insurance contract liabilities. HC2 calculated VOBA by adjusting the purchase price, which was derived on a statutory accounting basis, for differences between statutory and U.S. GAAP accounting requirements. Amortization is based on assumptions consistent with those used in the development of the underlying contract adjusted for emerging experience and expected trends.

~~Life, accident and health reserves~~

HC2 estimated the fair value of reserves on a fair value basis, using actuarial assumptions consistent with those used for the buyer’s valuation of the acquired business, and discount rates reflecting capital market conditions. The reserve accounts for the present value of all future cash flows, net of reinsurance, of the acquired block of insurance, including premium, benefit payments, and expenses. HC2 estimated the fair value of recoverable from reinsurers using the same assumptions as those for reserves of the net retained business, but applied to business ceded through various, existing reinsurance agreements.

~~Life Sciences Segment~~

On June 8, 2018, Pansend closed on the sale of its approximately 75.9% ownership in BeneVir to Janssen Biotech, Inc. (“Janssen”). In conjunction with the closing of the transaction, Janssen made an upfront cash payment of $140.0 million. Pansend received a cash payment of $93.4 million and received an additional cash payment of $13.3 million on September 16, 2019, which was previously held in an escrow, for a total consideration of $106.7 million. Pansend recorded a gain on the sale of $102.1 million, of which $21.7 million was allocated to noncontrolling interests. HC2 received a cash payment of $72.8 million and an additional cash payment of $9.8 million from the release of the escrow.

Under the terms of the merger agreement, Pansend is eligible to receive payments of up to $189.7 million upon the achievement of specified development milestones and up to $493.1 million upon the achievement of specified levels of annual net sales of licensed products. From these potential milestone payments, HC2 is eligible to receive up to $512.2 million.

Broadcasting Segment

~~During~~The following table disaggregates the ~~nine months ended September 30, 2019 and the year ended December 31, 2018, HC2~~ Broadcasting ~~acquired a series~~segment's revenue by type (in millions):


	Three Months Ended March 31,
	2020		2019
Network advertising	$	5.0	$	5.4
Broadcast station	3.5		2.7
Network distribution	1.0		1.5
Other	0.6		0.2
Total revenue from contracts with customers	10.1		9.8
Other revenue	—		—
Total Broadcasting segment revenue	$	10.1	$	9.8

The transaction price allocated to remaining unsatisfied performance obligations consisted of ~~licenses for a total cash consideration of $16.1~~$4.3 million, $6.5 million, and ~~$71.4~~$0.4 million ~~respectively. All transactions were accounted for as asset acquisitions.~~of network advertising, broadcasting station revenues, and other revenues, respectively, of which $4.7 million is expected to be recognized within one year and $6.5 million is expected to be recognized within five years.

5. Acquisitions, Dispositions, and Deconsolidations

Other Segment

Sale of GMSL

On ~~August 14, 2018, 704Games issued~~January 30, 2020, the Company announced that, through its indirect subsidiary GMH in which the Company holds an approximately 73% controlling interest, the Company entered into a ~~53.5% equity interest~~definitive agreement to ~~international media~~sell 100% of the shares of GMSL to Trafalgar AcquisitionCo, Ltd. and ~~technology company Motorsport Network. As~~an affiliate of J.F. Lehman & Company, LLC. The total base consideration was $250.0 million, subject to customary purchase price adjustments, working capital adjustments, and a ~~result, HC2’s ownership percentage in 704Games was diluted~~potential earn-out of up to ~~26.2% resulting~~$12.5 million at such time, if any, if J.F. Lehman & Company, LLC and its investment affiliates achieve a specified multiple of their invested capital.

The purchase price is subject to customary potential downward or upward post-closing adjustments based on net working capital, cash, unpaid transaction expenses, indebtedness and certain of the Company’s pre-closing paid capital expenditures. The SPA 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 ~~loss of control~~first twelve months after closing and ~~deconsolidation~~(ii) $1.91 million of the ~~entity.~~base price into an escrow fund for the purpose of securing a purchase price adjustment, if any, in favor of purchaser. Following the closing, the purchaser shall pay an amount equal to $2.4 million on the earlier of December 31, 2020 and the date on which a cash collateralized bonding facility is released.

The transaction closed on February 28, 2020. GMH received approximately $144.0 million of net proceeds from the sale, of which $36.8 million and $5.5 million were paid to non-controlling interest holders and redeemable non-controlling interest holders, respectively. In addition, GMH held $3.1 million as reserves for transaction related costs and HC2 received net proceeds of approximately $98.6 million.

The Company recorded a $39.3 million loss on the sale, inclusive of recognizing a $31.3 million loss from the realization of AOCI. The Company expects to record an overall gain from the disposition of the Marine Segment upon the sale of the portion of New Saxon’s interest in HMN that represents 30% of HMN, anticipated to close during the second quarter of 2020.

See Note 3. Discontinued Operations for further details.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Sale of HMN

~~Pro Forma Adjusted Summary~~

On October 30, 2019, the Company announced the sale of its stake in Huawei Marine Networks Co., Limited (“HMN”), its 49% joint venture with Huawei Technologies Co., Ltd., to Hengtong Optic-Electric Co Ltd. The equity investment in HMN has contributed $5.0 million and $12.7 million in equity method income for the years ended December 31, 2019 and 2018, respectively. HMN contributed $1.5 million and $4.8 million in equity method losses for the three months ended March 31, 2020 and 2019, respectively. The sale of GMSL's interest values HMN at $285 million, and GMH's 49% stake at approximately $140 million.

Under the terms of the SPA, the sale of New Saxon’s 49% interest in HMN will be affected in two tranches, with the sale of the portion of New Saxon’s interest in HMN that represents 30% of HMN, anticipated to close during the second quarter of 2020 (the "First HMN Close"). The ~~following schedule presents unaudited consolidated pro forma results~~remaining 19% interest of ~~operations data~~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 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 ifof the two year anniversary date.

Energy Segment

On June 14, 2019, ANG acquired ampCNG's 20 natural gas fueling stations, located primarily in the Southeastern U.S. and Texas, for cash consideration of $41.2 million. ANG’s network reach expanded to over 60 stations, making it one of the largest owners and operators of compressed natural gas stations in the country. Transaction was accounted for as asset acquisition.

To finance the acquisition, ANG entered into a term loan with M&T bank for $28.0 million and issued preferred stock and ten year warrants for common stock for $14.0 million. The preferred stock bears a 14% coupon and is mandatorily redeemable in four years. The warrants are exercisable at $0.001 per share of ~~KMG had occurred on January 1, 2018. This information does not purport to be indicative~~common stock and will represent 6% of ANG when exercised. ANG received $5.0 million of proceeds from CGI. Consequently, related preferred stock and warrants are eliminated in consolidation. Mandatorily redeemable preferred stock and warrants are recorded within Other liabilities.

Broadcasting Segment

During the ~~actual results that would have occurred if the acquisitions had actually been completed on the date indicated, nor is it necessarily indicative~~year ended December 31, 2019 HC2 Broadcasting acquired a series of ~~the future operating results or the financial position~~licenses for a total consideration of ~~the combined company (in millions):~~$71.4 million. All transactions were accounted for as asset acquisitions.

6. Investments

Three Months Ended September 30, 2018 Nine Months Ended September 30, 2018
Net revenue $ 509.2
$ 1,581.5
Net income (loss) from operations $ (43.2 ) $ 9.2
Net income (loss) attributable to HC2 Holdings, Inc. $ 139.8
$ 215.4

~~5. Investments~~

Fixed Maturity Securities

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


September 30, 2019	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
March 31, 2020										March 31, 2020	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
U.S. Government and government agencies	$	6.4	$	0.8	$	—		$	7.2	U.S. Government and government agencies	$	7.5	$	1.3	$	—	$	8.8
States, municipalities and political subdivisions	404.8		43.1		—			447.9		States, municipalities and political subdivisions	391.8		36.0		(0.4)		427.4

Residential mortgage-backed securities	71.2		5.0		(0.8		)	75.4		Residential mortgage-backed securities	60.0		3.2		(2.2)		61.0
Commercial mortgage-backed securities	99.8		4.0		—			103.8		Commercial mortgage-backed securities	112.5		0.7		(13.5)		99.7
Asset-backed securities	545.7		1.8		(18.9		)	528.6		Asset-backed securities	651.8		0.7		(111.3)		541.2
Corporate and other	2,566.1		277.6		(31.1		)	2,812.6		Corporate and other	2,600.4		199.3		(184.8)		2,614.9
Total fixed maturity securities	$	3,694.0	$	332.3	$	(50.8	)	$	3,975.5	Total fixed maturity securities	$	3,824.0	$	241.2	$	(312.2)	$	3,753.0

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Net (loss) income attributable to common stock and participating preferred stockholders $ (7.5 )
$ 152.8

$ (0.1 ) $ 171.7
Earnings allocable to common shares:

Numerator for basic and diluted earnings per share
Participating shares at end of period:
Weighted-average common stock outstanding 45.7
44.3
45.4
44.2
Unvested restricted stock 0.6
0.4
0.5
0.3
Preferred stock (as-converted basis) 2.1
4.8
2.1
4.8
Total 48.4

49.5

48.0
49.3
Percentage of loss allocated to:
Common stock 94.4 %
89.5 %
94.6 %
89.6 %
Unvested restricted stock 1.2 %
0.8 %
1.0 %
0.7 %
Preferred stock 4.4 %
9.7 %
4.4 %
9.7 %

Net (loss) income attributable to common stock, basic $ (7.1 )
$ 136.7

$ (0.1 ) $ 153.8
Distributed and Undistributed earnings to Common Shareholders:
Effect of assumed shares under treasury stock method for stock options and restricted shares and if-converted method for convertible instruments —
0.4
—
0.3
Income from the dilutive impact of subsidiary securities —
—
—
—
Net (loss) income attributable to common stock, diluted $ (7.1 )
$ 137.1

$ (0.1 )
$ 154.1

Denominator for basic and dilutive earnings per share
Weighted average common shares outstanding - basic 45.7
44.3

45.4

44.2
Effect of assumed shares under treasury stock method for stock options and restricted shares and if-converted method for convertible instruments —
1.9
—
1.4
Weighted average common shares outstanding - diluted 45.7

46.2

45.4

45.6

Net (loss) income attributable to participating security holders - Basic $ (0.16 )
$ 3.09

$ —

$ 3.48
Net (loss) income attributable to participating security holders - Diluted $ (0.16 )
$ 2.97

$ —

$ 3.38

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED


	Three Months Ended March 31,
	2020			2019
Amounts attributable to HC2 common and participating preferred stockholders
Loss from continuing operations	$	(41.0)		$	0.3
Net loss attributable to noncontrolling interest and redeemable noncontrolling interest	2.6			2.4
Loss (income) from continuing operations attributable to the Company	(38.4)			2.7
Less: Preferred dividends, deemed dividends and repurchase gains	0.4			(1.2)
(Loss) income from continuing operations attributable to HC2 common stockholders	(38.8)			3.9
Loss from discontinued operations (including loss on disposal of $39.3 million)	(60.0)			(6.6)
Net loss attributable to noncontrolling interest and redeemable noncontrolling interest	15.3			1.1
Loss from discontinued operations, net of tax and noncontrolling interest	$	(44.7)		$	(5.5)
Net loss attributable to common stock and participating preferred stockholders	$	(83.5)		$	(1.6)

Earnings allocable to common shares:
Participating shares at end of period:
Weighted-average common stock outstanding	45.9			44.8
Unvested restricted stock	—			0.4
Preferred stock (as-converted basis)	—			2.2
Total	45.9			47.4

Percentage of (loss) income allocated to:
Common stock	100.0		%	94.5		%
Unvested restricted stock	—		%	0.8		%
Preferred stock	—		%	4.6		%

Numerator for earnings per share, basic:
Net (loss) income from continuing operations attributable to common stock, basic	$	(38.8)		$	3.7
Net loss from discontinued operations attributable to common stock, basic and diluted	$	(44.7)		$	(5.2)
Net loss attributable to common stock and participating preferred stockholders, basic and diluted	$	(83.5)		$	(1.5)

Earnings allocable to common shares, diluted:
Numerator for earnings per share, diluted
Effect of assumed shares under treasury stock method for stock options and restricted shares and if-converted method for convertible instruments	$	—		$	(1.6)


Net (loss) income from continuing operations attributable to common stock, diluted	$	(38.8)		$	2.1
Net (loss) income from discontinued operations attributable to common stock, diluted	$	(44.7)		$	(5.2)
Net loss attributable to common stock and participating preferred stockholders, diluted	$	(83.5)		$	(3.1)

Denominator for basic and dilutive earnings per share:
Weighted average common shares outstanding - basic	45.9			44.8
Effect of assumed shares under treasury stock method for stock options and restricted shares and if-converted method for convertible instruments	—			14.9
Weighted average common shares outstanding - diluted	45.9			59.7

(Loss) income per share - continuing operations
Basic:	$	(0.85)		$	0.08
Diluted:	$	(0.85)		$	0.04

Loss per share - Discontinued operations
Basic:	$	(0.97)		$	(0.12)
Diluted:	$	(0.97)		$	(0.09)

Loss per share - Net loss attributable to common stock and participating preferred stockholders
Basic:	$	(1.82)		$	(0.03)
Diluted:	$	(1.82)		$	(0.05)

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

22. Subsequent Events

Construction

On ~~October 24, 2019, our Broadcasting~~May 4, 2020, HC2 announced that its Construction segment ~~completed~~will pay a cash dividend of $15.0 million, or $3.89 per share. As the ~~issuance~~largest stockholder of ~~$78.7~~DBM Global Inc., HC2 expects to receive approximately $13.9 million of ~~new notes. The net proceeds~~the total dividend payout.

Life Sciences

On April 16, 2020, R2 received $10.0 million in funding from ~~the financing~~Huadong Medicine Company Limited as part of Huadong's $30.0 million Series B equity investment in R2. These funds will be used to ~~retire~~commercialize R2's revolutionary CryoAesthetic technology which promises physicians a new way to lighten, brighten and rejuvenate skin. This investment represents the second tranche of Huadong's investment at an approximate post-money valuation of $90.0 million and reduces Pansend's ownership by 7.8% to 56.1%.

Corporate

On April 16, 2020, HC2 ~~Broadcasting’s existing 8.5% Notes, as well as fund pending acquisitions, working capital and~~drew $10.0 million on its 2020 Revolving Credit Agreement. HC2 intends to use the proceeds for general corporate purposes. The privately placed notes are comprised of a $36.2 million Tranche A piece funded by an affiliate of MSD Partners, L.P., along with a $42.5 million Tranche B piece funded by an institutional lender. The notes will have a blended PIK coupon rate of 9.6% and mature in October 2020.

On October 30, 2019, our Marine Services segment announced the sale of its stake in Huawei Marine Networks Co., Limited (“HMN”), its 49% joint venture with Huawei Technologies Co., Ltd., to Hengtong Optic-Electric Co Ltd. The sale of GMSL's interest values HMN at $285 million, and GMSL's 49% stake at approximately $140.0 million.

ITEM 2. ~~Management's Discussion~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and ~~Analysis~~analysis of ~~Financial Condition~~our financial condition and ~~Results~~results of ~~Operations~~

~~This "Management’s Discussion and Analysis of Financial Condition and Results of Operations" of HC2 Holdings, Inc. ("HC2," "we," "us," "our" and, collectively~~operations together with ~~its subsidiaries,~~ the ~~"Company") should be read~~information in ~~conjunction with~~ our ~~unaudited Condensed Consolidated Financial Statements and the notes thereto included herein, as well as our~~annual audited Consolidated Financial Statements and the notes thereto, each of which are contained in ~~our Form 10-K.~~Item 8 entitled "Financial Statements and Supplementary Data," and other financial information included herein. Some of the information contained in this discussion and analysis includes forward-looking statements that involve risks and uncertainties. You should review the "Risk Factors" section in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, filed with the SEC on March ~~12, 2019,~~16, 2020, as well as the section below entitled "Special Note Regarding Forward-Looking Statements" for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Unless the context otherwise requires, in this Annual Report on Form 10-K, "HC2" means HC2 Holdings, Inc. and the "Company," "we" and "our" mean HC2 together with its consolidated subsidiaries. "U.S. GAAP" means accounting principles accepted in the United States of America.

~~Our Business~~Non-Operating Corporate

In March 2020, with the cash proceeds from the sale of GMSL, HC2 fully repaid its $15.0 million secured revolving line of credit with MSD PCOF Partners IX, LLC (the "2019 Revolving Credit Agreement")

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 June 2021. Loans under the Revolving Credit Agreement bear interest at a per annum rate equal to, at HC2's option, one, two or three month LIBOR plus a margin of 6.75%.

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

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

For the three months ended March 31, 2020, HC2 recognized $0.4 million and $5.4 million in extinguishment loss related to the repayments of 2019 Revolving Credit Agreement and the redemption of the Senior Secured Notes, respectively, which were included in Loss on early extinguishment or restructuring of debt in our Condensed Consolidated Statements of Operations.

15. Income Taxes

Income Tax Expense

The Company used the Annual Effective Tax Rate ("ETR") approach of ASC 740-270, Interim Reporting, to calculate its 2020 interim tax provision. Income tax was a benefit of $12.6 million and an expense of $4.0 million for the three months ended March 31, 2020 and 2019, respectively.

The income tax benefit recorded for the three months ended March 31, 2020 primarily relates to a one-time, discrete tax benefit from the carryback of net operating losses at the Insurance segment as a result of the enactment of the CARES Act on March 27, 2020. The CARES Act was enacted during the first quarter of 2020 and includes several provisions which were applicable to the Company, including the ability to carryback Federal net operating losses generated in tax years beginning in 2018-2020, the removal of the 80% taxable income limitation for net operating loss deductions for tax years beginning before January 1, 2021, and a temporary increase in the interest limitation from 30% to 50% for tax years beginning in 2019 and 2020. We ~~are~~have included the impact of these provisions in our overall tax benefit for the three months ended March 31, 2020. Additionally, the tax benefits associated with losses generated by the HC2 Holdings, Inc. U.S. consolidated income tax return and certain other businesses have been reduced by a diversified holding company with principal operations conducted through eight operating platforms or reportable segments: Construction ("DBMG"), Marine Services ("GMSL"), Energy ("ANG"), Telecommunications ("ICS"), Insurance ("CIG"), Life Sciences ("Pansend"), Broadcasting, and Other, which includes businesses thatfull valuation allowance as we do not ~~meet~~believe it is more-likely-than-not that the ~~separately reportable segment thresholds.~~losses will be utilized prior to expiration.

~~We continually evaluate acquisition opportunities,~~The income tax expense recorded for March 31, 2019 relates to the projected expense as calculated under ASC 740 for taxpaying entities and because no benefit is recognized on the losses of the HC2 U.S. tax consolidated group and the losses of their subsidiaries as valuation allowances are recorded on the deferred tax assets of these companies.

Unrecognized Tax Benefits

The Company follows the provision of ASC 740-10, Income Taxes, which prescribes a comprehensive model for how a company should recognize, measure, present, and disclose in its financial statements uncertain tax positions that the Company has taken or expects to take on a tax return. The Company is subject to challenge from various taxing authorities relative to certain tax planning strategies, including certain intercompany transactions as well as ~~monitor~~regulatory taxes.

Examinations

The Company conducts business globally, and as a ~~variety~~result, the Company or one or more of ~~key indicators~~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. The open tax years contain matters that could be subject to differing interpretations of applicable tax laws and regulations as they relate to the amount, character, timing or inclusion of revenue and expenses or the applicability of income tax credits for the relevant tax period. Given the nature of tax audits there is a risk that disputes may arise. Tax years 2002 - 2019 remain open for examination.

16. Commitments and Contingencies

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


2020	$	86.3
2021	3.3
2022	0.2
2023	0.2
2024	0.2
Thereafter	—
Total obligations	$	90.2

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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


	Operating Leases		Finance Leases
2020	$	15.1	$	1.0
2021	13.4		0.7
2022	10.9		0.1
2023	8.8		—
2024	6.6		—
Thereafter	8.2		—
Total future lease payments	63.0		1.8
Less: Present values	(9.3)		(0.1)
Total lease liability balance	$	53.7	$	1.7

Litigation

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 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.

Based on a review of the current facts and circumstances with counsel in each of the matters disclosed, management has provided for what is

believed to be a reasonable estimate of loss exposure. While acknowledging the uncertainties of litigation, management believes that the ultimate outcome of litigation will not have a material effect on its financial position and will defend itself vigorously.

VAT assessment

On February 20, 2017, and on August 15, 2017, the Company's subsidiary, ICS, received notices from Her Majesty’s Revenue and Customs office in the U.K. (the "HMRC") indicating that it was required to pay certain Value-Added Taxes ("VAT") for the 2015 and 2016 tax years. ICS disagrees with HMRC’s assessments on technical and factual grounds and intends to dispute the assessed liabilities and vigorously defend its interests. We do not believe the assessment to be probable and expect to prevail based on the facts and merits of our ~~underlying platform companies in order to maximize stakeholder value. These indicators include, but are not limited to, revenue, cost~~existing VAT position.

DBMG Class Action

On November 6, 2014, a putative stockholder class action complaint challenging the tender offer by which HC2 acquired approximately 721,000 of ~~revenue, operating profit, Adjusted EBITDA~~the issued and ~~free cash flow. Furthermore, we work very closely with our subsidiary platform executive management teams on their operations and assist them~~outstanding common shares of DBMG was filed in the ~~evaluation~~Court of Chancery of the State of Delaware, captioned Mark Jacobs v. Philip A. Falcone, Keith M. Hladek, Paul Voigt, Michael R. Hill, Rustin Roach, D. Ronald Yagoda, Phillip O. Elbert, HC2 Holdings, Inc., and ~~diligence~~Schuff International, Inc., Civil Action No. 10323 (the "Complaint"). On November 17, 2014, a second lawsuit was filed in the Court of ~~asset acquisitions, dispositions~~Chancery of the State of Delaware, captioned Arlen Diercks v. Schuff International, Inc. Philip A. Falcone, Keith M. Hladek, Paul Voigt, Michael R. Hill, Rustin Roach, D. Ronald Yagoda, Phillip O. Elbert, HC2 Holdings, Inc., Civil Action No. 10359. On February 19, 2015, the court consolidated the actions (now designated as Schuff International, Inc. Stockholders Litigation) and ~~any financing or operational needs at~~appointed lead plaintiff and counsel. The currently operative complaint is the ~~subsidiary level. We believe~~Complaint filed by Mark Jacobs. The Complaint alleges, among other things, that ~~this close relationship allows us~~in connection with the tender offer, the individual members of the DBMG Board of Directors and HC2, the now-controlling stockholder of DBMG, breached their fiduciary duties to ~~capture synergies within~~members of the ~~organization across all platforms and strategically position~~plaintiff class. The Complaint also purports to challenge a potential short-form merger based upon plaintiff’s expectation that the Company would cash out the remaining public stockholders of DBMG following the completion of the tender offer. The Complaint seeks rescission of the tender offer and/or compensatory damages, as well as attorney’s fees and other relief. The defendants filed answers to the Complaint on July 30, 2015. On November 15, 2019, the parties filed definitive documentation in support of a proposed settlement of the action. On January 14, 2020, plaintiff filed an amended complaint restating and elaborating on the claims raised in the Complaint. The Amended Complaint seeks compensatory and rescissory damages, as well as attorney’s fees and other relief.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

On February 13, 2020, the Court held a settlement hearing to consider the proposed settlement and certain objections filed by two current DBMG stockholders. The Court expressed concerns about certain terms of the proposed settlement and the parties requested additional time to evaluate potential modifications to the proposed settlement. On May 8, 2020, the parties filed with the Court a revised settlement agreement for ~~ongoing growth and value creation.~~all claims relating to the Amended Complaint (the “Revised Settlement Framework”).

The ~~potential~~Revised Settlement Framework provides for ~~additional acquisitions~~a settlement payment of $35.95 per share to a fund for the benefit of the former DBMG stockholders who tendered their shares in the 2014 tender offer other than stockholders who were defendants in the action or their immediate family members, officers of DBMG, or directors or officers of HC2 (the “Tendered Stockholders”). The proposed settlement payment to the Tendered Stockholders applies to approximately 568,550 shares and ~~new business opportunities, while strategic, may~~totals approximately $20.4 million. The Revised Settlement Framework provides that the amount received by the Tendered Stockholders will be reduced by the per share amount of any fee award to lead plaintiff’s counsel. HC2’s D&O insurers have agreed to contribute approximately $12.4 million of this approximately $20.4 million settlement payment, and DBMG has agreed to fund the remaining approximately $8.1 million either through cash on hand or borrowing from a third-party lender.

The Revised Settlement Framework also provides that HC2 will fund two types of payments to the current owners of the 289,902 shares of DBMG common stock not owned by HC2 or its affiliates (the “public DBMG stockholders”). The first payment of $2.51 per share, or $0.7 million total, is intended to offset the indirect burden that the public DBMG stockholders arguably bear (by virtue of their approximately 7.52% ownership of DBMG) from DBMG’s funding of the approximately $8.1 million portion of the settlement payment to the Tendered Stockholders. The second payment of $1.00 per share, or $289,902 total, represents consideration for a full release of claims from the public DBMG stockholders related to the action and the implementation of the Revised Settlement Framework. In sum, the Revised Settlement Framework provides that HC2 would fund payments of $3.51 per share, or $1.0 million total, to the public DBMG stockholders.

If approved, the Revised Settlement Framework would result in ~~acquiring assets unrelated to our current or historical operations. As part~~a global settlement of the action and the certification of a non-opt-out plaintiff class consisting of any ~~acquisition strategy, we may raise capital~~and all record and beneficial owners of outstanding shares of DBMG common stock who held such stock at any time during May 12, 2014 through and including the close of business on May 8, 2020, and including, among others, their successors.

The Revised Settlement Framework also provides for a release of claims by the plaintiff class in favor of a broad group of released defendant parties relating to, among other things, the ~~form of debt and/or equity securities (including preferred stock) or~~action, the 2014 tender offer, all claims relating to HC2’s decision not to close a ~~combination thereof. We have broad discretion and experience in identifying and selecting acquisition and business combination opportunities~~short-form merger shortly after the 2014 tender offer, and the ~~industries in which we seek such opportunities. Many times, we face significant competition for these opportunities, including from numerous companies with a business plan similar to ours. As such,~~implementation and funding of the Revised Settlement Framework.

Although the parties are seeking approval of Revised Settlement Framework, there can be no assurance that the Delaware Courts will approve the revised or any other settlement proposed by the parties. If a settlement cannot be reached, the Company believes it has meritorious defenses and intends to vigorously defend this matter.

Non-Operating Corporate

Stockholder Litigation

On April 10, 2020, a purported stockholder of the ~~past~~Company filed a class action complaint in the Delaware Court of Chancery captioned Tera v. HC2 Holdings Inc., et al., C.A. No. 2020-0275-JRS (the “Stockholder Litigation”). The complaint alleges that the Company’s consent revocation materials (i) contain misleading disclosures relating to the Certificates of Designation, (ii) fail to disclose that a majority of the Board may approve the nominees set forth by Percy Rockdale LLC and certain of its affiliates (collectively, “Percy Rockdale”), for purposes of the Certificates of Designation such that the Percy Rockdale nominees would be considered “Continuing Directors” (as defined in the Certificates of Designation) and (iii) inaccurately state that electing the Percy Rockdale nominees will cause a Change of Control (as defined in the Certificates of Designation) under the Certificates of Designation because it will lead to a person or ~~future discussions we~~group obtaining the power to elect a majority of the members of the Board. The complaint seeks (i) a declaration requiring the Board to approve the Percy Rockdale nominees for purposes of the Certificates of Designation, (ii) a declaration that the Board breached its fiduciary duties by issuing misleading disclosures and (iii) an injunction requiring the Board to issue additional disclosures relating to the Change of Control provisions in the Certificates of Designation. On April 19, 2020, the plaintiff amended his complaint to allege that the Supplement to the Consent Revocation Statement, filed with the SEC on April 17, 2020, contained misleading disclosures relating to the Certificates of Designation. The amended complaint seeks, among other remedies, (i) a declaration that the Board breached its fiduciary duties by issuing misleading disclosures; (ii) a declaration that, if a Change of Control could be deemed to occur under the Certificates of Designation, that such Change of Control provisions are invalid and unenforceable under Delaware law; (iii) an injunction requiring the defendants to issue corrective disclosures; and (iv) an order enjoining the Board from relying upon consent revocations received to date. On April 20, 2020, the Court of Chancery granted the plaintiff’s motion for expedited proceedings.

On April 15, 2020, the Board (with Mr. Falcone recusing himself because he is not an Independent Director) determined to approve the Percy Rockdale nominees, solely and specifically for the purposes of deeming them Continuing Directors pursuant to the Certificates of Designation, to avoid triggering, and to render inapplicable, such prong of the Change of Control definition. On April 17, 2020 and April 21, 2020, each of the holder of the Series A Preferred Stock and the holder of the Series A-2 Preferred Stock, respectively, and, in each case, entitled to give a waiver, agreed that such holder will not seek to exercise its right to require the Company to redeem the shares of such Series A Preferred Stock or Series A-2 Preferred Stock, as applicable, if such redemption right were to arise as a result of the outcome of the Consent Solicitation based on one of the Change of Control prongs of the Certificate of Designation (which prong may require the Company to make an offer to redeem the Preferred Stock if any person or “group” (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act) obtains the power to elect a majority of the members of the Board). Therefore, in light of the foregoing, if the Percy Rockdale nominees become a majority of the Board pursuant to Percy Rockdale’s consent solicitation, the Company will not be required to offer to redeem the shares of the Series A Preferred Stock and the Series A-2 Preferred Stock. On April 23, 2020, the parties agreed that the waiver and

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

additional disclosures, combined with the prior disclosures and approval of Percy Rockdale’s nominees as Continuing Directors, mooted the need for expedition and a preliminary injunction hearing, and the parties informed the court that the plaintiff was withdrawing its request for expedition and a preliminary injunction. In exchange for the plaintiff agreeing to withdraw its request for preliminary injunction, the parties agreed to allow plaintiff to reserve the right to challenge the validity of the consent revocations received prior to the mooting actions in the event that Percy Rockdale loses the consent solicitation and the number of revocations received prior to the mooting actions were determinative of the outcome of the consent solicitation.

Tax Matters

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.

17. Share-based Compensation

The Company granted 0 options during the three months ended March 31, 2020 and 2019, respectively.

Total share-based compensation expense recognized by HC2 and its subsidiaries under all equity compensation arrangements was $1.5 million and $1.3 million for the three months ended March 31, 2020 and 2019, respectively.

All grants are time based and vest either immediately or over a period established at grant. The Company recognizes compensation expense for equity awards, reduced by actual forfeitures, using the straight-line basis.

Restricted Stock

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


	Shares	Weighted Average Grant Date Fair Value
Unvested - December 31, 2019	2,213,775	$	5.12
Granted	—	$	—
Vested	(1,063,434)	$	5.27
Forfeited	(68,629)	$	5.10
Unvested - March 31, 2020	1,081,712	$	4.98

At March 31, 2020, the total unrecognized stock-based compensation expense related to unvested restricted stock was $3.7 million. The unrecognized compensation cost is expected to be recognized over the remaining weighted average period of 1.1 years.

Stock Options

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


	Shares	Weighted Average Exercise Price
Outstanding - December 31, 2019	7,067,592	$	6.52
Granted	—	$	—
Exercised	—	$	—
Forfeited	—	$	—
Expired	—	$	—
Outstanding - March 31, 2020	7,067,592	$	6.52

Eligible for exercise	6,885,584	$	6.55

At March 31, 2020, the intrinsic value and average remaining life of the Company's outstanding options were 0 and approximately 5.01 years, and intrinsic value and average remaining life of the Company's exercisable options were 0 and approximately 4.9 years.

At March 31, 2020, total unrecognized stock-based compensation expense related to unvested stock options was $0.5 million. The unrecognized compensation cost is expected to be recognized over the remaining weighted average period of 0.96 years. There are 182,008 unvested stock options expected to vest, with a weighted average remaining life of 7.36 years, a weighted average exercise price of $5.45, and an intrinsic value of 0.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

18. Equity

Series A Preferred Stock and Series A-2 Preferred Stock

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


	March 31,	December 31,
	2020	2019
Preferred shares authorized, $0.001 par value	20,000,000	20,000,000
Series A shares issued and outstanding	6,375	6,375

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

Preferred Share Activity

CGI Purchase

On January 11, 2019, CGI purchased 10,000 shares of Series A-2 Preferred Stock, which are convertible into a total of 1,426,534 shares of the Company's common stock, for a total consideration of $8.3 million. The shares and dividends accrued related to the Series A-2 Preferred Stock owned by CGI are eliminated in consolidation. The shares were purchased at a discount of $1.7 million, which was recorded within the Preferred dividends, deemed dividends, and repurchase gains line item of the Condensed Consolidated Statements of Operations as a deemed dividend.

Luxor and Corrib Conversions

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"):

•The Company agreed that in the event that Corrib and Luxor would have been entitled to any Participating Dividends payable, had ~~or may have with candidates~~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 ~~result~~issue to Corrib and Luxor, on the date such Participating Dividends become payable by the Company, in a ~~definitive~~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 three months ended March 31, 2020, 77,794 and 8,752 shares of the Company's common stock have been issued to Luxor and Corrib, respectively, in conjunction with the Conversion agreement.

The fair value of the Additional Share Consideration was valued by the Company at $0.2 million on the date of issuance and was recorded within Preferred stock and deemed dividends from conversion line item of the Condensed Consolidated Statements of Operations as a deemed dividend.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Preferred Share Dividends

During the three months ended March 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):

2020


Declaration Date	March 31, 2020
Holders of Record Date	March 31, 2020
Payment Date	April 15, 2020
Total Dividend	$	0.2

2019


Declaration Date	March 31, 2019
Holders of Record Date	March 31, 2019
Payment Date	April 15, 2019
Total Dividend	$	0.2

19. Related Parties

HC2

In January 2015, the Company entered into a services agreement (the "Services Agreement") with Harbinger Capital Partners ("HCP"), a related party of the Company, with respect to the provision of services that may include providing office space and ~~if they do, what~~operational support and each party making available their respective employees to provide services as reasonably requested by the other party, subject to any limitations contained in applicable employment agreements and the terms ~~or timing~~ of ~~any potential agreement would be. As part~~the Services Agreement. The Company recognized expenses of $0.7 million and $1.0 million and income of 0 and $0.1 million for the three months ended March 31, 2020 and 2019, respectively.


	Three Months Ended March 31,
	2020										2019
	Corporate		Other ⁽¹⁾		Total		Corporate		Other ⁽¹⁾		Total
Allocated to HC2 by HCP
Office space	$	0.5	$	0.2	$	0.7	$	0.7	$	0.2	$	0.9
Administrative salaries and benefits	—		—		—		0.1		—		0.1
Other shared overhead	—		—		—		—		—		—
Total Expenses	0.5		0.2		0.7		0.8		0.2		1.0

Charged back to HCP by HC2
Administrative salaries and benefits	—		—		—		—		—		—
Other shared overhead	—		—		—		0.1		—		0.1
Total Income	—		—		—		0.1		—		0.1

Net related party activity	$	0.5	$	0.2	$	0.7	$	0.7	$	0.2	$	0.9

⁽¹⁾ Other in the above table represent certain entities within our ~~acquisition strategy, we may utilize a portion~~Broadcasting, Life Sciences and Insurance segments.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Other

GMH''s subsidiary GMSL, prior to its sale in February 2020, had transactions with several of ~~our available cash~~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 ~~acquire interests in possible acquisition targets. Any securities acquired are marked to market and may increase short-term earnings volatility~~discontinued operations as a ~~result.~~result of the sale of GMSL. See note 3. Discontinued Operations for further information:

We believe our track record, our platform and our strategy will enable us to deliver strong financial results, while positioning our Company for long-term growth. We believe the unique alignment of our executive compensation program, with our objective of increasing long-term stakeholder value, is paramount to executing our vision of long-term growth, while maintaining our disciplined approach. Having designed our business structure to not only address capital allocation challenges over time, but also maintain the flexibility to capitalize on opportunities during periods of market volatility, we believe the combination thereof positions us well to continue to build long-term stakeholder value.


	Three Months Ended March 31,
	2020		2019
Net revenue	$	0.7	$	2.0
Operating expenses	$	—	$	0.6
Interest expense	$	0.1	$	0.3

~~Our Operations~~

~~Refer to Note 1. Organization and Business to our unaudited Condensed Consolidated Financial Statementsfor additional information.~~

~~Seasonality~~


	March 31,		December 31,
	2020		2019
Accounts receivable	$	—	$	1.2
Debt obligations	$	—	$	22.5
Accounts payable	$	—	$	0.1
Dividends	$	—	$	4.5

~~Our segments' operations can be highly cyclical and subject to seasonal patterns. Our volume~~Life Sciences

Pansend has an investment in Triple Ring Technologies, Inc. ("Triple Ring"). Various subsidiaries of business in our Construction and Marine Services segments may be adversely affected by declines or delays in projects, which may vary by geographic region. Project schedules, particularly in connection with large, complex, and longer-term projects can also create fluctuations inHC2 utilize the services ~~provided, which may adversely affect us~~of Triple Ring, incurring $0.7 million and 0 in ~~a given period.~~services for the three months ended March 31, 2020 and 2019, respectively.

~~For example, in connection with larger, more complicated projects, the timing of obtaining permits~~

20. Operating Segment and ~~other approvals may be delayed, and we may need to maintain a portion of our workforce and equipment in an underutilized capacity to ensure we are strategically positioned to deliver~~Related Information

The Company currently has 1 primary reportable geographic segments - United States. The Company has 7 reportable operating segments based on ~~such projects when they move forward.~~

Examples of other items that may cause our results or demand for our services to fluctuate materially from quarter to quarter include: weather or project site conditions, financial condition of our customers and their access to capital; margins of projects performed during any particular period; economic, and political and market conditions on a regional, national or global scale.

~~Accordingly, our operating results in any particular period may not be indicative~~management’s organization of the enterprise - Construction, Energy, Telecommunications, Insurance, Life Sciences, Broadcasting, Other, and a Non-operating Corporate segment. All inter-segment revenues are eliminated.

As a result of the sale of GMSL, and in accordance with ASC 280, the Company no longer considers the results ~~that can be expected for any other period.~~

~~Marine Services~~

~~Net revenue within our~~of operations and Balance Sheets of GMH and its subsidiaries as a separate segment. Formerly the Marine Services segment, can fluctuate depending on the season. Revenues are relatively stable for our Marine Services maintenance business as the core driver is the annual contractual obligation. However, this is not the case with our installation business (other than for long-term charter arrangements), in which revenues show a degree of seasonality. Revenues in our Marine Services installation business are driven by our customers’ need for new cable installations. Generally, weather downtime,these entities and the ~~additional costs~~investment in HMN have been reclassified to the Other segment. In addition, as GMSL is a discontinued operation as of March 31, 2020, all operating results of GMSL have been reclassified to Discontinued operations. This has been reflected in the tables below for both the current and historical periods presented.

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

Three Months Ended March 31,

Segment

2020

2019

Customer A

Telecommunications

11.5%

* Less than 10% revenue concentration

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


	Three Months Ended March 31,
	2020		2019
Net revenue
Construction	$	176.5	$	192.1
Energy	10.4		5.1
Telecommunications	186.4		155.5
Insurance	63.8		88.8

Broadcasting	10.1		9.8


Eliminations ^(*)	(2.4)		(2.3)
Total net revenue	$	444.8	$	449.0

^(*)The Insurance segment revenues are inclusive of realized and unrealized gains and net investment income for the three months ended March 31, 2020 and 2019 which are related to ~~downtime, is a significant factor~~entities under common control which are eliminated or are reclassified in ~~customers determining their installation schedules,~~consolidation.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED


	Three Months Ended March 31,
	2020		2019
Income (loss) from operations
Construction	$	2.6	$	5.7
Energy	1.7		(0.4)
Telecommunications	0.1		0.6
Insurance	(12.6)		34.4
Life Sciences	(3.2)		(1.8)
Broadcasting	(2.9)		(3.3)
Other	(1.0)		(0.1)
Non-operating Corporate	(9.1)		(7.2)
Eliminations^(*)	(2.4)		(2.3)
Total income (loss) from operations	$	(26.8)	$	25.6

^(*)The Insurance segment revenues are inclusive of realized and ~~most installations are therefore scheduled~~unrealized gains and net investment income for the ~~warmer months. As a result, installation revenues~~three months ended March 31, 2020 and 2019 which are ~~generally lower towards the end~~related to transactions between entities under common control which are eliminated or are reclassified in consolidation.

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


	Three Months Ended March 31,
	2020		2019
Income (loss) from operations	$	(26.8)	$	25.6
Interest expense	(21.3)		(18.8)

Loss on early extinguishment or restructuring of debt	(5.8)		—


Loss from equity investees	(2.5)		(5.9)

Other income, net	2.8		3.4
(Loss) income from continuing operations	(53.6)		4.3
Income tax benefit (expense)	12.6		(4.0)
(Loss) income from continuing operations	(41.0)		0.3
Loss from discontinued operations (including loss on disposal of $39.3 million)	(60.0)		(6.6)
Net loss	(101.0)		(6.3)
Net loss attributable to noncontrolling interest and redeemable noncontrolling interest	17.9		3.5
Net loss attributable to HC2 Holdings, Inc.	(83.1)		(2.8)
Less: Preferred dividends, deemed dividends and repurchase gains	0.4		(1.2)
Net loss attributable to common stock and participating preferred stockholders	$	(83.5)	$	(1.6)


	Three Months Ended March 31,
	2020		2019
Depreciation and Amortization
Construction	$	2.6	$	3.9
Energy	2.1		1.4
Telecommunications	0.1		0.1
Insurance ^(*)	(5.9)		(6.5)

Broadcasting	1.7		1.4


Total	$	0.6	$	0.3

^(*) Balance includes amortization of negative VOBA, which increases net income.


	Three Months Ended March 31,
	2020		2019
Capital Expenditures ^(*)
Construction	$	2.3	$	2.6
Energy	1.0		0.1

Insurance	0.1		0.2

Broadcasting	2.7		0.4


Total	$	6.1	$	3.3

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

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED


	March 31,		December 31,
	2020		2019
Investments
Construction	$	0.9	$	0.9
Insurance	4,090.0		4,423.0


Life Sciences	21.0		22.0

Other	42.9		43.1

Eliminations	(98.0)		(96.9)
Total	$	4,056.8	$	4,392.1


	March 31,		December 31,
	2020		2019
Total Assets
Construction	$	557.3	$	530.4

Energy	144.1		142.8
Telecommunications	123.4		89.3
Insurance	5,264.4		5,611.9
Life Sciences	24.8		28.4
Broadcasting	257.7		257.9
Other	44.2		366.3
Non-operating Corporate	20.7		27.2
Eliminations	(97.5)		(95.9)
Total	$	6,339.1	$	6,958.3

21. Basic and Diluted Income Per Common Share

Earnings per share ("EPS") is calculated using the ~~first quarter,~~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. Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities. 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 ~~most business is concentrated~~this measurement was determined to be more dilutive between the two available methods in each period.

The Company had 0 dilutive common share equivalents during the ~~northern hemisphere.~~three months ended March 31, 2020 due to the results being a loss from continuing operations and discontinued operations, net of tax.

~~Other than as described above, our businesses are not materially affected by seasonality.~~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.

~~Recent Developments~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED


	Three Months Ended March 31,
	2020			2019
Amounts attributable to HC2 common and participating preferred stockholders
Loss from continuing operations	$	(41.0)		$	0.3
Net loss attributable to noncontrolling interest and redeemable noncontrolling interest	2.6			2.4
Loss (income) from continuing operations attributable to the Company	(38.4)			2.7
Less: Preferred dividends, deemed dividends and repurchase gains	0.4			(1.2)
(Loss) income from continuing operations attributable to HC2 common stockholders	(38.8)			3.9
Loss from discontinued operations (including loss on disposal of $39.3 million)	(60.0)			(6.6)
Net loss attributable to noncontrolling interest and redeemable noncontrolling interest	15.3			1.1
Loss from discontinued operations, net of tax and noncontrolling interest	$	(44.7)		$	(5.5)
Net loss attributable to common stock and participating preferred stockholders	$	(83.5)		$	(1.6)

Earnings allocable to common shares:
Participating shares at end of period:
Weighted-average common stock outstanding	45.9			44.8
Unvested restricted stock	—			0.4
Preferred stock (as-converted basis)	—			2.2
Total	45.9			47.4

Percentage of (loss) income allocated to:
Common stock	100.0		%	94.5		%
Unvested restricted stock	—		%	0.8		%
Preferred stock	—		%	4.6		%

Numerator for earnings per share, basic:
Net (loss) income from continuing operations attributable to common stock, basic	$	(38.8)		$	3.7
Net loss from discontinued operations attributable to common stock, basic and diluted	$	(44.7)		$	(5.2)
Net loss attributable to common stock and participating preferred stockholders, basic and diluted	$	(83.5)		$	(1.5)

Earnings allocable to common shares, diluted:
Numerator for earnings per share, diluted
Effect of assumed shares under treasury stock method for stock options and restricted shares and if-converted method for convertible instruments	$	—		$	(1.6)


Net (loss) income from continuing operations attributable to common stock, diluted	$	(38.8)		$	2.1
Net (loss) income from discontinued operations attributable to common stock, diluted	$	(44.7)		$	(5.2)
Net loss attributable to common stock and participating preferred stockholders, diluted	$	(83.5)		$	(3.1)

Denominator for basic and dilutive earnings per share:
Weighted average common shares outstanding - basic	45.9			44.8
Effect of assumed shares under treasury stock method for stock options and restricted shares and if-converted method for convertible instruments	—			14.9
Weighted average common shares outstanding - diluted	45.9			59.7

(Loss) income per share - continuing operations
Basic:	$	(0.85)		$	0.08
Diluted:	$	(0.85)		$	0.04

Loss per share - Discontinued operations
Basic:	$	(0.97)		$	(0.12)
Diluted:	$	(0.97)		$	(0.09)

Loss per share - Net loss attributable to common stock and participating preferred stockholders
Basic:	$	(1.82)		$	(0.03)
Diluted:	$	(1.82)		$	(0.05)

~~Acquisitions and Dispositions~~

~~Marine Services~~

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

22. Subsequent Events

Construction

On ~~October 30, 2019, our Marine Services~~May 4, 2020, HC2 announced that its Construction segment ~~announced~~will pay a cash dividend of $15.0 million, or $3.89 per share. As the ~~sale~~largest stockholder of ~~its stake~~DBM Global Inc., HC2 expects to receive approximately $13.9 million of the total dividend payout.

Life Sciences

On April 16, 2020, R2 received $10.0 million in ~~Huawei Marine Networks Co.,~~funding from Huadong Medicine Company Limited ~~(“HMN”), its 49% joint venture with Huawei Technologies Co., Ltd., to Hengtong Optic-Electric Co Ltd. The~~as part of Huadong's $30.0 million Series B equity investment in ~~HMN has contributed $12.3~~R2. These funds will be used to commercialize R2's revolutionary CryoAesthetic technology which promises physicians a new way to lighten, brighten and rejuvenate skin. This investment represents the second tranche of Huadong's investment at an approximate post-money valuation of $90.0 million and ~~$12.7~~reduces Pansend's ownership by 7.8% to 56.1%.

Corporate

On April 16, 2020, HC2 drew $10.0 million on its 2020 Revolving Credit Agreement. HC2 intends to use the proceeds for general corporate purposes.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with the information in ~~equity method income~~our annual audited Consolidated Financial Statements and the notes thereto, each of which are contained in Item 8 entitled "Financial Statements and Supplementary Data," and other financial information included herein. Some of the information contained in this discussion and analysis includes forward-looking statements that involve risks and uncertainties. You should review the "Risk Factors" section in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the ~~nine months ended September 30, 2018 and~~ year ended December 31, ~~2018, respectively. In~~2019, filed with the current period, GMSL recorded a $0.2 million loss and income of $2.4 million in equity method income for the three and nine months ended September 30, 2019, respectively, for its stake in HMN. The sale of GMSL's interest values HMN at $285 million, and GMSL's 49% stake at approximately $140 million.

~~Energy~~

~~Broadcasting~~

~~During the nine months ended September 30, 2019 HC2 Broadcasting acquired a series of licenses for a total cash consideration of $16.1 million.~~

~~Life Sciences~~

~~On September~~SEC on March 16, 2019, Pansend received an cash payment of $13.3 million, which was previously held in an escrow, from the sale of its approximately 75.9% ownership in BeneVir to Janssen Biotech, Inc. HC2 received a cash payment of $9.8 million from the release of the escrow.

~~Equity Transactions~~

~~Life Sciences~~

On July 31, 2019, MediBeacon entered into a definitive agreement with Huadong Medicine, a publicly traded company on the Shenzhen Stock Exchange, providing exclusive rights to MediBeacon’s portfolio of assets in Greater China. Huadong Medicine is now responsible to fund the clinical trials, commercial and regulatory activities in 25 Asian countries, including Greater China (PRC Mainland China, Hong Kong, Macau, Taiwan), Thailand, Vietnam, Indonesia, Philippines and Singapore. Under terms of the agreement, MediBeacon received an initial $15.0 million equity payment at a pre-money valuation of $300.0 million and will receive a second $15.0 million equity payment upon achieving US FDA approval for its TGFR Measurement System at a pre-money valuation of $400.0 million. Huadong Medicine will fund all commercial and regulatory activities in Greater China and select Asian countries. In addition, MediBeacon will receive royalty payments on net sales in the specified countries. As part of this transaction, Richard B. Dorshow, PhD, Chief Scientific Officer and Co-Founder of MediBeacon Inc., will assume the role of Special Scientific Advisor to Huadong Medicine.

~~Debt Obligations~~

~~Marine Services~~

~~In June 2019, GMSL refinanced the Shawbrook loan, increasing the principal balance to £17.0 million, or approximately $21.6 million, and extending the maturity to June 2020.~~

~~Energy~~

In June 2019, ANG entered into a term loan with M&T bank for $28.0 million. The loan bears variable interest annually at LIBOR plus 3.00% and matures in 2023. The term loan was used to finance the acquisition of ampCNG stations.

~~Life Sciences~~

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

~~Broadcasting~~

During the nine months ended September 30, 2019, HC2 Broadcasting issued an additional $29.7 million of 8.5% notes (the "8.5% Notes") and the maturity dates of the 8.5% Notes were extended to October 31, 2019. A portion of the net proceeds from the additional 8.5% Notes were used to pay down existing debt and fund acquisitions and capital expenditures.

On October 24, 2019, our Broadcasting segment completed the issuance of $78.7 million of new notes. The net proceeds from the financing will be used to retire HC2 Broadcasting’s existing 8.5% Notes,2020, as well as ~~fund pending acquisitions, working capital~~the section below entitled "Special Note Regarding Forward-Looking Statements" for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and ~~general corporate purposes.~~analysis.

Non-Operating Corporate

In ~~April 2019,~~March 2020, with the cash proceeds from the sale of GMSL, HC2 fully repaid its $15.0 million secured revolving line of credit with MSD PCOF Partners IX, LLC (the "2019 Revolving Credit Agreement")

In March 2020 HC2 entered into a new $15.0 million secured revolving credit agreement (the ~~“Revolving~~“2020 Revolving Credit Agreement”) ~~with MSD PCOF Partners IX, LLC.~~. The 2020 Revolving Credit Agreement matures onin June 1, 2021. Loans under the Revolving Credit Agreement bear interest at a per annum rate equal to, at HC2's option, one, two or three month LIBOR plus a margin of 6.75%.

In ~~April 2019 and May 2019,~~March 2020, with the cash proceeds from the sale of GMSL, HC2 ~~drew $5.0~~redeemed $76.9 million of its 11.50% senior secured notes due 2021 (the "Senior Secured Notes") at a price equal to 104.5% of the principal amount plus accrued interest through the redemption date.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

For the three months ended March 31, 2020, HC2 recognized $0.4 million and ~~$10.0~~$5.4 million in extinguishment loss related to the repayments of ~~the~~2019 Revolving Credit Agreement ~~respectively.~~ and the redemption of the Senior Secured Notes, respectively, which were included in Loss on early extinguishment or restructuring of debt in our Condensed Consolidated Statements of Operations.

15. Income Taxes

Income Tax Expense

The income tax benefit recorded for the three months ended March 31, 2020 primarily relates to a one-time, discrete tax benefit from the carryback of net operating losses at the Insurance segment as a result of the enactment of the CARES Act on March 27, 2020. The CARES Act was enacted during the first quarter of 2020 and includes several provisions which were applicable to the Company, including the ability to carryback Federal net operating losses generated in tax years beginning in 2018-2020, the removal of the 80% taxable income limitation for net operating loss deductions for tax years beginning before January 1, 2021, and a temporary increase in the interest limitation from 30% to 50% for tax years beginning in 2019 and 2020. We have included the impact of these provisions in our overall tax benefit for the three months ended March 31, 2020. Additionally, the tax benefits associated with losses generated by the HC2 Holdings, Inc. U.S. consolidated income tax return and certain other businesses have been reduced by a full valuation allowance as we do not believe it is more-likely-than-not that the losses will be utilized prior to expiration.

The income tax expense recorded for March 31, 2019 relates to the projected expense as calculated under ASC 740 for taxpaying entities and because no benefit is recognized on the losses of the HC2 U.S. tax consolidated group and the losses of their subsidiaries as valuation allowances are recorded on the deferred tax assets of these companies.

Unrecognized Tax Benefits

Examinations

The Company conducts business globally, and as a result, the Company or one or more of its subsidiaries files income tax returns in the United States federal jurisdiction and various state and foreign jurisdictions. In the normal course of business the Company is subject to examination by taxing authorities throughout the world. The open tax years contain matters that could be subject to differing interpretations of applicable tax laws and regulations as they relate to the amount, character, timing or inclusion of revenue and expenses or the applicability of income tax credits for the relevant tax period. Given the nature of tax audits there is a risk that disputes may arise. Tax years 2002 - 2019 remain open for examination.

16. Commitments and Contingencies

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


2020	$	86.3
2021	3.3
2022	0.2
2023	0.2
2024	0.2
Thereafter	—
Total obligations	$	90.2

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

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


	Operating Leases		Finance Leases
2020	$	15.1	$	1.0
2021	13.4		0.7
2022	10.9		0.1
2023	8.8		—
2024	6.6		—
Thereafter	8.2		—
Total future lease payments	63.0		1.8
Less: Present values	(9.3)		(0.1)
Total lease liability balance	$	53.7	$	1.7

Litigation

Based on a review of the current facts and circumstances with counsel in each of the matters disclosed, management has provided for what is

VAT assessment

DBMG Class Action

On November 6, 2014, a putative stockholder class action complaint challenging the tender offer by which HC2 acquired approximately 721,000 of the issued and outstanding common shares of DBMG was filed in the Court of Chancery of the State of Delaware, captioned Mark Jacobs v. Philip A. Falcone, Keith M. Hladek, Paul Voigt, Michael R. Hill, Rustin Roach, D. Ronald Yagoda, Phillip O. Elbert, HC2 Holdings, Inc., and Schuff International, Inc., Civil Action No. 10323 (the "Complaint"). On November 17, 2014, a second lawsuit was filed in the Court of Chancery of the State of Delaware, captioned Arlen Diercks v. Schuff International, Inc. Philip A. Falcone, Keith M. Hladek, Paul Voigt, Michael R. Hill, Rustin Roach, D. Ronald Yagoda, Phillip O. Elbert, HC2 Holdings, Inc., Civil Action No. 10359. On February 19, 2015, the court consolidated the actions (now designated as Schuff International, Inc. Stockholders Litigation) and appointed lead plaintiff and counsel. The currently operative complaint is the Complaint filed by Mark Jacobs. The Complaint alleges, among other things, that in connection with the tender offer, the individual members of the DBMG Board of Directors and HC2, the now-controlling stockholder of DBMG, breached their fiduciary duties to members of the plaintiff class. The Complaint also purports to challenge a potential short-form merger based upon plaintiff’s expectation that the Company would cash out the remaining public stockholders of DBMG following the completion of the tender offer. The Complaint seeks rescission of the tender offer and/or compensatory damages, as well as attorney’s fees and other relief. The defendants filed answers to the Complaint on July 30, 2015. On November 15, 2019, the parties filed definitive documentation in support of a proposed settlement of the action. On January 14, 2020, plaintiff filed an amended complaint restating and elaborating on the claims raised in the Complaint. The Amended Complaint seeks compensatory and rescissory damages, as well as attorney’s fees and other relief.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

On February 13, 2020, the Court held a settlement hearing to consider the proposed settlement and certain objections filed by two current DBMG stockholders. The Court expressed concerns about certain terms of the proposed settlement and the parties requested additional time to evaluate potential modifications to the proposed settlement. On May 8, 2020, the parties filed with the Court a revised settlement agreement for all claims relating to the Amended Complaint (the “Revised Settlement Framework”).

The Revised Settlement Framework provides for a settlement payment of $35.95 per share to a fund for the benefit of the former DBMG stockholders who tendered their shares in the 2014 tender offer other than stockholders who were defendants in the action or their immediate family members, officers of DBMG, or directors or officers of HC2 (the “Tendered Stockholders”). The proposed settlement payment to the Tendered Stockholders applies to approximately 568,550 shares and totals approximately $20.4 million. The Revised Settlement Framework provides that the amount received by the Tendered Stockholders will be reduced by the per share amount of any fee award to lead plaintiff’s counsel. HC2’s D&O insurers have agreed to contribute approximately $12.4 million of this approximately $20.4 million settlement payment, and DBMG has agreed to fund the remaining approximately $8.1 million either through cash on hand or borrowing from a third-party lender.

If approved, the Revised Settlement Framework would result in a global settlement of the action and the certification of a non-opt-out plaintiff class consisting of any and all record and beneficial owners of outstanding shares of DBMG common stock who held such stock at any time during May 12, 2014 through and including the close of business on May 8, 2020, and including, among others, their successors.

The Revised Settlement Framework also provides for a release of claims by the plaintiff class in favor of a broad group of released defendant parties relating to, among other things, the action, the 2014 tender offer, all claims relating to HC2’s decision not to close a short-form merger shortly after the 2014 tender offer, and the implementation and funding of the Revised Settlement Framework.

Non-Operating Corporate

Stockholder Litigation

On April 10, 2020, a purported stockholder of the Company filed a class action complaint in the Delaware Court of Chancery captioned Tera v. HC2 Holdings Inc., et al., C.A. No. 2020-0275-JRS (the “Stockholder Litigation”). The complaint alleges that the Company’s consent revocation materials (i) contain misleading disclosures relating to the Certificates of Designation, (ii) fail to disclose that a majority of the Board may approve the nominees set forth by Percy Rockdale LLC and certain of its affiliates (collectively, “Percy Rockdale”), for purposes of the Certificates of Designation such that the Percy Rockdale nominees would be considered “Continuing Directors” (as defined in the Certificates of Designation) and (iii) inaccurately state that electing the Percy Rockdale nominees will cause a Change of Control (as defined in the Certificates of Designation) under the Certificates of Designation because it will lead to a person or group obtaining the power to elect a majority of the members of the Board. The complaint seeks (i) a declaration requiring the Board to approve the Percy Rockdale nominees for purposes of the Certificates of Designation, (ii) a declaration that the Board breached its fiduciary duties by issuing misleading disclosures and (iii) an injunction requiring the Board to issue additional disclosures relating to the Change of Control provisions in the Certificates of Designation. On April 19, 2020, the plaintiff amended his complaint to allege that the Supplement to the Consent Revocation Statement, filed with the SEC on April 17, 2020, contained misleading disclosures relating to the Certificates of Designation. The amended complaint seeks, among other remedies, (i) a declaration that the Board breached its fiduciary duties by issuing misleading disclosures; (ii) a declaration that, if a Change of Control could be deemed to occur under the Certificates of Designation, that such Change of Control provisions are invalid and unenforceable under Delaware law; (iii) an injunction requiring the defendants to issue corrective disclosures; and (iv) an order enjoining the Board from relying upon consent revocations received to date. On April 20, 2020, the Court of Chancery granted the plaintiff’s motion for expedited proceedings.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Tax Matters

17. Share-based Compensation

The Company granted 0 options during the three months ended March 31, 2020 and 2019, respectively.

Restricted Stock

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


	Shares	Weighted Average Grant Date Fair Value
Unvested - December 31, 2019	2,213,775	$	5.12
Granted	—	$	—
Vested	(1,063,434)	$	5.27
Forfeited	(68,629)	$	5.10
Unvested - March 31, 2020	1,081,712	$	4.98

Stock Options

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


	Shares	Weighted Average Exercise Price
Outstanding - December 31, 2019	7,067,592	$	6.52
Granted	—	$	—
Exercised	—	$	—
Forfeited	—	$	—
Expired	—	$	—
Outstanding - March 31, 2020	7,067,592	$	6.52

Eligible for exercise	6,885,584	$	6.55

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

18. Equity

Series A Preferred Stock and Series A-2 Preferred Stock

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


	March 31,	December 31,
	2020	2019
Preferred shares authorized, $0.001 par value	20,000,000	20,000,000
Series A shares issued and outstanding	6,375	6,375

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

Preferred Share Activity

CGI Purchase

Luxor and Corrib Conversions

•The Company agreed that in the event that Corrib and Luxor would have been entitled to any Participating Dividends payable, had they not converted the Preferred Stock (as defined in the respective Series A and Series A-1 Certificate of Designation), after the date of their Preferred Share conversion, then the Company will issue to Corrib and Luxor, on the date such Participating Dividends become payable by the Company, in a transaction exempt from the registration requirements of the Securities Act the number of shares of common stock equal to (a) the value of the Participating Dividends Corrib or Luxor would have received pursuant to Sections (2)(c) and (2)(d) of the respective Series A and Series A-1 Certificate of Designation, divided by (b) the Thirty Day VWAP (as defined in the respective Series A and Series A-1 Certificate of Designation) for the period ending two business days prior to the underlying event or transaction that would have entitled Corrib or Luxor to such Participating Dividend had Corrib’s or Luxor’s Preferred Stock remain unconverted.

For the three months ended March 31, 2020, 77,794 and 8,752 shares of the Company's common stock have been issued to Luxor and Corrib, respectively, in conjunction with the Conversion agreement.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Preferred Share Dividends

2020


Declaration Date	March 31, 2020
Holders of Record Date	March 31, 2020
Payment Date	April 15, 2020
Total Dividend	$	0.2

2019


Declaration Date	March 31, 2019
Holders of Record Date	March 31, 2019
Payment Date	April 15, 2019
Total Dividend	$	0.2

19. Related Parties

HC2

In January 2015, the Company entered into a services agreement (the "Services Agreement") with Harbinger Capital Partners ("HCP"), a related party of the Company, with respect to the provision of services that may include providing office space and operational support and each party making available their respective employees to provide services as reasonably requested by the other party, subject to any limitations contained in applicable employment agreements and the terms of the Services Agreement. The Company recognized expenses of $0.7 million and $1.0 million and income of 0 and $0.1 million for the three months ended March 31, 2020 and 2019, respectively.


	Three Months Ended March 31,
	2020										2019
	Corporate		Other ⁽¹⁾		Total		Corporate		Other ⁽¹⁾		Total
Allocated to HC2 by HCP
Office space	$	0.5	$	0.2	$	0.7	$	0.7	$	0.2	$	0.9
Administrative salaries and benefits	—		—		—		0.1		—		0.1
Other shared overhead	—		—		—		—		—		—
Total Expenses	0.5		0.2		0.7		0.8		0.2		1.0

Charged back to HCP by HC2
Administrative salaries and benefits	—		—		—		—		—		—
Other shared overhead	—		—		—		0.1		—		0.1
Total Income	—		—		—		0.1		—		0.1

Net related party activity	$	0.5	$	0.2	$	0.7	$	0.7	$	0.2	$	0.9

⁽¹⁾ Other in the above table represent certain entities within our Broadcasting, Life Sciences and Insurance segments.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Other

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. See note 3. Discontinued Operations for further information:


	Three Months Ended March 31,
	2020		2019
Net revenue	$	0.7	$	2.0
Operating expenses	$	—	$	0.6
Interest expense	$	0.1	$	0.3


	March 31,		December 31,
	2020		2019
Accounts receivable	$	—	$	1.2
Debt obligations	$	—	$	22.5
Accounts payable	$	—	$	0.1
Dividends	$	—	$	4.5

Life Sciences

Pansend has an investment in Triple Ring Technologies, Inc. ("Triple Ring"). Various subsidiaries of HC2 utilize the services of Triple Ring, incurring $0.7 million and 0 in services for the three months ended March 31, 2020 and 2019, respectively.

20. Operating Segment and Related Information

The Company currently has 1 primary reportable geographic segments - United States. The Company has 7 reportable operating segments based on management’s organization of the enterprise - Construction, Energy, Telecommunications, Insurance, Life Sciences, Broadcasting, Other, and a Non-operating Corporate segment. All inter-segment revenues are eliminated.

As a result of the sale of GMSL, and in accordance with ASC 280, the Company no longer considers the results of operations and Balance Sheets of GMH and its subsidiaries as a separate segment. Formerly the Marine Services segment, these entities and the investment in HMN have been reclassified to the Other segment. In addition, as GMSL is a discontinued operation as of March 31, 2020, all operating results of GMSL have been reclassified to Discontinued operations. This has been reflected in the tables below for both the current and historical periods presented.

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

Three Months Ended March 31,

Segment

2020

2019

Customer A

Telecommunications

11.5%

* Less than 10% revenue concentration

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


	Three Months Ended March 31,
	2020		2019
Net revenue
Construction	$	176.5	$	192.1
Energy	10.4		5.1
Telecommunications	186.4		155.5
Insurance	63.8		88.8

Broadcasting	10.1		9.8


Eliminations ^(*)	(2.4)		(2.3)
Total net revenue	$	444.8	$	449.0

^(*)The Insurance segment revenues are inclusive of realized and unrealized gains and net investment income for the three months ended March 31, 2020 and 2019 which are related to entities under common control which are eliminated or are reclassified in consolidation.

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED


	Three Months Ended March 31,
	2020		2019
Income (loss) from operations
Construction	$	2.6	$	5.7
Energy	1.7		(0.4)
Telecommunications	0.1		0.6
Insurance	(12.6)		34.4
Life Sciences	(3.2)		(1.8)
Broadcasting	(2.9)		(3.3)
Other	(1.0)		(0.1)
Non-operating Corporate	(9.1)		(7.2)
Eliminations^(*)	(2.4)		(2.3)
Total income (loss) from operations	$	(26.8)	$	25.6

^(*)The Insurance segment revenues are inclusive of realized and unrealized gains and net investment income for the three months ended March 31, 2020 and 2019 which are related to transactions between entities under common control which are eliminated or are reclassified in consolidation.

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


	Three Months Ended March 31,
	2020		2019
Income (loss) from operations	$	(26.8)	$	25.6
Interest expense	(21.3)		(18.8)

Loss on early extinguishment or restructuring of debt	(5.8)		—


Loss from equity investees	(2.5)		(5.9)

Other income, net	2.8		3.4
(Loss) income from continuing operations	(53.6)		4.3
Income tax benefit (expense)	12.6		(4.0)
(Loss) income from continuing operations	(41.0)		0.3
Loss from discontinued operations (including loss on disposal of $39.3 million)	(60.0)		(6.6)
Net loss	(101.0)		(6.3)
Net loss attributable to noncontrolling interest and redeemable noncontrolling interest	17.9		3.5
Net loss attributable to HC2 Holdings, Inc.	(83.1)		(2.8)
Less: Preferred dividends, deemed dividends and repurchase gains	0.4		(1.2)
Net loss attributable to common stock and participating preferred stockholders	$	(83.5)	$	(1.6)


	Three Months Ended March 31,
	2020		2019
Depreciation and Amortization
Construction	$	2.6	$	3.9
Energy	2.1		1.4
Telecommunications	0.1		0.1
Insurance ^(*)	(5.9)		(6.5)

Broadcasting	1.7		1.4


Total	$	0.6	$	0.3

^(*) Balance includes amortization of negative VOBA, which increases net income.


	Three Months Ended March 31,
	2020		2019
Capital Expenditures ^(*)
Construction	$	2.3	$	2.6
Energy	1.0		0.1

Insurance	0.1		0.2

Broadcasting	2.7		0.4


Total	$	6.1	$	3.3

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

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED


	March 31,		December 31,
	2020		2019
Investments
Construction	$	0.9	$	0.9
Insurance	4,090.0		4,423.0


Life Sciences	21.0		22.0

Other	42.9		43.1

Eliminations	(98.0)		(96.9)
Total	$	4,056.8	$	4,392.1


	March 31,		December 31,
	2020		2019
Total Assets
Construction	$	557.3	$	530.4

Energy	144.1		142.8
Telecommunications	123.4		89.3
Insurance	5,264.4		5,611.9
Life Sciences	24.8		28.4
Broadcasting	257.7		257.9
Other	44.2		366.3
Non-operating Corporate	20.7		27.2
Eliminations	(97.5)		(95.9)
Total	$	6,339.1	$	6,958.3

21. Basic and Diluted Income 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. Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities. 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 0 dilutive common share equivalents during the three months ended March 31, 2020 due to the results being a loss from continuing operations and discontinued operations, net of tax.

The following table presents a reconciliation of net income (loss) used in basic and diluted EPS calculations (in millions, except per share amounts):

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED


	Three Months Ended March 31,
	2020			2019
Amounts attributable to HC2 common and participating preferred stockholders
Loss from continuing operations	$	(41.0)		$	0.3
Net loss attributable to noncontrolling interest and redeemable noncontrolling interest	2.6			2.4
Loss (income) from continuing operations attributable to the Company	(38.4)			2.7
Less: Preferred dividends, deemed dividends and repurchase gains	0.4			(1.2)
(Loss) income from continuing operations attributable to HC2 common stockholders	(38.8)			3.9
Loss from discontinued operations (including loss on disposal of $39.3 million)	(60.0)			(6.6)
Net loss attributable to noncontrolling interest and redeemable noncontrolling interest	15.3			1.1
Loss from discontinued operations, net of tax and noncontrolling interest	$	(44.7)		$	(5.5)
Net loss attributable to common stock and participating preferred stockholders	$	(83.5)		$	(1.6)

Earnings allocable to common shares:
Participating shares at end of period:
Weighted-average common stock outstanding	45.9			44.8
Unvested restricted stock	—			0.4
Preferred stock (as-converted basis)	—			2.2
Total	45.9			47.4

Percentage of (loss) income allocated to:
Common stock	100.0		%	94.5		%
Unvested restricted stock	—		%	0.8		%
Preferred stock	—		%	4.6		%

Numerator for earnings per share, basic:
Net (loss) income from continuing operations attributable to common stock, basic	$	(38.8)		$	3.7
Net loss from discontinued operations attributable to common stock, basic and diluted	$	(44.7)		$	(5.2)
Net loss attributable to common stock and participating preferred stockholders, basic and diluted	$	(83.5)		$	(1.5)

Earnings allocable to common shares, diluted:
Numerator for earnings per share, diluted
Effect of assumed shares under treasury stock method for stock options and restricted shares and if-converted method for convertible instruments	$	—		$	(1.6)


Net (loss) income from continuing operations attributable to common stock, diluted	$	(38.8)		$	2.1
Net (loss) income from discontinued operations attributable to common stock, diluted	$	(44.7)		$	(5.2)
Net loss attributable to common stock and participating preferred stockholders, diluted	$	(83.5)		$	(3.1)

Denominator for basic and dilutive earnings per share:
Weighted average common shares outstanding - basic	45.9			44.8
Effect of assumed shares under treasury stock method for stock options and restricted shares and if-converted method for convertible instruments	—			14.9
Weighted average common shares outstanding - diluted	45.9			59.7

(Loss) income per share - continuing operations
Basic:	$	(0.85)		$	0.08
Diluted:	$	(0.85)		$	0.04

Loss per share - Discontinued operations
Basic:	$	(0.97)		$	(0.12)
Diluted:	$	(0.97)		$	(0.09)

Loss per share - Net loss attributable to common stock and participating preferred stockholders
Basic:	$	(1.82)		$	(0.03)
Diluted:	$	(1.82)		$	(0.05)

HC2 HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

22. Subsequent Events

Construction

On May 4, 2020, HC2 announced that its Construction segment will pay a cash dividend of $15.0 million, or $3.89 per share. As the largest stockholder of DBM Global Inc., HC2 expects to receive approximately $13.9 million of the total dividend payout.

Life Sciences

On April 16, 2020, R2 received $10.0 million in funding from Huadong Medicine Company Limited as part of Huadong's $30.0 million Series B equity investment in R2. These funds will be used to commercialize R2's revolutionary CryoAesthetic technology which promises physicians a new way to lighten, brighten and rejuvenate skin. This investment represents the second tranche of Huadong's investment at an approximate post-money valuation of $90.0 million and reduces Pansend's ownership by 7.8% to 56.1%.

Corporate

On April 16, 2020, HC2 drew $10.0 million on its 2020 Revolving Credit Agreement. HC2 intends to use the proceeds for ~~working capital and~~ general corporate purposes.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with the information in our annual audited Consolidated Financial Statements and the notes thereto, each of which are contained in Item 8 entitled "Financial Statements and Supplementary Data," and other financial information included herein. Some of the information contained in this discussion and analysis includes forward-looking statements that involve risks and uncertainties. You should review the "Risk Factors" section in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 16, 2020, as well as the section below entitled "Special Note Regarding Forward-Looking Statements" for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Our Business

We are a diversified holding company with principal operations conducted through seven operating platforms or reportable segments: Construction ("DBMG"), Energy ("ANG"), Telecommunications ("ICS"), Insurance ("CIG"), Life Sciences ("Pansend"), Broadcasting, and Other, which includes businesses that do not meet the separately reportable segment thresholds.

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

•The reclassification of GMSL's results to discontinued operations. Further, the reclassification of prior period assets and liabilities have been classified as held for sale;

•As a result of the sale of GMSL, 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.

•The restatement of Earnings per share in the prior period, as a result of the discontinued operations noted above. This includes presenting EPS for Net (loss) income from continuing operations, Net (loss) income from discontinuing operations, and Net (loss) income.

We continually evaluate acquisition opportunities, as well as monitor a variety of key indicators of our underlying platform companies in order to maximize stakeholder value. These indicators include, but are not limited to, revenue, cost of revenue, operating profit, Adjusted EBITDA and free cash flow. Furthermore, we work very closely with our subsidiary platform executive management teams on their operations and assist them in the evaluation and diligence of asset acquisitions, dispositions and any financing or operational needs at the subsidiary level. We believe that this close relationship allows us to capture synergies within the organization across all platforms and strategically position the Company for ongoing growth and value creation.

The potential for additional acquisitions and new business opportunities, while strategic, may result in acquiring assets unrelated to our current or historical operations. As part of any acquisition strategy, we may raise capital in the form of debt and/or equity securities (including preferred stock) or a combination thereof. We have broad discretion and experience in identifying and selecting acquisition and business combination opportunities and the industries in which we seek such opportunities. Many times, we face significant competition for these opportunities, including from numerous companies with a business plan similar to ours. As such, there can be no assurance that any of the past or future discussions we have had or may have with candidates will result in a definitive agreement and, if they do, what the terms or timing of any potential agreement would be. As part of our acquisition strategy, we may utilize a portion of our available cash to acquire interests in possible acquisition targets. Any securities acquired are marked to market and may increase short-term earnings volatility as a result.

Our Operations

Refer to Note 1. Organization and Business to our Condensed Consolidated Financial Statementsfor additional information.

Seasonality and Cyclical Patterns

Our segments' operations can be highly cyclical and subject to seasonal patterns. Our volume of business in our Construction segment may be adversely affected by declines or delays in projects, which may vary by geographic region. Project schedules, particularly in connection with large, complex, and longer-term projects can also create fluctuations in the services provided, which may adversely affect us in a given period.

For example, in connection with larger, more complicated projects, the timing of obtaining permits and other approvals may be delayed, and we may need to maintain a portion of our workforce and equipment in an underutilized capacity to ensure we are strategically positioned to deliver on such projects when they move forward.

Accordingly, our operating results in any particular period may not be indicative of the results that can be expected for any other period.

Recent Developments

COVID-19 Impact on our Business

On March 11, 2020, the World Health Organization declared the outbreak of the novel coronavirus ("COVID-19") a pandemic resulting in action from federal, state and local governments that has significantly affected virtually all facets of the U.S. and global economies. The U.S. federal and various state governments, have implemented enhanced screenings, quarantine requirements, and travel restrictions in connection with the COVID-19 outbreak.

The Company’s top priority is to protect its employees and their families, and those of the Company’s customers. The Company is taking precautionary measures as directed by health authorities and the local government, including changing operational procedures as necessary, providing additional protective gear and cleaning to protect them, which has resulted and may continue to result in in disruptions to and increased costs of the Company’s operations. We may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers, partners, vendors, and suppliers. Work-from-home and other measures introduce additional operational risks, including cybersecurity risks, and have affected the way we conduct our operations. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus, and illness and workforce disruptions could lead to unavailability of key personnel and harm our ability to perform critical functions.

The extent of the impact of COVID-19 on our operational and financial performance will depend on future developments, including, but not limited to, the duration and spread of the outbreak and related travel advisories and restrictions, and its impact to the U.S. and global financial markets, all of which are highly uncertain and cannot be predicted. Preventing the effects from and responding to this market disruption if any other public health threat, related or otherwise, may further increase costs of our business and may have a material adverse effect on our business, financial condition, and results of operations.

We continue to monitor the rapidly evolving situation and guidance from authorities, including federal, state and local public health departments, and may take additional actions based on their recommendations. In these circumstances, there may be developments outside our control requiring us to adjust our plans. As such, given the dynamic nature of this situation, we cannot reasonably estimate the impact of COVID-19 on our results of operations, financial condition, or cash flows in the future. However, we do expect that it could have a material adverse impact on our future revenue growth as well as our overall profitability and may lead to revised payment terms with certain of our customers.

During the three months ended March 31, 2020, particularly the month of March, the effects of COVID-19 and the related actions undertaken in the U.S. to attempt to control its spread, specifically impacting certain of our segments as follows:

Construction

DBMG is dependent on its workforce to carry out its services. Developments resulting from governmental responses to COVID-19 such as social distancing and shelter-in-place directives have impacted, and will continue to impact, DBMG’s ability to deploy its workforce in its facilities and project sites efficiently. The nature of DBMG’s business does not permit alternative workforce arrangements in its facilities and project sites such as remote work schemes to be implemented effectively, and as a result of potential workforce disruptions, DBMG may experience delays or suspensions of projects, however there have not been material impacts during the three months ended March 31, 2020. DBMG may also experience disruptions in the supply chain depending on the spread of COVID-19 and related governmental orders. These delays, suspensions, and impacts to supply chain, may negatively impact DBMG’s results of operations, cash flows or financial condition. This could cause the timing of revenue to be delayed and possibly impact earnings and backlog. Persistent delays, suspensions or cancellations of projects under contract may occur while governments implement policies designed to respond to the COVID-19 pandemic. Any such continued loss or suspension of projects under contract may negatively impact the DBMG’s results of operations, cash flows or financial condition.

Insurance

Our Insurance segment has been impacted by the COVID-19 pandemic, including multiple reductions in target interest rates by the Board of Governors of the Federal Reserve System, and significant market volatility, driving actual and projected results of our business operations as well as our views on potential effectiveness of certain prudent and feasible tax planning strategies. The Company’s March 31, 2020 loss reflected in earnings is primarily impacted by the Insurance segment's unrealized losses on investments of $21.5 million, included in the Net realized and unrealized gains (loss) on investments line, primarily driven by equity and derivative mark to market adjustments. The impact on other comprehensive income was $355.5 million of unrealized losses on fixed maturity securities. Both of these were largely attributable to market factors caused by the COVID-19 crisis. Future recovery of losses will largely depend upon market reaction to additional COVID-19 stimulus packages, interest rates and timing and manner in which the economy is reopened. These unrealized losses are considered temporary in nature, as we have the ability to hold these securities to maturity.

Broadcasting

As a result of COVID-19, our Broadcasting segment has experienced adverse effects on its advertising business because of weakness in the advertising market as advertisers seek to reduce their own costs in response to the pandemic’s impact on their businesses. We are not able to predict when or whether advertising budgets and the advertising market generally, will return or be comparable to historical levels.

In addition, COVID-19 could impact our Broadcasting segment’s business, financial condition and results of operations in a number of other ways, including, but not limited to:

•negative impact on our broadcast station revenue, as many of our customers also rely on advertising revenues and might be negatively affected by COVID-19;

•slow-down of our ability to build out additional broadcast television stations, as illness, social distancing, and other pandemic-related precautions may result in equipment delivery delays and labor shortages, including the availability of tower crews, an already limited, highly-specialized work force necessary to install broadcast equipment;

•negative impact on our network distribution revenues, as consumers may seek to reduce discretionary spending by cutting back or foregoing subscriptions to cable television or other multichannel video programming distributors;

•negative impact on our financial condition or our ability to fund operations or future investment opportunities due to an increase in the cost or difficulty in obtaining debt or equity financing, or refinancing our debt in the future, or our ability to comply with our covenants;

•impairments of our programming inventory, goodwill and other indefinite-lived intangible assets, and other long-lived assets; and

•increased cyber and payment fraud risk, as cybercriminals attempt to profit from the disruption, given increased online activity.

The magnitude of the impact on our Broadcasting segment will depend on numerous evolving factors that we may not be able to accurately predict, including the duration and extent of the pandemic, the impact of federal, state, local and foreign governmental actions, consumer behavior in response to the pandemic and such governmental actions, and the economic and operating conditions that we may face in the aftermath of COVID-19. Even after COVID-19 has subsided, we may experience materially adverse impacts to our business as a result of its global economic impact, including any recession that has occurred or may occur in the future.

For further discussion regarding the potential future impacts of COVID-19 and related economic conditions on the Company's liquidity and capital resources, see "Part II-Item 1A-Risk Factors."

Debt Obligations

In March 2020, with the proceeds received from the sale of GMSL, the Company repaid $15.0 million of its 2019 Revolving Credit Agreement and $76.9 million of its Senior Secured Notes.

On April 16, 2020 the Company drew $10.0 million on its 2020 Revolving Credit Agreement. The proceeds from the draw are for general corporate purposes.

Dividends

HC2 received ~~$13.5~~$0.5 million in dividends from ~~its Construction segment during the nine months ended September 30, 2019.~~

~~HC2 received $4.3 million in dividends from its~~our Telecommunications segment during the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020.

HC2 received ~~$2.6 million and $7.4~~$1.8 million in net management fees during the three ~~and nine~~ months ended ~~September 30, 2019, respectively, related to fees earned in the fourth quarter of 2018 and first half of 2019.~~March 31, 2020.

~~Tax Sharing Agreement~~

~~Under a tax sharing agreement, the Construction segment reimburses~~On May 4, 2020 HC2 ~~for use of its net operating losses. During the nine months ended September 30, 2019, HC2 received~~ ~~$10.0 million~~ ~~from~~announced that its Construction segment ~~under this tax sharing agreement.~~will pay a cash dividend of $15.0 million, or $3.89 per share. As the largest stockholder of DBM Global Inc., HC2 expects to receive approximately $13.9 million of the total dividend payout.

Other

On April 16, 2020, R2 received $10 million in funding from Huadong Medicine Company Limited as part of Huadong's $30 million Series B equity investment in R2. These funds will be used to commercialize R2's revolutionary CryoAesthetic technology which promises physicians a new way to lighten, brighten and rejuvenate skin. This investment represents the second tranche of Huadong's investment at an approximate post-money valuation of $90 million and reduces Pansend's ownership by 7.8% to 56.1%.

Financial Presentation Background

In the below section within this Management’s Discussion and Analysis of Financial Condition and Results of Operations, we compare, pursuant to U.S. GAAP and SEC disclosure rules, the Company’s results of operations for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 as compared to the three ~~and nine~~ months ended ~~September 30, 2018.~~March 31, 2019.

Results of Operations

~~Presented below is a~~The following table ~~that~~ summarizes our results of operations and a comparison of the change between the periods ~~presented~~ (in millions):

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 Increase / (Decrease) 2019 2018 Increase / (Decrease)
Net revenue
Construction $ 168.4
$ 195.3
$ (26.9 ) $ 556.2
$ 531.2
$ 25.0
Marine Services 48.2
44.8
3.4
130.0
149.9
(19.9 )
Energy 8.7
4.6
4.1
19.3
16.2
3.1
Telecommunications 162.2
187.8
(25.6 ) 507.0
580.6
(73.6 )
Insurance 80.4
77.2
3.2
251.3
161.1
90.2
Broadcasting 10.0
12.0
(2.0 ) 29.8
33.7
(3.9 )
Other —
0.3
(0.3 ) —
3.7
(3.7 )
Eliminations⁽¹⁾
(2.2 ) (20.6 ) 18.4
(7.9 ) (24.6 ) 16.7
Total net revenue 475.7

501.4

(25.7 )
1,485.7
1,451.8
33.9

Income (loss) from operations
Construction $ 12.4
$ 12.5
$ (0.1 ) $ 34.3
$ 30.3
$ 4.0
Marine Services 2.2
(8.5 ) 10.7
(4.6 ) (8.5 ) 3.9
Energy 0.4
(0.4 ) 0.8
(0.3 ) 0.5
(0.8 )
Telecommunications (0.4 ) 1.3
(1.7 ) 0.4
3.4
(3.0 )
Insurance 10.6
7.5
3.1
75.9
14.5
61.4
Life Sciences (3.0 ) (2.2 ) (0.8 ) (6.6 ) (12.0 ) 5.4
Broadcasting (3.8 ) (5.3 ) 1.5
(8.8 ) (21.4 ) 12.6
Other —
(1.0 ) 1.0
—
(2.4 ) 2.4
Non-operating Corporate (6.6 ) (7.6 ) 1.0
(20.3 ) (23.4 ) 3.1
Eliminations ⁽¹⁾
(2.2 ) (20.6 ) 18.4
(7.9 ) (24.6 ) 16.7
Total income (loss) from operations 9.6

(24.3 )
33.9

62.1
(43.6 ) 105.7

Interest expense (24.0 ) (17.5 ) (6.5 ) (69.3 ) (54.0 ) (15.3 )
Gain on sale and deconsolidation of subsidiary —
3.0
(3.0 ) —
105.1
(105.1 )
Income from equity investees 0.3
8.1
(7.8 ) 1.5
13.7
(12.2 )
Gain on bargain purchase —
109.1
(109.1 ) 1.1
109.1
(108.0 )
Other income, net 6.8
63.9
(57.1 ) 5.4
64.0
(58.6 )
(Loss) income from continuing operations (7.3 ) 142.3

(149.6 )
0.8
194.3
(193.5 )
Income tax (expense) benefit (1.0 ) 9.2
(10.2 ) (6.2 ) (1.9 ) (4.3 )
Net (loss) income (8.3 ) 151.5

(159.8 )
(5.4 ) 192.4
(197.8 )
Net loss (income) attributable to noncontrolling interest and redeemable noncontrolling interest 1.2
2.0
(0.8 ) 4.9
(18.6 ) 23.5
Net (loss) income attributable to HC2 Holdings, Inc. (7.1 )
153.5

(160.6 )
(0.5 ) 173.8
(174.3 )
Less: Preferred dividends, deemed dividends, and repurchase gains 0.4
0.7
(0.3 ) (0.4 ) 2.1
(2.5 )
Net (loss) income attributable to common stock and participating preferred stockholders $ (7.5 )
$ 152.8

$ (160.3 )
$ (0.1 ) $ 171.7
$ (171.8 )


	Three Months Ended March 31,
	2020		2019		Increase / (Decrease)
Net revenue
Construction	$	176.5	$	192.1	$	(15.6)

Energy	10.4		5.1		5.3
Telecommunications	186.4		155.5		30.9
Insurance	63.8		88.8		(25.0)

Broadcasting	10.1		9.8		0.3


Eliminations⁽¹⁾	(2.4)		(2.3)		(0.1)
Total net revenue	444.8		449.0		(4.2)

Income (loss) from operations
Construction	2.6		5.7		(3.1)

Energy	1.7		(0.4)		2.1
Telecommunications	0.1		0.6		(0.5)
Insurance	(12.6)		34.4		(47.0)
Life Sciences	(3.2)		(1.8)		(1.4)
Broadcasting	(2.9)		(3.3)		0.4
Other	(1.0)		(0.1)		(0.9)
Non-operating Corporate	(9.1)		(7.2)		(1.9)
Eliminations ⁽¹⁾	(2.4)		(2.3)		(0.1)
Total income (loss) from operations	(26.8)		25.6		(52.4)

Interest expense	(21.3)		(18.8)		(2.5)

Loss on early extinguishment or restructuring of debt	(5.8)		—		(5.8)


Loss from equity investees	(2.5)		(5.9)		3.4

Other income, net	2.8		3.4		(0.6)
(Loss) income from continuing operations	(53.6)		4.3		(57.9)
Income tax benefit (expense)	12.6		(4.0)		16.6
(Loss) income from continuing operations	(41.0)		0.3		(41.3)
Loss from discontinued operations (including loss on disposal of $39.3 million)	(60.0)		(6.6)		(53.4)
Net loss	(101.0)		(6.3)		(94.7)
Net loss attributable to noncontrolling interest and redeemable noncontrolling interest	17.9		3.5		14.4
Net loss attributable to HC2 Holdings, Inc.	(83.1)		(2.8)		(80.3)
Less: Preferred dividends, deemed dividends, and repurchase gains	0.4		(1.2)		1.6
Net loss attributable to common stock and participating preferred stockholders	$	(83.5)	$	(1.6)	$	(81.9)

⁽¹⁾The Insurance segment revenues are inclusive of realized and unrealized gains and net investment income for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ which are related to transactions between entities under common control which are eliminated or are reclassified in consolidation.

Net revenue: Net revenue for the three months ended ~~September 30, 2019~~March 31, 2020 decreased ~~$25.7~~$4.2 million to ~~$475.7~~$444.8 million from ~~$501.4~~$449.0 million for the three months ended ~~September 30, 2018.~~March 31, 2019. The decrease in revenue was driven by our Insurance segment, net of eliminations, largely driven by unrealized losses resulting from unfavorable market movements in values for preferred stock holdings, partially offset by an increase in gains recognized on fixed maturities, and our Construction segment, primarily driven by ~~a decline in revenue~~lower revenues from ~~our Construction segment, driven by~~ our structural steel fabrication and erection ~~business, which had increased activity in the comparable period on certain large commercial projects that are now at or near completion in the current period, partially~~business. These were largely offset by ~~new revenues from DBMG’s acquisition of GrayWolf,~~increases at our ~~industrial construction, maintenance and fabrication business, which was acquired late in the fourth quarter of 2018. Adding to the decrease was our Telecommunication~~Telecommunications segment, attributed to changes in ~~our~~ customer mix ~~fluctuations in wholesale voice termination volumes~~ and market pressures, which resulted in a decline in revenue contribution. This was partially offset by an increase in our Insurance segment, net of eliminations, driven primarily by the KIC acquisition, which contributed additional net investment income and premiums, and a rotation into higher yielding investments, particularly mortgage loans and preferred stocks, and from higher average invested fixed maturity securities and mortgage loans.

Net revenue for the nine months ended September 30, 2019 increased $33.9 million to $1,485.7 million from $1,451.8 million for the nine months ended September 30, 2018. The increase in revenue was driven by improvements in our Insurance and Construction segments. The increase in the Insurance segment, net of eliminations, was driven by the incremental net investment income and policy premiums from the KIC block acquisition and higher net investment income from the legacy CGI block driven by both the growth and mix of the investment portfolio, including a rotation into additional fixed rate assets. The increase in our Construction segment was primarily driven by DBMG’s acquisition of GrayWolf, which was acquired late in the fourth quarter of 2018. These increases were partially offset by a decrease in our Telecommunication segment, which can be attributed to changes in our customer mix, fluctuations in wholesale traffic volumes, and market pressures, and our Marine Services segment, driven by a decrease in the number and scale of GMSL projects under execution for cable installation and repair work in the offshore renewables, power utility and telecom end markets.volumes.

Income (loss) from operations: Income (loss) from operations for the three months ended ~~September 30, 2019 increased $33.9~~March 31, 2020 decreased $52.4 million to ~~income of $9.6 million from~~ a loss of ~~$24.3~~$26.8 million from income of $25.6 million for the three months ended ~~September 30, 2018.~~March 31, 2019. The ~~increase~~decrease in ~~income from~~ operations was primarily driven by our Insurance segment ~~net of eliminations,~~largely driven by a decline in revenues, due to unrealized losses from unfavorable market movements in values for common and preferred stock holdings as a result of the ~~KIC acquisition, which contributed additional net investment income and premiums, net of additional~~COVID-19 pandemic, partially offset by an increase in gains recognized on certain fixed maturities. Further adding to the decrease was an increase in policy benefits, ~~paid to policy holders,~~ changes in reserves, and ~~commissions. Further improvements~~commissions due to our comparable income from operations was the result of lower losses at our Marine Services segment driven by an increase in the scale of telecom cable installation projects, higher than expected costs on a certain offshore power construction projectnon-recurring favorable claims activity recognized in the comparable period along with unfavorable claims activity and ~~decreases~~reserves development in ~~unutilized vessel costs.~~the current quarter.

Income (loss) from operations for the nine months ended September 30, 2019 increased $105.7 million to income of $62.1 million from a loss of $43.6 million for the nine months ended September 30, 2018. The increase in income from operations was primarily driven by our Insurance segment, net of eliminations, due to the KIC acquisition, which contributed additional net investment income and premiums, net of additional policy benefits paid to policy holders, changes in reserves, and commissions. Further improvements to our comparable income from operations was the result of lower losses at our Broadcasting segment, mainly driven by cost cutting measures that resulted in a decrease in headcount and a decrease in associated compensation and overhead expenses.

Interest expense: Interest expense for the three months ended ~~September 30, 2019~~March 31, 2020 increased ~~$6.5~~$2.5 million to ~~$24.0~~$21.3 million from ~~$17.5~~$18.8 million for the three months ended ~~September 30, 2018. Interest expense for the nine months ended September 30, 2019 increased $15.3 million to $69.3 million from $54.0 million for the nine months ended September 30, 2018.~~March 31, 2019. The ~~increases were~~increase was largely attributable to ~~the additional interest and amortization of deferred financing fees driven by~~ an increase in the aggregate principal amount of debt at our ~~Non-operating Corporate and Construction segments.~~Broadcasting segment.

~~Gain~~Loss on ~~sale and deconsolidation~~early extinguishment or restructuring of ~~subsidiary~~debt: ~~Gain~~Loss on ~~sale and deconsolidation~~early extinguishment or restructuring of ~~subsidiary was zero and $3.0 million~~debt for the three months ended ~~September 30, 2019 and 2018, respectively. The change~~March 31, 2020 was $5.8 million. This was driven by the ~~deconsolidation~~write-off of ~~704Games.~~

~~Gain on sale~~deferred financing costs and ~~deconsolidation of subsidiary was zero and $105.1 million for the nine months ended September 30, 2019 and 2018, respectively. The change was attributable~~original issuance discount related to the ~~Life Sciences segment sale~~$15.0 million pay down of ~~BeneVir in~~ the ~~second quarter of 2018~~2019 Revolving Credit Agreement and the ~~deconsolidation~~$76.9 million redemption of ~~704Games.~~the Senior Secured Notes at a 4.5% premium.

~~Income~~Loss from equity investees: ~~Income~~Loss from equity investees for the three months ended ~~September 30, 2019~~March 31, 2020 decreased ~~$7.8~~$3.4 million to ~~income of $0.3~~$2.5 million from ~~income of $8.1~~$5.9 million for the three months ended ~~September 30, 2018.~~March 31, 2019. The decrease in loss was largely due to lower equity method ~~income~~losses recorded from our equity investment in ~~HMN driven by comparatively stronger results in the prior period. Adding to the decline were increased losses in our equity investment in Medibeacon, due to the timing~~HMN.

Income tax benefit (expense): Income tax benefit (expense) was a benefit of ~~clinical trials.~~

~~Income (loss) from equity investees for the nine months ended September 30, 2019 decreased $12.2~~$12.6 million ~~to income~~and an expense of $1.5 million from income of $13.7 million for the nine months ended September 30, 2018. The decreases were largely due to lower equity method income recorded from our equity investment in HMN and S.B. Submarine Systems ("SBSS"), driven by comparatively stronger results in the prior period.

~~Gain on bargain purchase:~~ Gain on bargain purchase was zero and $1.1 million for the three and nine months ended September 30, 2019, and $109.1 million for the three and nine months ended September 30, 2018. The change was attributable to the Insurance segment's acquisition of KIC. The gain on bargain purchase was driven by the Tax Cuts and Jobs Act, which was not stipulated in the negotiations for the transaction and resulted in a material decline in the Value of Business Acquired balance and a corresponding deferred tax position.

~~Other income, net:~~ ~~Other income, net for the three months ended September 30, 2019 decreased $57.1 million to $6.8 million from $63.9~~$4.0 million for the three months ended ~~September 30, 2018. Other income, net for the nine months ended September 30,~~March 31, 2020 and 2019, decreased $58.6 million to $5.4 million from $64.0 million for the nine months ended September 30, 2018. The decreases were driven by the establishment of estimate contingent liabilities, the $44.2 million gain in 2018, which established the Inseego investment to the fair value method of accounting, and the $17.7 million reinsurance recapture gain in 2018 by our Insurance Segment. This was partially offset by gains at our Life Sciences segment, driven by the Medibeacon equity transaction in the third quarter of 2019, and by current period gains on the embedded derivative related to the Company's Convertible Senior Notes issued in the fourth quarter of 2018.

~~Income tax (expense) benefit: Income tax was an expense of $1.0 million and a benefit of $9.2 million for the three months ended September 30, 2019 and 2018,~~ respectively. The income tax expense recorded for the three months ended September 30, 2019 relates to the projected expense as calculated under ASC 740 for taxpaying entities offset by a benefit from the release of the valuation allowance of the Insurance segment due to an increase in current year income. The income tax benefit recorded for the three months ended ~~September 30, 2018~~March 31, 2020 primarily relates to ~~the Insurance segment’s acquisition of Humana’s long term care business, Kanawha Insurance Company. The combined insurance entity projected~~ a ~~net~~

~~operating loss for the year due to deductions for actuarial reserve strengthening. Income~~one-time, discrete tax ~~expense previously recorded was reversed in the period resulting in a benefit.~~

Income tax expense was $6.2 million and $1.9 million for the nine months ended September 30, 2019 and 2018, respectively. The income tax expense recorded for the nine months ended September 30, 2019 relates to the projected expense as calculated under ASC 740 for taxpaying entities offset by a benefit from the ~~release~~carry back of ~~the valuation allowance of~~net operating losses at the Insurance segment ~~due to an increase in current year income.~~as a result of the enactment of the CARES Act on March 27, 2020. Additionally, the tax benefits associated with losses generated by the HC2 Holdings, Inc. U.S. consolidated income tax return and certain other businesses have been reduced by a full valuation allowance as we do not believe it is more-likely-than-not that the losses will be utilized prior to expiration. The income tax expense recorded for ~~September 30, 2018~~the three months ended March 31, 2019 relates to the projected expense as calculated under ASC 740 for taxpaying entities. Additionally, previously recorded tax expense had been reversed as a result of the Insurance segment’s acquisition of Humana’s long term care business, Kanawha Insurance Company. The combined insurance entity projected a net operating loss for the year due to deductions for the actuarial reserve strengthening. No additional income taxentities and because no benefit for the combined insurance entity was recorded as it was in a cumulative loss position and a valuation allowance continued to be maintained against its deferred tax assets. The income tax expense generated from the sale of BeneVir was offset by tax attributes for which a valuation allocation had been recorded. No benefit wasis recognized on the losses of the HC2 U.S. tax consolidated group and the losses of their subsidiaries as valuation allowances are recorded on the deferred tax assets of these companies.

~~Preferred stock and deemed dividends:~~ ~~Preferred stock and deemed dividends~~Loss from discontinued operations (including loss on disposal of $39.3 million): Loss from discontinued operations for the three months ended ~~September 30, 2019 decreased $0.3~~March 31, 2020 increased $53.4 million to ~~$0.4~~$60.0 million ~~compared to $0.7~~from $6.6 million for the three months ended ~~September 30, 2018. There~~March 31, 2019. The increase in loss was largely driven by the $39.3 million loss on the sale of GMSL. Also contributing to the increase in loss was a ~~decrease~~ $9.0 million increase in net loss from the discontinued entity, GMSL. The company did not recognize a tax benefit in discontinued operations from the loss on sale of GMSL and its subsidiaries due to the application of the UK Substantial Shareholder Exception, which exempt capital gains and losses from taxation.

Preferred ~~Stock~~ dividends, as deemed dividends, and repurchase gains: Preferred ~~Stock~~ dividends, ~~to our Insurance segment are eliminated in consolidation.~~

~~Preferred stock~~ and deemed dividends, and repurchase gains for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 decreased ~~$2.5~~$1.6 million to a ~~gain~~loss of $0.4 million compared to a ~~loss~~gain of ~~$2.1~~$1.2 million for the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2019. The decrease was largely driven by the Insurance segment's 2019 purchase of 10,000 shares of the Company's Series A-2 Preferred Stock ~~in the first quarter of 2019,~~ at a $1.7 million discount. ~~This was partially offset by a decrease in Preferred Stock dividends, as Preferred Stock dividends to our Insurance segment are eliminated in consolidation.~~

Segment Results of Operations

In the Company's Condensed Consolidated Financial Statements, other operating (income) expense includes (i) (gain) loss on sale or disposal of assets, (ii) lease termination costs, (iii) asset impairment expense, (iv) accretion of asset retirement obligations, and ~~(iv)~~(v) FCC reimbursements. Each table summarizes the results of operations of our operating segments and compares the amount of the change between the periods presented (in millions).

Construction Segment


	Three Months Ended September 30,								Nine Months Ended September 30,										Three Months Ended March 31,
	2019		2018			Increase / (Decrease)			2019			2018			Increase / (Decrease)				2020		2019		Increase / (Decrease)
Net revenue	$	168.4	$	195.3		$	(26.9	)	$	556.2		$	531.2		$	25.0		Net revenue	$	176.5	$	192.1	$	(15.6)

Cost of revenue	130.8		166.5			(35.7		)	448.9			451.3			(2.4		)	Cost of revenue	151.2		162.8		(11.6)
Selling, general and administrative	21.3		15.2			6.1			61.3			44.8			16.5			Selling, general and administrative	19.9		19.8		0.1
Depreciation and amortization	3.9		1.9			2.0			11.8			5.0			6.8			Depreciation and amortization	2.6		3.9		(1.3)
Other operating (income)	—		(0.8		)	0.8			(0.1		)	(0.2		)	0.1
Other operating (income) expense																		Other operating (income) expense	0.2		(0.1)		0.3
Income from operations	$	12.4	$	12.5		$	(0.1	)	$	34.3		$	30.3		$	4.0		Income from operations	$	2.6	$	5.7	$	(3.1)



Delaware						54-1708481
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)
450 Park Avenue, 30th Floor, New York, NY						10022
(Address of principal executive offices)						(Zip Code)



Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.001 per share	HCHC	New York Stock Exchange



Large accelerated filer	☐	Accelerated filer	x☒
Non-accelerated filer	☐	Smaller reporting company	x☒
Emerging growth company	☐



PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
C ondensed C onsolidated Statements of Operations		2
Condensed ~~Consolidated Statements of Operations~~		2
~~Condensed~~ Consolidated Statements of Comprehensive (Loss) Income	3
~~Condensed~~ Con densed Consolidated Balance Sheets		4
Condensed Consolidated Statements of Stockholders’ Equity		5
Condensed Consolidated Statements of Cash Flows		76
Notes to Condensed Consolidated Financial Statements		87
(1) Organization and Business		87
(2) Summary of Significant Accounting Policies		98
(3) ~~Revenue~~Discontinued Operations		11
(4) ~~Acquisitions, Dispositions, and Deconsolidations~~ Revenue		1412
(5) ~~Investments~~ Business Combinations		1714
(6) Investments		~~(6)~~15
(7) Fair Value of Financial Instruments		2018
~~(7)~~(8) Accounts Receivable ~~net~~		2522
~~(8)~~(9) Recoverable from Reinsurers		2523
~~(9)~~(10) Property, Plant and Equipment, net		2623
~~(10)~~(11) Goodwill and ~~Intangibles, Net~~ Intangible Assets		2623
~~(11)~~(12) Life, Accident and Health Reserves		2825
~~(12)~~(13) Accounts Payable and Other Current Liabilities		2825
~~(13)~~(14) Debt Obligations		2926
~~(14)~~(15) Income Taxes		3027
~~(15)~~(16) Commitments and Contingencies		3127
~~(16) Employee Retirement Plans~~ (17) Share-based Compensation		3230
~~(17) Share-based Compensation~~ (18) Equity		3331
~~(18) Equity~~ (19) Related Parties		3432
~~(19) Related Parties~~		35
(20) Operating Segment and Related Information	3633
(21) Basic and Diluted Income (Loss) Per Common Share		3935
(22) Subsequent Events		37
~~(22) Subsequent Events~~		40
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	4138
~~Item 3. Quantitative and Qualitative Disclosures about Market Risk~~		69
Item 4. Controls and Procedures	7060



	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	~~Legal Proceedings~~61	71
Item 1A.	Risk Factors	~~Risk Factors~~61	71
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	7263
Item 3.	Defaults Upon Senior Securities	7263
Item 4.	Mine Safety Disclosures	7263
Item 5.	Other Information	~~Other Information~~63	72
Item 6.	Exhibits	~~Exhibits~~63	73


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.



☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.



HC2 HOLDINGS, INC. (Exact name of registrant as specified in its charter)



	September 30, 2019			December 31, 2018
Assets
Investments:
Fixed maturity securities, available-for-sale at fair value	$	3,975.5		$	3,391.6
Equity securities	104.3			200.5
Mortgage loans	165.7			137.6
Policy loans	19.1			19.8
Other invested assets	84.4			72.5
Total investments	4,349.0			3,822.0
Cash and cash equivalents	276.9			325.0
Accounts receivable, net	293.3			379.2
Recoverable from reinsurers	947.9			1,000.2
Deferred tax asset	2.0			2.1
Property, plant and equipment, net	405.8			376.3
Goodwill	177.1			171.7
Intangibles, net	223.7			219.2
Other assets	269.8			208.1
Total assets	$	6,945.5		$	6,503.8

Liabilities, temporary equity and stockholders’ equity
Life, accident and health reserves	$	4,543.5		$	4,562.1
Annuity reserves	236.9			245.2
Value of business acquired	226.1			244.6
Accounts payable and other current liabilities	329.1			344.9
Deferred tax liability	83.7			30.3
Debt obligations	820.4			743.9
Other liabilities	183.1			110.8
Total liabilities	6,422.8			6,281.8
Commitments and contingencies
Temporary equity
Preferred stock	10.3			20.3
Redeemable noncontrolling interest	11.0			8.0
Total temporary equity	21.3			28.3
Stockholders’ equity
Common stock, $.001 par value	—			—
Shares authorized: 80,000,000 at September 30, 2019 and December 31, 2018;
Shares issued: 46,554,499 and 45,391,397 at September 30, 2019 and December 31, 2018;
Shares outstanding: 45,850,584 and 44,907,818 at September 30, 2019 and December 31, 2018, respectively
Additional paid-in capital	272.6			260.5
Treasury stock, at cost: 703,915 and 483,579 shares at September 30, 2019 and December 31, 2018, respectively	(3.2		)	(2.6		)
Accumulated deficit	(62.0		)	(57.2		)
Accumulated other comprehensive income (loss)	197.4			(112.6		)
Total HC2 Holdings, Inc. stockholders’ equity	404.8			88.1
Noncontrolling interest	96.6			105.6
Total stockholders’ equity	501.4			193.7
Total liabilities, temporary equity and stockholders’ equity	$	6,945.5		$	6,503.8


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

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

Share-based compensation	—	—		2.6		—		—		—		2.6		—		2.6		—
Fair value adjustment of redeemable noncontrolling interest	—	—		(4.1)		—		—		—		(4.1)		—		(4.1)		4.1

Taxes paid in lieu of shares issued for share-based compensation	(0.4)	—		—		(0.9)		—		—		(0.9)		—		(0.9)		—
Preferred stock dividend	—	—		(0.2)		—		—		—		(0.2)		—		(0.2)		—

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


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


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





Other comprehensive income (loss)	—	—		—		—		—		(253.3)		(253.3)		7.7		(245.6)		1.3
Balance as of March 31, 2020	46.5	$	—	$	282.7	$	(4.2)	$	(179.8)	$	(84.6)	$	14.1	$	46.4	$	60.5	$	18.6



	Three Months Ended September 30, 2019
	Common Stock			Additional Paid-In Capital			Treasury Stock			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)		Total HC2 Stockholders' Equity			Non- controlling Interest			Total Stockholders’ Equity				Temporary Equity
	Common Stock
	Shares	Amount
Balance as of June 30, 2019	45.8	$	—	$	270.9		$	(3.2	)	$	(54.9	)	$	117.1	$	329.9		$	100.9			$	430.8		$	20.6
Share-based compensation	—	—		2.0			—			—			—		2.0			—				2.0			—
Fair value adjustment of redeemable noncontrolling interest	—	—		(1.1		)	—			—			—		(1.1		)	—				(1.1		)	1.1
Preferred stock dividend	—	—		(0.2		)	—			—			—		(0.2		)	—				(0.2		)	—
Issuance of common stock	0.1	—		—			—			—			—		—			—				—			—
Transactions with noncontrolling interests	—	—		1.3			—			—			—		1.3			(2.9		)		(1.6		)	0.1
Other	—	—		(0.3		)	—			—			—		(0.3		)	—				(0.3		)	—
Net income (loss)	—	—		—			—			(7.1		)	—		(7.1		)	(0.8		)		(7.9		)	(0.4		)
Other comprehensive income (loss)	—	—		—			—			—			80.3		80.3			(0.6		)		79.7			(0.1		)
Balance as of September 30, 2019	45.9	$	—	$	272.6		$	(3.2	)	$	(62.0	)	$	197.4	$	404.8		$	96.6			$	501.4		$	21.3


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

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


Cumulative effect of accounting for leases ⁽¹⁾	—	—		—		—		(4.3)		—		(4.3)		(0.7)		(5.0)		(0.1)
Share-based compensation	—	—		2.5		—		—		—		2.5		—		2.5		—

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

Taxes paid in lieu of shares issued for share-based compensation	(0.2)	—		—		(0.6)		—		—		(0.6)		—		(0.6)		—
Preferred stock dividend	—	—		(0.3)		—		—		—		(0.3)		—		(0.3)		—

Issuance of common stock	0.9	—		—		—		—		—		—		—		—		—
Purchase of preferred stock by subsidiary	—	—		1.7		—		—		—		1.7		—		1.7		(10.0)
Transactions with noncontrolling interests	—	—		(0.5)		—		—		—		(0.5)		(3.0)		(3.5)		—
Other	—	—		0.3		—		—		—		0.3		—		0.3		—
Net loss	—	—		—		—		(2.8)		—		(2.8)		(3.1)		(5.9)		(0.4)




Other comprehensive income	—	—		—		—		—		148.8		148.8		0.3		149.1		—
Balance as of March 31, 2019	45.6	$	—	$	264.4	$	(3.2)	$	(64.3)	$	36.2	$	233.1	$	99.1	$	332.2	$	17.6



	Nine Months Ended September 30, 2019
	Common Stock				Additional Paid-In Capital			Treasury Stock			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total HC2 Stockholders' Equity			Non- controlling Interest			Total Stockholders’ Equity				Temporary Equity
	Common Stock
	Shares		Amount
Balance as of December 31, 2018	44.9		$	—	$	260.5		$	(2.6	)	$	(57.2	)	$	(112.6	)	$	88.1		$	105.6			$	193.7		$	28.3
Cumulative effect of accounting for leases ⁽¹⁾	—		—		—			—			(4.3		)	—			(4.3		)	(0.7		)		(5.0		)	(0.1		)
Share-based compensation	—		—		6.7			—			—			—			6.7			—				6.7			—
Fair value adjustment of redeemable noncontrolling interest	—		—		(0.9		)	—			—			—			(0.9		)	—				(0.9		)	0.9
Taxes paid in lieu of shares issued for share-based compensation	(0.2	)	—		—			(0.6		)	—			—			(0.6		)	—				(0.6		)	—
Preferred stock dividend	—		—		(0.7		)	—			—			—			(0.7		)	—				(0.7		)	—
Issuance of common stock	1.2		—		—			—			—			—			—			—				—			—
Purchase of preferred stock by subsidiary	—		—		1.7			—			—			—			1.7			—				1.7			(10.0		)
Transactions with noncontrolling interests	—		—		6.0			—			—			—			6.0			(3.8		)		2.2			3.2
Other	—		—		(0.7		)	—			—			—			(0.7		)	—				(0.7		)	—
Net income (loss)	—		—		—			—			(0.5		)	—			(0.5		)	(4.0		)		(4.5		)	(0.9		)
Other comprehensive income	—		—		—			—			—			310.0			310.0			(0.5		)		309.5			(0.1		)
Balance as of September 30, 2019	45.9		$	—	$	272.6		$	(3.2	)	$	(62.0	)	$	197.4		$	404.8		$	96.6			$	501.4		$	21.3



	Three Months Ended September 30, 2018
	Common Stock			Additional Paid-In Capital			Treasury Stock			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total HC2 Stockholders' Equity			Non- controlling Interest			Total Stockholders’ Equity				Temporary Equity
	Common Stock
	Shares	Amount
Balance as of June 30, 2018	44.7	$	—	$	260.0		$	(2.4	)	$	(197.1	)	$	(9.0	)	$	51.5		$	109.3			$	160.8		$	34.7
Share-based compensation	—	—		4.2			—			—			—			4.2			—				4.2			—
Fair value adjustment of redeemable noncontrolling interest	—	—		0.6			—			—			—			0.6			—				0.6			(0.6		)
Exercise of stock options	—	—		(0.2		)	—			—			—			(0.2		)	—				(0.2		)	—
Preferred stock dividend	—	—		(0.5		)	—			—			—			(0.5		)	—				(0.5		)	—
Transactions with noncontrolling interests	—	—		(0.2		)	—			—			—			(0.2		)	1.0				0.8			1.2
Net income	—	—		—			—			153.4			—			153.4			(1.8		)		151.6			(0.1		)
Other comprehensive income (loss)	—	—		—			—			—			(24.2		)	(24.2		)	(0.6		)		(24.8		)	—
Balance as of September 30, 2018	44.7	$	—	$	263.9		$	(2.4	)	$	(43.7	)	$	(33.2	)	$	184.6		$	107.9			$	292.5		$	35.2



	Nine Months Ended September 30, 2018
	Common Stock				Additional Paid-In Capital			Treasury Stock			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total HC2 Stockholders' Equity			Non- controlling Interest			Total Stockholders’ Equity				Temporary Equity
	Common Stock
	Shares		Amount
Balance as of December 31, 2017	44.2		$	—	$	254.7		$	(2.1	)	$	(221.2	)	$	41.7		$	73.1		$	115.0			$	188.1		$	27.9
Cumulative effect of accounting for revenue recognition ⁽¹⁾	—		—		—			—			0.4			—			0.4			0.3				0.7			—
Cumulative effect of accounting for the recognition and measurement of financial assets and financial liabilities ⁽¹⁾	—		—		—			—			3.3			(1.7		)	1.6			—				1.6			—
Share-based compensation	—		—		10.8			—			—			—			10.8			—				10.8			—
Fair value adjustment of redeemable noncontrolling interest	—		—		(2.7		)	—			—			—			(2.7		)	—				(2.7		)	2.7
Exercise of stock options	0.1		—		0.2			—			—			—			0.2			—				0.2			—
Taxes paid in lieu of shares issued for share-based compensation	(0.1	)	—		—			(0.3		)	—			—			(0.3		)	—				(0.3		)	—
Preferred stock dividend	—		—		(1.5		)	—			—			—			(1.5		)	—				(1.5		)	—
Issuance of common stock	0.5		—		—			—			—			—			—			—				—			—
Transactions with noncontrolling interests	—		—		2.4			—			—			3.8			6.2			(26.7		)		(20.5		)	6.3
Net income	—		—		—			—			173.8			—			173.8			19.5				193.3			(0.9		)
Other comprehensive income (loss)	—		—		—			—			—			(77.0		)	(77.0		)	(0.2		)		(77.2		)	(0.8		)
Balance as of September 30, 2018	44.7		$	—	$	263.9		$	(2.4	)	$	(43.7	)	$	(33.2	)	$	184.6		$	107.9			$	292.5		$	35.2



xFORM 10-Q



	September 30, 2019		September 30, 2018
Cash and cash equivalents, beginning of period	$	325.0	$	97.9
Restricted cash included in other assets, beginning of period	5.4		1.0
Total cash and cash equivalents and restricted cash, beginning of period	$	330.4	$	98.9

Cash and cash equivalents, end of period	$	276.9	$	831.7
Restricted cash included in other assets, end of period	1.5		4.5
Total cash and cash equivalents and restricted cash, end of period	$	278.4	$	836.2



	September 30, 2019		December 31, 2018
Accounts receivables with customers
Construction	$	163.0	$	196.6
Marine Services	34.3		48.3
Energy	7.4		3.3
Telecommunications	61.1		117.6
Broadcasting	7.8		9.2
Total accounts receivables with customers	$	273.6	$	375.0



Fixed maturity securities, available-for-sale at fair value	$	1,575.4
Equity securities	0.3
Mortgage loans	0.9
Policy loans	2.9
Cash and cash equivalents	806.6
Recoverable from reinsurers	902.5
Other assets	28.2
Total assets acquired	3,316.8
Life, accident and health reserves	(2,931.3		)
Annuity reserves	(11.3		)
Value of business acquired	(214.4		)
Accounts payable and other current liabilities	(6.5		)
Deferred tax liability	(25.3		)
Other liabilities	(11.5		)
Total liabilities assumed	(3,200.3		)
Total net assets acquired	116.5
Total fair value of consideration	—
Gain on bargain purchase	$	116.5


December 31, 2019	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
U.S. 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


	Amortized Cost		Fair Value
Corporate, Municipal, U.S. Government and Other securities
Due in one year or less	$	42.2	$	42.2
Due after one year through five years	277.5		269.1
Due after five years through ten years	427.5		392.4
Due after ten years	2,252.5		2,347.4
Subtotal	2,999.7		3,051.1
Mortgage-backed securities	172.5		160.7
Asset-backed securities	651.8		541.2
Total	$	3,824.0	$	3,753.0


March 31, 2020																March 31, 2020	Less than 12 months									12 months or greater									Total
																			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses
U.S. Government and government agencies																U.S. Government and government agencies	$	0.2		$	—		$	—		$	—		$	0.2		$	—
States, municipalities and political subdivisions																States, municipalities and political subdivisions	28.9			(0.4)			—			—			28.9			(0.4)

September 30, 2019	Less than 12 months					12 months or greater					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Residential mortgage-backed securities	3.7		(0.3		)	10.5		(0.5		)	14.2		(0.8		)	Residential mortgage-backed securities	14.6			(1.6)			4.0			(0.6)			18.6			(2.2)
Commercial mortgage-backed securities	1.9		—			0.3		—			2.2		—			Commercial mortgage-backed securities	71.9			(13.5)			0.2			—			72.1			(13.5)
Asset-backed securities	290.9		(9.2		)	119.2		(9.7		)	410.1		(18.9		)	Asset-backed securities	482.5			(109.1)			11.0			(2.2)			493.5			(111.3)
Corporate and other	236.6		(11.5		)	138.3		(19.6		)	374.9		(31.1		)	Corporate and other	765.4			(181.9)			12.1			(2.9)			777.5			(184.8)
Total fixed maturity securities	$	533.1	$	(21.0	)	$	268.3	$	(29.8	)	$	801.4	$	(50.8	)	Total fixed maturity securities	$	1,363.5		$	(306.5)		$	27.3		$	(5.7)		$	1,390.8		$	(312.2)


December 31, 2018	Less than 12 months					12 months of greater					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
December 31, 2019																December 31, 2019	Less than 12 months									12 months of greater									Total
																			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses
U.S. Government and government agencies	$	5.0	$	—		$	3.3	$	—		$	8.3	$	—		U.S. Government and government agencies	$	0.3		$	—		$	—		$	—		$	0.3		$	—
States, municipalities and political subdivisions	117.2		(1.3		)	1.9		(0.1		)	119.1		(1.4		)	States, municipalities and political subdivisions	2.0			—			—			—			2.0			—

Residential mortgage-backed securities	22.4		(1.2		)	5.7		(0.1		)	28.1		(1.3		)	Residential mortgage-backed securities	2.3			—			8.2			(0.6)			10.5			(0.6)
Commercial mortgage-backed securities	57.8		(1.1		)	—		—			57.8		(1.1		)	Commercial mortgage-backed securities	58.1			(0.6)			0.2			—			58.3			(0.6)
Asset-backed securities	466.0		(29.6		)	5.9		(0.5		)	471.9		(30.1		)	Asset-backed securities	126.5			(1.5)			255.8			(15.5)			382.3			(17.0)
Corporate and other	1,418.2		(71.9		)	254.6		(11.6		)	1,672.8		(83.5		)	Corporate and other	169.6			(3.7)			177.4			(11.5)			347.0			(15.2)
Total fixed maturity securities	$	2,086.6	$	(105.1	)	$	271.4	$	(12.3	)	$	2,358.0	$	(117.4	)	Total fixed maturity securities	$	358.8		$	(5.8)		$	441.6		$	(27.6)		$	800.4		$	(33.4)



	September 30, 2019		December 31, 2018
Common stocks	$	17.4	$	15.0
Perpetual preferred stocks	86.9		185.5
Total equity securities	$	104.3	$	200.5



	September 30, 2019				December 31, 2018
	Measurement Alternative		Equity Method		Measurement Alternative		Equity Method
Common Equity	$	—	$	2.3	$	—	$	2.1
Preferred Equity	—		16.9		1.6		9.6
Other	—		65.2		—		59.2
Total	$	—	$	84.4	$	1.6	$	70.9


September 30, 2019			Fair Value Measurement Using:
	Total		Level 1		Level 2		Level 3
March 31, 2020									March 31, 2020				Fair Value Measurement Using:
												Total			Level 1			Level 2			Level 3
Assets									Assets
Fixed maturity securities									Fixed maturity securities
U.S. Government and government agencies	$	7.2	$	4.2	$	3.0	$	—	U.S. Government and government agencies	$	8.8		$	5.5		$	3.3		$	—
States, municipalities and political subdivisions	447.9		—		447.9		—		States, municipalities and political subdivisions	427.4			—			418.4			9.0

Residential mortgage-backed securities	75.4		—		67.2		8.2		Residential mortgage-backed securities	61.0			—			48.0			13.0
Commercial mortgage-backed securities	103.8		—		43.3		60.5		Commercial mortgage-backed securities	99.7			—			65.5			34.2
Asset-backed securities	528.6		—		209.7		318.9		Asset-backed securities	541.2			—			255.7			285.5
Corporate and other	2,812.6		38.8		2,666.9		106.9		Corporate and other	2,614.9			31.9			2,414.3			168.7
Total fixed maturity securities	3,975.5		43.0		3,438.0		494.5		Total fixed maturity securities	3,753.0			37.4			3,205.2			510.4
Equity securities									Equity securities
Common stocks	17.4		13.1		—		4.3		Common stocks	9.7			6.3			—			3.4
Perpetual preferred stocks	86.9		7.9		26.2		52.8		Perpetual preferred stocks	62.7			4.4			20.1			38.2
Total equity securities	104.3		21.0		26.2		57.1		Total equity securities	72.4			10.7			20.1			41.6

Total assets accounted for at fair value	$	4,079.8	$	64.0	$	3,464.2	$	551.6	Total assets accounted for at fair value	$	3,825.4		$	48.1		$	3,225.3		$	552.0


Liabilities
Embedded derivative	$	0.7	$	—	$	—	$	0.7
Other	3.7		—		—		3.7
Total liabilities accounted for at fair value	$	4.4	$	—	$	—	$	4.4


Liabilities
Embedded Derivatives	$	3.0	$	—	$	—	$	3.0
Other	4.8		—		—		4.8
Total liabilities accounted for at fair value	$	7.8	$	—	$	—	$	7.8


				Total realized/unrealized gains (losses) included in																								Total realized/unrealized gains (losses) included in
	Balance at June 30, 2019				Net earnings (loss)			Other comp. income (loss)				Purchases and issuances		Sales and settlements				Transfer to Level 3		Transfer out of Level 3			Balance at September30, 2019			Balance at 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 March 31, 2020
Assets																									Assets
Fixed maturity securities																									Fixed maturity securities

States, municipalities and political subdivisions		$	3.7		$	—			$	0.1		$	—		$	—		$	—	$	(3.8	)	$	—	States, municipalities and political subdivisions	$	—		$	0.1		$	(1.0)	$	—	$	—		$	9.9	$	—		$	9.0

Residential mortgage-backed securities		12.5			—				(0.1		)	—			(0.7		)	—		(3.5		)	8.2		Residential mortgage-backed securities	9.2			—			(1.9)		—		(0.7)			6.8		(0.4)			13.0
Commercial mortgage-backed securities		66.4			0.2				1.3			—			(7.4		)	—		—			60.5		Commercial mortgage-backed securities	34.6			—			(5.3)		—		(0.2)			5.1		—			34.2
Asset-backed securities		412.6			(0.5		)		(6.3		)	13.6			(38.3		)	14.2		(76.4		)	318.9		Asset-backed securities	550.6			—			(93.3)		60.0		(51.5)			—		(180.3)			285.5
Corporate and other		158.1			(0.4		)		2.2			3.1			(10.3		)	—		(45.8		)	106.9		Corporate and other	111.0			(0.1)			(13.0)		32.7		(1.3)			40.7		(1.3)			168.7
Total fixed maturity securities		653.3			(0.7		)		(2.8		)	16.7			(56.7		)	14.2		(129.5		)	494.5		Total fixed maturity securities	705.4			—			(114.5)		92.7		(53.7)			62.5		(182.0)			510.4
Equity securities																									Equity securities
Common stocks		4.9			(0.5		)		0.1			—			(0.2		)	—		—			4.3		Common stocks	3.4			—			—		—		—			—		—			3.4
Perpetual preferred stocks		57.1			(0.2		)		(1.5		)	—			(2.6		)	—		—			52.8		Perpetual preferred stocks	54.2			—			(16.0)		—		—			—		—			38.2
Total equity securities		62.0			(0.7		)		(1.4		)	—			(2.8		)	—		—			57.1		Total equity securities	57.6			—			(16.0)		—		—			—		—			41.6

Total financial assets		$	715.3		$	(1.4	)		$	(4.2	)	$	16.7		$	(59.5	)	$	14.2	$	(129.5	)	$	551.6	Total financial assets	$	763.0		$	—		$	(130.5)	$	92.7	$	(53.7)		$	62.5	$	(182.0)		$	552.0



				Total realized/unrealized (gains) losses included in
	Balance at June 30, 2019			Net (earnings) loss		Other comp. (income) loss			Purchases and issuances		Sales and settlements			Transfer to Level 3		Transfer out of Level 3		Balance at September30, 2019
Liabilities
Embedded derivative		$	2.9	$	1.6		$	—	$	—		$	—	$	—	$	—	$	4.5
Other		5.4		—			—		—			—		—		—		5.4
Total financial liabilities		$	8.3	$	1.6		$	—	$	—		$	—	$	—	$	—	$	9.9


			Total realized/unrealized gains (losses) included in
	Balance at 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 March 31, 2019
Assets
Fixed maturity securities



Residential mortgage-backed securities	19.0			—			0.1		—		(0.3)			—		(5.7)			13.1
Commercial mortgage-backed securities	58.2			—			1.6		2.4		(0.4)			—		—			61.8
Asset-backed securities	478.2			—			13.3		48.6		(73.6)			5.6		—			472.1
Corporate and other	85.0			—			8.5		4.6		(4.6)			105.0		—			198.5
Total fixed maturity securities	640.4			—			23.5		55.6		(78.9)			110.6		(5.7)			745.5
Equity securities
Common stocks	5.9			0.2			—		—		—			—		—			6.1
Perpetual preferred stocks	55.3			(0.2)			—		—		—			—		—			55.1
Total equity securities	61.2			—			—		—		—			—		—			61.2


Total financial assets	$	701.6		$	—		$	23.5	$	55.6	$	(78.9)		$	110.6	$	(5.7)		$	806.7



				Total realized/unrealized gains (losses) included in
	Balance at 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 September30, 2019
Assets
Fixed maturity securities
States, municipalities and political subdivisions		$	—		$	—			$	0.1		$	—		$	(0.5	)	$	4.2	$	(3.8	)	$	—
Residential mortgage-backed securities		19.0			—				0.2			—			(1.5		)	—		(9.5		)	8.2
Commercial mortgage-backed securities		58.2			0.2				3.4			7.5			(7.9		)	—		(0.9		)	60.5
Asset-backed securities		478.2			(2.1		)		11.7			102.1			(214.4		)	19.8		(76.4		)	318.9
Corporate and other		85.0			(0.5		)		4.5			23.5			(27.8		)	105.0		(82.8		)	106.9
Total fixed maturity securities		640.4			(2.4		)		19.9			133.1			(252.1		)	129.0		(173.4		)	494.5
Equity securities
Common stocks		5.9			(0.3		)		0.1			—			(1.2		)	—		(0.2		)	4.3
Perpetual preferred stocks		55.3			(3.9		)		(1.5		)	2.5			(2.6		)	3.0		—			52.8
Total equity securities		61.2			(4.2		)		(1.4		)	2.5			(3.8		)	3.0		(0.2		)	57.1
Total financial assets		$	701.6		$	(6.6	)		$	18.5		$	135.6		$	(255.9	)	$	132.0	$	(173.6	)	$	551.6



				Total realized/unrealized gains (losses) included in
	Balance at June 30, 2018			Net earnings (loss)			Other comp. income (loss)				Purchases and issuances		Sales and settlements				Transfer to Level 3			Transfer out of Level 3		Balance at September 30, 2018
Assets
Fixed maturity securities
U.S. Government and government agencies		$	—	$	—			$	—		$	2.3		$	—			$	—	$	—		$	2.3
States, municipalities and political subdivisions		0.4		—				—			—			—				—		—			0.4
Residential mortgage-backed securities		12.3		—				(0.4		)	33.7			(1.3		)		2.6		—			46.9
Commercial mortgage-backed securities		22.1		—				—			2.0			(0.1		)		1.8		—			25.8
Asset-backed securities		132.8		—				(0.8		)	116.9			(9.3		)		—		—			239.6
Corporate and other		67.2		0.2				(0.7		)	65.0			(9.8		)		9.1		—			131.0
Total fixed maturity securities		234.8		0.2				(1.9		)	219.9			(20.5		)		13.5		—			446.0
Equity securities
Common stocks		0.5		1.8				—			0.1			—				4.4		—			6.8
Perpetual preferred stocks		24.4		(0.4		)		—			32.0			—				1.0		—			57.0
Total equity securities		24.9		1.4				—			32.1			—				5.4		—			63.8
Derivatives		0.2		—				—			—			—				—		—			0.2
Total financial assets		$	259.9	$	1.6			$	(1.9	)	$	252.0		$	(20.5	)		$	18.9	$	—		$	510.0



				Total realized/unrealized gains (losses) included in
	Balance at December 31, 2017			Net earnings (loss)			Other comp. income (loss)				Purchases and issuances		Sales and settlements				Transfer to Level 3			Transfer out of Level 3			Balance at September 30, 2018
Assets
Fixed maturity securities
U.S. Government and government agencies		$	—	$	—			$	—		$	2.3		$	—			$	—	$	—			$	2.3
States, municipalities and political subdivisions		6.0		—				(0.1		)	0.1			—				0.4		(6.0		)		0.4
Residential mortgage-backed securities		14.6		0.3				0.2			33.7			(6.7		)		8.1		(3.3		)		46.9
Commercial mortgage-backed securities		12.2		(0.1		)		(0.2		)	12.3			(0.1		)		1.7		—				25.8
Asset-backed securities		133.7		1.1				(4.0		)	184.9			(73.2		)		—		(2.9		)		239.6
Corporate and other		26.3		0.2				(1.7		)	94.0			(12.7		)		24.9		—				131.0
Total fixed maturity securities		192.8		1.5				(5.8		)	327.3			(92.7		)		35.1		(12.2		)		446.0
Equity securities
Common stocks		0.2		1.7				—			0.1			—				4.8		—				6.8
Perpetual preferred stocks		6.4		0.1				—			47.0			—				3.5		—				57.0
Total equity securities		6.6		1.8				—			47.1			—				8.3		—				63.8
Derivatives		0.2		—				—			—			—				—		—				0.2
Total financial assets		$	199.6	$	3.3			$	(5.8	)	$	374.4		$	(92.7	)		$	43.4	$	(12.2	)		$	510.0


September 30, 2019					Fair Value Measurement Using:
	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
March 31, 2020											March 31, 2020							Fair Value Measurement Using:
														Carrying Value			Estimated Fair Value			Level 1			Level 2			Level 3
Assets											Assets
Mortgage loans	$	165.7	$	165.7	$	—	$	—	$	165.7	Mortgage loans	$	142.2		$	142.3		$	—		$	—		$	142.3
Policy loans	19.1		19.1		—		19.1		—		Policy loans	18.9			18.9			—			18.9			—

Total assets not accounted for at fair value	$	184.8	$	184.8	$	—	$	19.1	$	165.7	Total assets not accounted for at fair value	$	161.1		$	161.2		$	—		$	18.9		$	142.3
Liabilities											Liabilities
Annuity benefits accumulated ⁽¹⁾	$	235.5	$	232.9	$	—	$	—	$	232.9	Annuity benefits accumulated ⁽¹⁾	$	232.5		$	229.8		$	—		$	—		$	229.8
Debt obligations ⁽²⁾	784.1		754.2		—		754.2		—
Long-term obligations ⁽²⁾											Long-term obligations ⁽²⁾	684.6			675.9			—			675.9			—
Total liabilities not accounted for at fair value	$	1,019.6	$	987.1	$	—	$	754.2	$	232.9	Total liabilities not accounted for at fair value	$	917.1		$	905.7		$	—		$	675.9		$	229.8



	September 30, 2019			December 31, 2018
Contracts in progress	$	150.5		$	188.2
Trade receivables	69.3			127.5
Unbilled retentions	55.7			65.6
Other receivables	19.7			4.2
Allowance for doubtful accounts	(1.9		)	(6.3		)
Total accounts receivable, net	$	293.3		$	379.2